CSG (NASDAQ: CSGS) today reported results for the quarter ended
September 30, 2024.
Announced Watershed Contract Renewal with Comcast through
Year-End 2030
Raising 2024 Profitability and Non-GAAP EPS Guidance Targets
for Second Consecutive Quarter
Commitment to Return $100+ Million to Shareholders via
Dividends and Buybacks in 2024 and 2025
Financial Results:
Third quarter 2024 financial results:
- Total revenue was $295.1 million.
- GAAP operating income was $31.8 million, or an
operating margin of 10.8%, and non-GAAP operating
income was $50.1 million, or a non-GAAP adjusted
operating margin of 18.4%.
- GAAP earnings per diluted share (EPS) was $0.67 and
non-GAAP EPS was $1.06.
- Cash flows from operations were $39.5 million, with
non-GAAP free cash flow of $32.0 million.
Shareholder Returns:
- CSG declared its quarterly cash dividend of $0.30 per
share of common stock, or a total of approximately $9
million, to shareholders.
- During the third quarter of 2024, CSG repurchased under its
stock repurchase program, approximately 313,000 shares of
its common stock for approximately $15 million.
“We were excited to announce earlier this week a fantastic
win-win contract expansion with Comcast that will extend our
contract term through year-end 2030,” said Brian Shepherd,
President and Chief Executive Officer of CSG. “Regarding Q3
earnings, team CSG posted good operating results in the first nine
months of 2024 and we are pleased to raise our 2024 profitability
and non-GAAP EPS guidance targets for a second consecutive quarter
while reiterating all other guidance metrics. From a shareholder
return perspective, we plan on returning $100+ million to
shareholders via dividends and share repurchases in each of 2024
and 2025. Returning capital to shareholders remains a cornerstone
commitment as we have returned nearly $500 million to shareholders
since 2020.”
Financial Overview
(unaudited)
(in thousands, except per share amounts and percentages):
Quarter Ended September
30,
Nine Months Ended September
30,
2024
2023
Percent Changed
2024
2023
Percent Changed
GAAP Results:
Revenue
$
295,143
$
286,868
2.9
%
$
880,596
$
871,934
1.0
%
Operating Income
31,822
32,731
(2.8
%)
89,039
99,130
(10.2
%)
Operating Margin Percentage
10.8
%
11.4
%
10.1
%
11.4
%
EPS
$
0.67
$
0.62
8.1
%
$
1.83
$
1.75
4.6
%
Non-GAAP Results:
Operating Income
$
50,076
$
45,203
10.8
%
$
141,085
$
141,664
(0.4
%)
Adjusted Operating Margin Percentage
18.4
%
17.0
%
17.4
%
17.5
%
EPS
$
1.06
$
0.92
15.2
%
$
3.08
$
2.76
11.6
%
For additional information and reconciliations regarding CSG’s
use of non-GAAP financial measures, please refer to the attached
Exhibit 2 and the Investor Relations section of CSG’s website at
csgi.com.
Results of Operations
GAAP Results: Total revenue for the
third quarter of 2024 was $295.1 million, a 2.9% increase when
compared to revenue of $286.9 million for the third quarter of
2023. The increase in revenue can be attributed to the continued
growth of our SaaS and related solutions revenue, to include
approximately $6 million of revenue generated from the businesses
acquired in the second quarter of 2024, which more than offset
lower software and services revenue for the quarter.
GAAP operating income for the third quarter of 2024 was $31.8
million, or 10.8% of total revenue, compared to $32.7 million, or
11.4% of total revenue, for the third quarter of 2023. The decrease
in operating income is mainly attributed to the increase in
acquisition-related expenses in the third quarter of 2024, to
include earn-out compensation and amortization of acquired
intangible assets.
GAAP EPS for the third quarter of 2024 was $0.67, compared to
$0.62 for the third quarter of 2023, with the third quarter of 2024
benefiting from a lower effective income tax rate and a lower share
count, partially offset by foreign currency movements.
Non-GAAP Results: Non-GAAP
operating income for the third quarter of 2024 was $50.1 million,
or a non-GAAP adjusted operating margin of 18.4%, compared to $45.2
million, or a non-GAAP adjusted operating margin of 17.0% for the
third quarter of 2023. The increase in non-GAAP operating income
and non-GAAP adjusted operating margin can be primarily attributed
to the higher revenue discussed above.
Non-GAAP EPS for the third quarter of 2024 was $1.06 compared to
$0.92 for the third quarter of 2023. The increase in non-GAAP EPS
is mainly due to the higher non-GAAP operating income, discussed
above, and the lower share count, partially offset by foreign
currency movements.
