DJ CSG Systems International Reports Second Quarter 2022 Results
CSG CSG Systems International Reports Second Quarter 2022 Results 03-Aug-2022 / 22:01 CET/CEST
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Signed One of the Largest Telecom Wins in CSG History with New Latin American Customer
Successfully Migrated 75% of New Charter Subscribers Through Q2 2022
Returned USD55 Million to Shareholders via Share Repurchases & Dividends in H1 2022
CSG (NASDAQ: CSGS) today reported results for the quarter ended June 30, 2022.
Financial Results:
Second quarter 2022 financial results: . Total revenue was USD262.2 million and total non-GAAP adjusted revenue was USD243.5 million. . GAAP operating income was USD7.3 million, or 2.8% of total revenue, and non-GAAP operating income was USD36.7million, or 15.1% of non-GAAP adjusted revenue. . GAAP earnings per diluted share (EPS) was USD0.17 and non-GAAP EPS was USD0.84. . Cash flows used in operations were (USD7.7) million, with a non-GAAP free cash flow deficit of (USD17.0) million.
Shareholder Returns: . CSG declared its quarterly cash dividend of USD0.265 per share of common stock, or a total of approximatelyUSD9 million, to shareholders. . During the second quarter of 2022, CSG repurchased under its stock repurchase program, approximately360,000 shares of its common stock for approximately USD22 million.
"With the backdrop of a turbulent macro-economic environment, Team CSG grew first half sales bookings more than 10% year-over-year, won several exciting new customer deals, and successfully migrated approximately 75% of the new Charter subscribers, paving the way for 3.6% year-over-year growth in both revenue and non-GAAP EPS in the first half," said Brian Shepherd, President and Chief Executive Officer of CSG. "We also encountered challenges that eroded non-GAAP adjusted operating margin more than 1% point and impacted our cash flow in the quarter which CSG leadership is already addressing with a meaningful margin improvement initiative begun in Q2 to ensure we have strong CSG-like profitability in Q3, Q4, and beyond."
Financial Overview (unaudited)
(in thousands, except per share amounts and percentages):
Quarter Ended June 30 Six Months Ended June 30
Percent Percent
2022 2021 Changed 2022 2021 Changed
GAAP Results:
Revenue USD 262,168 USD 255,134 2.8 % USD 526,568 USD 508,253 3.6%
Operating Income 7,283 32,166 (77.4 %) 23,698 63,543 (62.7%)
Operating Margin Percentage 2.8 % 12.6 % 4.5 % 12.5 %
EPS USD 0.17 USD 0.6 (71.7 %) USD 0.36 USD 1.21 (70.2%)
Non-GAAP Results:
Adjusted Revenue USD 243,455 USD 238,479 2.1 % USD 489,817 USD 475,148 3.1%
Operating Income 36,740 39,789 (7.7 %) 76,926 79,996 (3.8%)
Adjusted Operating Margin Percentage 15.1 % 16.7 % 15.7 % 16.8 %
EPS USD 0.84 USD 0.82 2.4 % USD 1.71 USD 1.65 3.6%
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 second quarter of 2022 was USD262.2 million, a 2.8% increase when compared to revenue of USD255.1 million for the second quarter of 2021. Over half of this increase is due to the revenue generated from the businesses CSG acquired in 2021, with the remaining amount attributed to the continued organic growth of CSG's revenue management solutions.
GAAP operating income for the second quarter of 2022 was USD7.3 million, or 2.8% of total revenue, compared to USD32.2 million, or 12.6% of total revenue, for the second quarter of 2021. The decrease in operating income can be primarily attributed to the USD17 million increase in restructuring and reorganization charges. The second quarter of 2022 restructuring and reorganization charges related primarily to real estate restructurings as CSG continues to rationalize its real estate footprint to reflect a flexible work approach, and impairments related to the dissolution of CSG's controlling interest in MobileCard, as the investment was not meeting its projected targets.
GAAP EPS for the second quarter of 2022 was USD0.17, as compared to USD0.60 for the second quarter of 2021. The decrease in GAAP EPS can be mainly attributed to the factors discussed above.