Balance Sheet and Cash
Flows
Cash and cash equivalents as of September 30, 2024 were $118.4
million compared to $110.4 million as of June 30, 2024 and $186.3
million as of December 31, 2023. CSG had net cash flows provided by
operations for the third quarters ended September 30, 2024 and 2023
of $39.5 million and $24.6 million, respectively, and non-GAAP free
cash flow of $32.0 million and $18.1 million, respectively.
Summary of Financial
Guidance
CSG is revising its financial guidance for the full year 2024,
as follows:
As of November 6, 2024
Previous
GAAP Measures:
Revenue
No change
$1,200 - $1,240 million
Non-GAAP Measures:
Adjusted Operating Margin Percentage
17.7% - 18.1%
17.3% - 17.7%
EPS
$4.25 - $4.55
$4.05 - $4.35
Adjusted EBITDA
$251 - $261 million
$247 - $257 million
Free Cash Flow
No change
$95 - $135 million
For additional information and reconciliations regarding CSG’s
use of non-GAAP financial measures, please refer to the attached
Exhibit 2 and the Investor Relations section of CSG’s website at
csgi.com.
Conference Call
CSG will host a conference call on Wednesday, November 6, 2024
at 5:00 p.m. ET, to discuss CSG’s third quarter of 2024 earnings
results. The call will be carried live and archived on the
Internet. A link to the conference call is available at
http://ir.csgi.com. In addition, to reach the conference by phone,
call 1-888-412-4131 and use the passcode 2327393.
Additional Information
For information about CSG, please visit CSG’s web site at
csgi.com. Additional information can be found in the Investor
Relations section of the website.
About CSG
CSG empowers companies to build unforgettable experiences,
making it easier for people and businesses to connect with, use and
pay for the services they value most. Our customer experience,
billing and payments solutions help companies of any size make
money and make a difference. With our SaaS solutions, company
leaders can take control of their future and tap into guidance
along the way from our fiercely committed and forward-thinking
CSGers around the world.
Want to be future-ready and a change-maker like the global
brands that trust CSG? Visit csgi.com to learn more.
Forward-Looking
Statements
This news release contains forward-looking statements as defined
under the Securities Act of 1933, as amended, that are based on
assumptions about a number of important factors and involve risks
and uncertainties that could cause actual results to differ
materially from what appears in this news release. Some of these
key factors include, but are not limited to the following
items:
- CSG derives a significant portion of its revenue from a limited
number of customers, with approximately forty percent of its
revenue from its two largest customers;
- Fluctuations in credit market conditions, general global
economic and political conditions, and foreign currency exchange
rates;
- CSG’s ability to maintain a reliable, secure computing
environment;
- Continued market acceptance of CSG’s products and
services;
- CSG’s ability to continuously develop and enhance products in a
timely, cost-effective, technically advanced and competitive
manner;
- CSG’s ability to deliver its solutions in a timely fashion
within budget, particularly large and complex software
implementations;
- CSG’s dependency on the global telecommunications industry, and
in particular, the North American telecommunications industry;
- CSG’s ability to meet its financial expectations;
- Increasing competition in CSG’s market from companies of
greater size and with broader presence;
- CSG’s ability to successfully integrate and manage acquired
businesses or assets to achieve expected strategic, operating and
financial goals;
- CSG’s ability to protect its intellectual property rights;
- CSG’s ability to conduct business in the international
marketplace;
- CSG’s ability to comply with applicable U.S. and International
laws and regulations; and
- CSG’s business may be disrupted, and its results of operations
and cash flows adversely affected by a global pandemic.
This list is not exhaustive, and readers are encouraged to
review the additional risks and important factors described in
CSG’s reports on Forms 10-K and 10-Q and other filings made with
the SEC.
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS-UNAUDITED
(in thousands)
September 30, 2024
December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
118,444
$
186,264
Settlement and merchant reserve assets
240,755
274,699
Trade accounts receivable:
Billed, net of allowance of $4,810 and
$5,432
279,930
267,680
Unbilled
82,585
82,163
Income taxes receivable
13,992
1,345
Other current assets
51,534
50,075
Total current assets
787,240
862,226
Non-current assets:
Property and equipment, net of
depreciation of $136,641 and $121,816
58,353
65,545
Operating lease right-of-use assets
25,842
34,283
Software, net of amortization of $168,808
and $157,601
22,953
14,224
Goodwill
323,449
308,596
Acquired customer contracts, net of
amortization of $134,742 and $126,469
42,786
35,879
Customer contract costs, net of
amortization of $46,641 and $42,094
60,490
54,421
Deferred income taxes
57,831
57,855
Other assets
8,502
10,017
Total non-current assets
600,206
580,820
Total assets
$
1,387,446
$
1,443,046
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term debt
$
7,500
$
7,500
Operating lease liabilities
14,002
15,946
Customer deposits
37,716
41,035
Trade accounts payable
51,907
46,406
Accrued employee compensation
57,704
84,380
Settlement and merchant reserve
liabilities
238,783
273,817
Deferred revenue
62,797
54,199
Income taxes payable
937
4,104
Other current liabilities
28,163
33,449
Total current liabilities
499,509
560,836
Non-current liabilities:
Long-term debt, net of unamortized
discounts of $13,014 and $15,628
531,986
534,997
Operating lease liabilities
24,427
34,360
Deferred revenue
22,968
23,447
Income taxes payable
2,684
3,041
Deferred income taxes
120
123
Other non-current liabilities
17,341
12,916
Total non-current liabilities
599,526
608,884
Total liabilities
1,099,035
1,169,720
Stockholders' equity:
Preferred stock, par value $.01 per share;
10,000 shares authorized; zero shares issued and
outstanding
-
-
Common stock, par value $.01 per share;
100,000 shares authorized; 29,292 and 29,541 shares
outstanding
717
713
Additional paid-in capital
509,294
490,947
Treasury stock, at cost; 41,115 and 40,398
shares
(1,170,118
)
(1,136,055
)
Accumulated other comprehensive income
(loss):
Unrealized gain on short-term investments,
net of tax
-
1
Cumulative foreign currency translation
adjustments
(45,562
)
(50,414
)
Accumulated earnings
994,080
968,134
Total stockholders' equity
288,411
273,326
Total liabilities and stockholders'
equity
$
1,387,446
$
1,443,046
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per
share amounts)
Quarter Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Revenue
$
295,143
$
286,868
$
880,596
$
871,934
Cost of revenue (exclusive of
depreciation, shown separately below)
149,487
152,734
460,266
458,897
Other operating expenses:
Research and development
41,665
35,292
116,171
107,401
Selling, general and administrative
63,913
59,097
186,794
180,930
Depreciation
5,313
5,862
16,286
17,155
Restructuring and reorganization
charges
2,943
1,152
12,040
8,421
Total operating expenses
263,321
254,137
791,557
772,804
Operating income
31,822
32,731
89,039
99,130
Other income (expense):
Interest expense
(7,778
)
(8,036
)
(22,982
)
(23,092
)
Interest income
1,922
1,175
6,641
2,516
Other, net
(2,187
)
813
(1,455
)
(3,047
)
Total other
(8,043
)
(6,048
)
(17,796
)
(23,623
)
Income before income taxes
23,779
26,683
71,243
75,507
Income tax provision
(4,691
)
(7,989
)
(18,859
)
(21,931
)
Net income
$
19,088
$
18,694
$
52,384
$
53,576
Weighted-average shares outstanding:
Basic
28,362
30,097
28,475
30,381
Diluted
28,468
30,284
28,621
30,540
Earnings per common share:
Basic
$
0.67
$
0.62
$
1.84
$
1.76
Diluted
0.67
0.62
1.83
1.75
CSG SYSTEMS INTERNATIONAL,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Nine Months Ended
September 30, 2024
September 30, 2023
Cash flows from operating activities:
Net income
$
52,384
$
53,576
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation
16,724
17,549
Amortization
37,467
34,543
Asset impairment
-
1,689
Gain on lease modifications
-
(4,349
)
Unrealized foreign currency transaction
(gain) loss, net
225
(442
)
Deferred income taxes
(189
)
(12,504
)
Stock-based compensation
25,023
21,253
Subtotal
131,634
111,315
Changes in operating assets and
liabilities, net of acquired amounts:
Trade accounts receivable, net
(7,873
)
(33,351
)
Other current and non-current assets and
liabilities
(12,771
)
(11,449
)
Income taxes payable/receivable
(16,194
)
(4,650
)
Trade accounts payable and accrued
liabilities
(48,658
)
(24,158
)
Deferred revenue
7,075
14,658
Net cash provided by operating
activities
53,213
52,365
Cash flows from investing activities:
Purchases of software, property, and
equipment
(16,528
)
(22,940
)
Proceeds from sale/maturity of short-term
investments
-
71
Business combinations, net of cash and
settlement assets acquired of $46,432 and zero