Non-GAAP Results: Non-GAAP adjusted revenue for the second quarter of 2022 was USD243.5 million, a 2.1% increase when compared to non-GAAP adjusted revenue of USD238.5 million for the second quarter of 2021. The increase in non-GAAP adjusted revenue between periods is due to the factors discussed above.
Non-GAAP operating income for the second quarter of 2022 was USD36.7 million, or 15.1% of total non-GAAP adjusted revenue, compared to USD39.8 million, or 16.7% of total non-GAAP adjusted revenue for the second quarter of 2021. The decreases in operating income and operating income margin can be mainly attributed to the businesses acquired in 2021, as those businesses are operating at a lower operating margin level than CSG's organic business and require time to realize the expected synergies, increased staffing related to recently closed large deals and upcoming projects, inflationary and supply chain pressures, and increased travel expenses.
Non-GAAP EPS for the second quarter of 2022 was USD0.84 compared to USD0.82 for the second quarter of 2021.
Balance Sheet and Cash Flows
Cash, cash equivalents and short-term investments as of June 30, 2022 were USD135.0 million compared to USD187.6 million as of March 31, 2022 and USD233.7 million as of December 31, 2021. CSG had net cash flows from operations for the second quarters ended June 30, 2022 and 2021 of (USD7.7) million and USD44.5 million, respectively, and had non-GAAP free cash flow of (USD17.0) million and USD37.5 million, respectively. Cash flows for the second quarter of 2022 were negatively impacted by unfavorable changes in working capital.
Summary of Financial Guidance
CSG is updating its financial guidance for the full year 2022, as follows:
As of August 3, 2022 Previous
GAAP Measures:
USD
Revenue No change
1,070 - USD1,110 million
Non-GAAP Measures:
USD
Adjusted Revenue No change
1,000 - USD1,033 million
Adjusted Operating Margin Percentage 16.2% - 16.7% 16.5% - 17.0%
USD
EPS No change
3.44 - USD3.68
USD USD
Adjusted EBITDA
220 - USD230 million 225 - USD236 million
USD USD
Free Cash Flow
80 - USD90 million 115 - USD125 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, August 3, 2022 at 5:00 p.m. ET to discuss CSG's second quarter 2022 earnings results. The call will be conducted 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 is a leader in innovative customer engagement, revenue management and payments solutions that make ordinary customer experiences extraordinary. Our cloud-first architecture and customer-obsessed mindset help companies around the world launch new digital services, expand into new markets, and create dynamic experiences that capture new customers and build brand loyalty. For 40 years, CSG's technologies and people have helped some of the world's most recognizable brands solve their toughest business challenges and evolve to meet the demands of today's digital economy with future-ready solutions that drive exceptional customer experiences. With 5,000 employees in over 20 countries, CSG is the trusted technology provider for leading global brands in telecommunications, retail, financial services, and healthcare. Our solutions deliver real world outcomes to more than 900 customers in over 120 countries.
To learn more, visit us at csgi.com and connect with us on LinkedIn and Twitter.
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 approximately forty percent of its revenue from its two largest customers; . Fluctuations in credit market conditions, general global economic and political conditions, and foreigncurrency 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, technicallyadvanced and competitive manner; . CSG's ability to deliver its solutions in a timely fashion within budget, particularly large and complexsoftware implementations; . CSG's dependency on the global telecommunications industry, and in particular, the North Americantelecommunications 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 expectedstrategic, 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 theCOVID-19 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.