17,293
-
Net cash provided by (used in) investing
activities
765
(22,869
)
Cash flows from financing activities:
Proceeds from issuance of common stock
2,416
2,541
Payment of cash dividends
(26,598
)
(26,231
)
Repurchase of common stock
(42,439
)
(116,418
)
Deferred acquisition payments
(2,488
)
(3,220
)
Proceeds from long-term debt
15,000
470,000
Payments on long-term debt
(20,625
)
(310,625
)
Purchase of capped call transactions
related to convertible notes
-
(34,298
)
Payments of deferred financing costs
-
(13,518
)
Payments on financing obligations
(2,191
)
-
Settlement and merchant reserve
activity
(79,606
)
(46,196
)
Net cash used in financing activities
(156,531
)
(77,965
)
Effect of exchange rate fluctuations on
cash, cash equivalents, and restricted cash
(337
)
(448
)
Net decrease in cash, cash equivalents,
and restricted cash
(102,890
)
(48,917
)
Cash, cash equivalents, and restricted
cash, beginning of period
463,876
389,018
Cash, cash equivalents, and restricted
cash, end of period
$
360,986
$
340,101
Supplemental disclosures of cash flow
information:
Cash paid during the period for-
Interest
$
24,592
$
21,772
Income taxes
35,292
39,136
Non-cash investing and financing
activities-
Software, property, and equipment included
in current and noncurrent liabilities
9,830
-
Reconciliation of cash, cash equivalents,
and restricted cash:
Cash and cash equivalents
$
118,444
$
146,730
Settlement and merchant reserve assets
240,755
193,371
Restricted cash included in current and
non-current assets
1,787
-
Total cash, cash equivalents, and
restricted cash
$
360,986
$
340,101
EXHIBIT 1 CSG SYSTEMS INTERNATIONAL,
INC. SUPPLEMENTAL REVENUE ANALYSIS
Revenue by Significant Customers: 10%
or more of Revenue
Quarter Ended
Quarter Ended
Quarter Ended
September 30, 2024
June 30, 2024
September 30, 2023
Amount
% of Revenue
Amount
% of Revenue
Amount
% of Revenue
Charter
$
59,070
20
%
$
60,629
21
%
$
59,432
21
%
Comcast
58,688
20
%
54,576
19
%
53,653
19
%
Revenue by
Vertical
Quarter Ended
Quarter Ended
Quarter Ended
September 30, 2024
June 30, 2024
September 30, 2023
Broadband/Cable/Satellite
53
%
53
%
53
%
Telecommunications
18
%
16
%
20
%
All other
29
%
31
%
27
%
Total revenue
100
%
100
%
100
%
Revenue by
Geography
Quarter Ended
Quarter Ended
Quarter Ended
September 30, 2024
June 30, 2024
September 30, 2023
Americas
88
%
89
%
86
%
Europe, Middle East and Africa
9
%
6
%
9
%
Asia Pacific
3
%
5
%
5
%
Total revenue
100
%
100
%
100
%
EXHIBIT 2 CSG SYSTEMS INTERNATIONAL,
INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES
Use of Non-GAAP Financial Measures and
Limitations
To supplement its condensed consolidated financial statements
presented in accordance with generally accepted accounting
principles (GAAP), CSG uses non-GAAP operating income, non-GAAP
adjusted operating margin percentage, non-GAAP EPS, non-GAAP
adjusted EBITDA, and non-GAAP free cash flow. CSG believes that
these non-GAAP financial measures, when reviewed in conjunction
with its GAAP financial measures, provide investors with greater
transparency to the information used by CSG’s management in its
financial and operational decision making. CSG uses these non-GAAP
financial measures for the following purposes:
- Certain internal financial planning, reporting, and
analysis;
- Forecasting and budgeting;
- Certain management compensation incentives; and
- Communications with CSG’s Board of Directors, stockholders,
financial analysts, and investors.
These non-GAAP financial measures are provided with the intent
of providing investors with the following information:
- A more complete understanding of CSG’s underlying operational
results, trends, and cash generating capabilities;
- Consistency and comparability with CSG’s historical financial
results; and
- Comparability to similar companies, many of which present
similar non-GAAP financial measures to investors.
Non-GAAP financial measures are not measures of performance
under GAAP, and therefore should not be considered in isolation or
as a substitute for GAAP financial information. Limitations with
the use of non-GAAP financial measures include the following
items:
- Non-GAAP financial measures are not based on any comprehensive
set of accounting rules or principles;
- The way in which CSG calculates non-GAAP financial measures may
differ from the way in which other companies calculate similar
non-GAAP financial measures;
- Non-GAAP financial measures do not include all items of income
and expense that affect CSG’s operations and that are required by
GAAP to be included in financial statements;
- Certain adjustments to CSG’s non-GAAP financial measures result
in the exclusion of items that are recurring and will be reflected
in CSG’s financial statements in future periods; and
- Certain charges excluded from CSG’s non-GAAP financial measures
are cash expenses, and therefore do impact CSG’s cash
position.
CSG compensates for these limitations by relying primarily on
its GAAP results and using non-GAAP financial measures as a
supplement only. Additionally, CSG provides specific information
regarding the treatment of GAAP amounts considered in preparing the
non-GAAP financial measures and reconciles each non-GAAP financial
measure to the most directly comparable GAAP measure.
Non-GAAP Financial Measures: Basis of
Presentation
The table below outlines the exclusions from CSG’s non-GAAP
financial measures:
Non-GAAP Exclusions
Operating Income
Adjusted Operating Margin
Percentage
EPS
Transaction fees
—
X
—
Restructuring and reorganization
charges
X
X
X
Executive transition costs
X
X
X
Acquisition-related expenses:
Amortization of acquired intangible
assets
X
X
X
Earn-out compensation
X
X
X
Transaction-related costs
X
X
X
Stock-based compensation
X
X
X
Gain (loss) on debt
extinguishment/conversion
—
—
X
Gain (loss) on acquisitions or
dispositions
—
—
X
Unusual income tax matters
—
—
X
CSG believes that excluding certain items in calculating its
non-GAAP financial measures provides meaningful supplemental
information regarding CSG’s performance and these items are
excluded for the following reasons:
- Transaction fees are primarily comprised of fees paid to
third-party payment processors and financial institutions and
interchange fees under CSG’s payment services contracts.
Transaction fees are included in revenue in CSG’s Income Statement
(and not netted against revenue) because CSG maintains control and
acts as principal over the integrated service provided under its
payment services customer contracts. However, CSG excludes expense
associated with transaction fees from the numerator and denominator
in calculating its non-GAAP adjusted operating margin percentage in
order to provide comparability with historical and future periods
and with its peer group and competitors.
- Restructuring and reorganization charges are expenses that
result from cost reduction initiatives and/or significant changes
to CSG’s business, to include such things as involuntary employee
terminations, changes in management structure, divestitures of
businesses, facility consolidations and abandonments, and
fundamental reorganizations impacting operational focus and
direction. These charges are not considered reflective of CSG’s
recurring business operating results. The exclusion of these items
in calculating CSG’s non-GAAP financial measures allows management
and investors an additional means to compare CSG’s current
financial results with historical and future periods.
- Executive transition costs include expenses incurred related to
a departure of a CSG executive officer under the terms of the
related separation agreement. These types of costs are not
considered reflective of CSG’s recurring business operating
results. The exclusion of these costs in calculating CSG’s non-GAAP
financial measures allows management and investors an additional
means to compare CSG’s current financial results with historical
and future periods.
- Acquisition-related expenses include amortization of acquired
intangible assets, earn-out compensation, and transaction-related
costs. Transaction-related costs, which typically include expenses
related to legal, accounting, and other professional services, are
direct and incremental expenses related to business acquisitions,
and thus, are not considered reflective of CSG’s recurring business
operating results. The total amount of acquisition-related expenses
can vary significantly between periods based on the number and size
of acquisition activities, previously acquired intangible assets
becoming fully amortized, and ultimate realization of earn-out
compensation. In addition, the timing of these expenses may not
directly correlate with underlying performance of the CSG’s
operations. Therefore, the exclusion of acquisition-related
expenses in calculating CSG’s non-GAAP financial measures allows
management and investors an additional means to compare CSG’s
current financial results with historical and future periods.
- Stock-based compensation results from CSG’s issuance of equity
awards to its employees under incentive compensation programs. The
amount of this incentive compensation in any period is not
generally linked to the level of performance by employees or CSG.
The exclusion of these expenses in calculating CSG’s non-GAAP
financial measures allows management and investors an additional
means to evaluate the non-cash expense related to compensation
included in CSG’s results of operations, and therefore, the
exclusion of this item allows investors to further evaluate the
cash generating capabilities of CSG’s business.
- Gains and losses related to the extinguishment/conversion of
debt can be as a result of the refinancing of CSG’s credit
agreement and/or repurchase, conversion, or settlement of CSG’s
convertible notes. These activities, to include any derivative
activity related to debt conversions, are not considered reflective
of CSG’s recurring business operating results. Any resulting gain
or loss is generally non-cash income or expense, and therefore, the
exclusion of these items allows investors to further evaluate the
cash impact of these activities for cash flow and liquidity
purposes. In addition, the exclusion of these gains and losses in
calculating CSG’s non-GAAP EPS allows management and investors an
additional means to compare CSG’s current operating results with
historical and future periods.
- Gains or losses related to the acquisition or disposition of
certain of CSG’s business activities are not considered reflective
of CSG’s recurring business operating results. Any resulting gain
or loss is generally non-cash income or expense, and therefore, the
exclusion of these items allows investors to further evaluate the
cash impact of these activities for cash flow and liquidity
purposes. In addition, the exclusion of these gains and losses in
calculating CSG’s non-GAAP EPS allows management and investors an
additional means to compare CSG’s current operating results with
historical and future periods.
- Unusual items within CSG’s quarterly and/or annual income tax
expense can occur from such things as income tax accounting timing
matters, income taxes related to unusual events, or as a result of
different treatment of certain items for book accounting and income
tax purposes. Consideration of such items in calculating CSG’s
non-GAAP financial measures allows management and investors an
additional means to compare CSG’s current financial results with
historical and future periods
CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash
flow. Management believes non-GAAP adjusted EBITDA is a useful
measure to investors in evaluating CSG’s operating performance,
debt servicing capabilities, and enterprise valuation. CSG defines
non-GAAP adjusted EBITDA as income before interest, income taxes,
depreciation, amortization, stock-based compensation, foreign
currency transaction adjustments, acquisition-related expenses, and
unusual items, such as restructuring and reorganization charges,
executive transition costs, gains and losses related to the
extinguishment of debt, and gains and losses on acquisitions or
dispositions, as discussed above. Additionally, management uses
non-GAAP free cash flow, among other measures, to assess its
financial performance and cash generating capabilities, and
believes that it is useful to investors because it shows CSG’s cash
available to service debt, make strategic acquisitions and
investments, repurchase its common stock, pay cash dividends, and
fund ongoing operations. CSG defines non-GAAP free cash flow as net
cash flows from operating activities less the purchases of
software, property and equipment.
Non-GAAP Financial
Measures
Non-GAAP Operating Income and Non-GAAP
Adjusted Operating Margin Percentage:
The reconciliation of GAAP operating income to non-GAAP
operating income, and calculation of CSG’s non-GAAP adjusted
operating margin percentage, for the indicated periods are as
follows (in thousands, except percentages):
Quarter Ended September
30,
Nine Months Ended September
30,
2024
2023
2024
2023
Non-GAAP Operating Income
GAAP operating income
$
31,822
$
32,731
$
89,039
$
99,130
Restructuring and reorganization charges
(1)
2,943
1,152
12,040
8,421
Executive transition costs
-
1,148
352
1,148
Acquisition-related expenses:
Amortization of acquired intangible
assets
3,929
2,996
10,174
9,203
Earn-out compensation
2,591
-
3,416
(14
)
Transaction-related costs
32
(40
)
243
2,136
Stock-based compensation (1)
8,759
7,216
25,821
21,640
Non-GAAP operating income
$
50,076
$
45,203
$
141,085
$
141,664
Non-GAAP Adjusted Operating Margin
Percentage
Revenue
$
295,143
$
286,868
$
880,596
$
871,934
Less: Transaction fees (2)
(22,524
)
(20,314
)
(71,793
)
(63,463
)
Revenue less transaction fees
$
272,619
$
266,554
$
808,803
$
808,471
Non-GAAP adjusted operating margin
percentage
18.4
%
17.0
%
17.4
%
17.5
%
(1)
Restructuring and reorganization charges
include stock-based compensation, which is not included in the
stock-based compensation line in the tables above and following,
and depreciation, which has not been recorded to the depreciation
line item on CSG’s Income Statement.
(2)
Transaction fees are primarily comprised
of fees paid to third-party payment processors and financial
institutions and interchange fees under CSG’s payment services
contracts. Transaction fees are included in revenue in CSG's Income
Statement (and not netted against revenue) because CSG maintains
control and acts as principal over the integrated service provided
under its payment services customer contracts. However, CSG
excludes expense associated with transaction fees from the
numerator and denominator in calculating its non-GAAP adjusted
operating margin percentage in order to provide comparability with
historical and future periods and with its peer group and
competitors.
Non-GAAP EPS:
The reconciliations of GAAP EPS to non-GAAP EPS for the
indicated periods are as follows (in thousands, except per share
amounts):
Quarter Ended
Quarter Ended
September 30, 2024
September 30, 2023
Amounts
EPS (4)
Amounts
EPS (4)
GAAP net income
$
19,088
$
0.67
$
18,694
$
0.62
GAAP income tax provision (3)
4,691
7,989
GAAP income before income taxes
23,779
26,683
Restructuring and reorganization charges
(1)
2,943
1,152
Executive transition costs
-
1,148
Acquisition-related costs:
Amortization of acquired intangible
assets
3,929
2,996
Earn-out compensation
2,591
-
Transaction-related costs
32
(40
)
Stock-based compensation (1)
8,759
7,216
Non-GAAP income before income taxes
42,033
39,155
Non-GAAP income tax provision (3)
(11,979
)
(11,159
)
Non-GAAP net income
$
30,054
$
1.06
$
27,996
$
0.92
Nine Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
Amounts
EPS (4)
Amounts
EPS (4)
GAAP net income
$
52,384
$
1.83
$
53,576
$
1.75
GAAP income tax provision (3)
18,859
21,931
GAAP income before income taxes
71,243
75,507
Restructuring and reorganization charges
(1)
12,040
8,421
Executive transition costs
352
1,148
Acquisition-related expenses:
Amortization of acquired intangible
assets
10,174
9,203
Earn-out compensation
3,416
(14
)
Transaction-related costs
243
2,136
Stock-based compensation (1)
25,821
21,640
Non-GAAP income before income taxes
123,289
118,041
Non-GAAP income tax provision (3)
(35,137
)
(33,642
)
Non-GAAP net income
$
88,152
$
3.08
$
84,399
$
2.76
(3)
The GAAP effective income tax rates for
the third quarters of 2024 and 2023 were approximately 20% and 30%,
respectively, and for the nine months ended September 30, 2024 and
2023 were approximately 26% and 29%, respectively. The
year-over-year decreases in the GAAP effective income tax rates is
due primarily to the revaluation of deferred taxes in the third
quarter of 2024.
The non-GAAP effective income tax rates
for the third quarters of 2024 and 2023 were 28.5% for both
periods, and for the nine months ended September 30, 2024 and 2023
were 28.5% for both periods.
(4)
The outstanding diluted shares for the
third quarter and nine months ended September 30, 2024 were 28.5
million and 28.6 million, respectively, and for the third quarter
and nine months ended September 30, 2023 were 30.3 and 30.5
million, respectively.
Non-GAAP Adjusted EBITDA:
CSG’s calculation of non-GAAP adjusted EBITDA and the
reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP
net income is provided below for the indicated periods (in
thousands, except percentages):
Quarter Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
GAAP net income
$
19,088
$
18,694
$
52,384
$
53,576
GAAP income tax provision
4,691
7,989
18,859
21,931
Interest expense (5)
7,778
8,036
22,982
23,092
Interest and investment income and other,
net
265
(1,988
)
(5,186
)
531
GAAP operating income
31,822
32,731
89,039
99,130
Restructuring and reorganization charges
(1)
2,943
1,152
12,040
8,421
Executive transition costs
-
1,148
352
1,148
Acquisition-related expenses:
Amortization of acquired intangible assets
(6)
3,929
2,996
10,174
9,203
Earn-out compensation
2,591
-
3,416
(14
)
Transaction-related costs
32
(40
)
243
2,136
Stock-based compensation (1)
8,759
7,216
25,821
21,640
Amortization of other intangible assets
(6)
3,139
3,438
8,584
10,274
Amortization of customer contract costs
(6)
5,373
4,997
16,095
14,390
Depreciation (1)
5,313
5,862
16,286
17,155
Non-GAAP adjusted EBITDA
$
63,901
$
59,500
$
182,050
$
183,483
Non-GAAP adjusted EBITDA as a percentage
of revenue less transaction fees (2)
23.4
%
22.3
%
22.5
%
22.7
%
(5)
Interest expense includes amortization of
deferred financing costs as provided in Note 6 below.
(6)
Amortization on the statement of cash
flows is made up of the following items for the indicated periods
(in thousands):
Quarter Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Amortization of acquired intangible
assets
$
3,929
$
2,996
$
10,174
$
9,203
Amortization of other intangible
assets
3,139
3,438
8,584
10,274
Amortization of customer contract
costs
5,373
4,997
16,095
14,390
Amortization of deferred financing
costs
879
304
2,614
676
Total amortization
$
13,320
$
11,735
$
37,467
$
34,543
Non-GAAP Free Cash Flow:
CSG’s calculation of non-GAAP free cash flow and the
reconciliation of CSG’s non-GAAP free cash flow measure to cash
flows from operating activities are provided below for the
indicated periods (in thousands):
Quarter Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Cash flows from operating activities
$
39,459
$
24,582
$
53,213
$
52,365
Purchases of software, property and
equipment
(7,455
)
(6,512
)
(16,528
)
(22,940
)
Non-GAAP free cash flow
$
32,004
$
18,070
$
36,685
$
29,425
Non-GAAP Financial Measures – 2024
Financial Guidance
Non-GAAP Operating Income and Non-GAAP
Adjusted Operating Margin Percentage:
The reconciliation of GAAP operating income to non-GAAP
operating income, and calculation of non-GAAP adjusted operating
margin percentage, as included in CSG’s 2024 full year financial
guidance, is as follows (in thousands, except percentages):
2024 Guidance Range
Low Range
High Range
Non-GAAP Operating Income
GAAP operating income
$
129,300
$
139,300
Restructuring and reorganization
charges
12,000
12,000
Executive transition costs
400
400
Acquisition-related expenses:
Amortization of acquired intangible
assets
14,000
14,000
Earn-out compensation
5,600
5,600
Transaction-related costs
400
400
Stock-based compensation
33,600
33,600
Non-GAAP operating income
$
195,300
$
205,300
Non-GAAP Operating Margin
Percentage
Revenue
$
1,200,000
$
1,240,000
Less: Transaction fees
(98,000
)
(103,000
)
Revenue less transaction fees
$
1,102,000
$
1,137,000
Non-GAAP adjusted operating margin
percentage
17.7
%
18.1
%
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in
CSG’s 2024 full year financial guidance is as follows (in
thousands, except per share amounts):
2024 Guidance Range
Low Range
High Range
Amounts
EPS (8)
Amounts
EPS (8)
GAAP net income
$
76,500
$
2.64
$
83,700
$
2.91
GAAP income tax provision (7)
30,400
33,200
GAAP income before income taxes
106,900
116,900
Restructuring and reorganization
charges
12,000
12,000
Executive transition costs
400
400
Acquisition-related expenses:
Amortization of acquired intangible
assets
14,000
14,000
Earn-out compensation
5,600
5,600
Transaction-related costs
400
400
Stock-based compensation
33,600
33,600
Non-GAAP income before income taxes
172,900
182,900
Non-GAAP income tax provision (7)
(49,300
)
(52,200
)
Non-GAAP net income
$
123,600
$
4.25
$
130,700
$
4.55
(7)
For 2024, the estimated effective income
tax rates for GAAP and non-GAAP purposes are expected to be
approximately 28% and 29%, respectively.
(8)
The weighted-average diluted shares
outstanding are expected to be approximately 29 million.
Non-GAAP Adjusted EBITDA:
CSG’s calculation of non-GAAP adjusted EBITDA and the
reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP
net income is provided below for CSG’s 2024 full year financial
guidance (in thousands, except percentages):
2024 Guidance Range
Low Range
High Range
GAAP net income
$
76,500
$
83,700
GAAP income tax provision (7)
30,400
33,200
Interest expense
30,700
30,700
Interest and investment income
(8,300
)
(8,300
)
GAAP operating income
129,300
139,300
Restructuring and reorganization
charges
12,000
12,000
Executive transition costs
400
400
Acquisition-related expenses:
Amortization of acquired intangible
assets
14,000
14,000
Earn-out compensation
5,600
5,600
Transaction-related costs
400
400
Stock-based compensation
33,600
33,600
Amortization of other intangible
assets
11,400
11,400
Amortization of client contract costs
22,000
22,000
Depreciation
22,300
22,300
Non-GAAP adjusted EBITDA
$
251,000
$
261,000
Non-GAAP adjusted EBITDA as a percentage
of revenue less transaction fees (2)
22.8
%
23.0
%
Non-GAAP Free Cash Flow:
CSG’s calculation of non-GAAP free cash flow and the
reconciliation of CSG’s non-GAAP free cash flow measure to cash
flows from operating activities is provided below for CSG’s 2024
full year financial guidance (in thousands):
2024 Guidance Range
Low Range
High Range
Cash flows from operating activities
$
120,000
$
170,000
Purchases of software, property and
equipment
(25,000
)
(35,000
)
Non-GAAP free cash flow
$
95,000
$
135,000
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241106240535/en/
For more information, contact: John Rea, Head Investor
Relations, Treasury and ESG Reporting (210) 687-4409 E-mail:
John.Rea@csgi.com
Davis Barker, Senior Manager, Investor Relations & Corporate
Development (303) 884-4506 E-mail: Davis.Barker@csgi.com
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