For more information, contact:
John Rea, Investor Relations
(210) 687-4409
E-mail: john.rea@csgi.com
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED
(in thousands)
June 30, December
31,
2022 2021
ASSETS
Current assets:
USD USD
Cash and cash equivalents
133,770 205,635
Short-term investments 1,265 28,037
Total cash, cash equivalents and short-term investments 135,035 233,672
Settlement and merchant reserve assets 213,460 186,267
Trade accounts receivable:
Billed, net of allowance of USD5,105 and USD4,250 236,577 244,317
Unbilled 46,433 35,802
Income taxes receivable 19,563 6,414
Other current assets 57,187 41,727
Total current assets 708,255 748,199
Non-current assets:
Property and equipment, net of depreciation of USD116,948 and USD111,244 75,676 73,580
Operating lease right-of-use assets 58,629 86,034
Software, net of amortization of USD159,879 and USD152,283 25,855 29,757
Goodwill 301,222 321,330
Acquired customer contracts, net of amortization of USD114,995 and USD114,166 50,968 57,207
Customer contract costs, net of amortization of USD30,578 and USD32,410 48,530 46,618
Deferred income taxes 8,251 8,584
Other assets 13,293 15,840
Total non-current assets 582,424 638,950
USD USD
Total assets
1,290,679 1,387,149
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
USD USD
Current portion of long-term debt
252,500 237,500
Operating lease liabilities 21,387 23,270
Customer deposits 32,921 43,546
Trade accounts payable 34,182 35,397
Accrued employee compensation 52,464 91,115
Settlement and merchant reserve liabilities 212,036 185,276
Deferred revenue 52,514 53,748
Income taxes payable 653 398
Other current liabilities 24,780 24,852
Total current liabilities 683,437 695,102
Non-current liabilities:
Long-term debt, net of unamortized discounts of USD3,030 and USD3,406 133,845 137,219
Operating lease liabilities 59,169 70,068
Deferred revenue 19,382 19,599
Income taxes payable 4,014 4,058
Deferred income taxes 196 7,752
Other non-current liabilities 13,614 13,107
Total non-current liabilities 230,220 251,803
Total liabilities 913,657 946,905
Stockholders' equity:
Preferred stock, par value USD.01 per share; 10,000 shares authorized; zero shares issued and - -
outstanding
Common stock, par value USD.01 per share; 100,000 shares authorized; 32,195 and 32,495 shares 709 705
outstanding
Additional paid-in capital 479,271 488,303
Treasury stock, at cost; 37,339 and 36,713 shares (967,659 ) (930,106 )
Accumulated other comprehensive income (loss):
Unrealized loss on short-term investments, net of tax (3 ) (6 )
Cumulative foreign currency translation adjustments (55,529 ) (38,347 )
Accumulated earnings 920,233 916,060
Total CSG stockholders' equity 377,022 436,609
Noncontrolling interest - 3,635
Total stockholders' equity 377,022 440,244
USD USD
Total liabilities and stockholders' equity
1,290,679 1,387,149
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)
Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
2022 2021 2022 2021
USD USD USD USD
Revenue
262,168 255,134 526,568 508,253
Cost of revenue (exclusive of depreciation, shown separately below) 138,134 132,938 276,552 266,480
Other operating expenses:
Research and development 34,630 32,754 67,611 64,966
Selling, general and administrative 57,465 49,250 114,807 98,065
Depreciation 5,651 6,266 11,789 12,379
Restructuring and reorganization charges 19,005 1,760 32,111 2,820
Total operating expenses 254,885 222,968 502,870 444,710
Operating income 7,283 32,166 23,698 63,543
Other income (expense):
Interest expense (2,686 ) (3,633 ) (5,958 ) (7,225 )
Amortization of original issue discount - (784 ) - (1,556 )
Interest and investment income, net 126 84 256 208
Loss on derivative liability upon debt conversion - - (7,456 ) -
Other, net 2,442 (100 ) 3,254 (655 )
Total other (118 ) (4,433 ) (9,904 ) (9,228 )
Income before income taxes 7,165 27,733 13,794 54,315
Income tax provision (1,848 ) (8,412 ) (2,364 ) (15,363 )
USD USD USD USD
Net income
5,317 19,321 11,430 38,952
Weighted-average shares outstanding:
Basic 31,301 31,875 31,358 31,859
Diluted 31,492 31,993 31,651 32,070
Earnings per common share:
USD USD USD USD
Basic
0.17 0.61 0.36 1.22
Diluted 0.17 0.60 0.36 1.21
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)
Six Months Ended
June 30, June 30,
2022 2021
Cash flows from operating activities:
USD USD
Net income
11,430 38,952
Adjustments to reconcile net income to net cash provided by (used in) operating activities-
Depreciation 14,210 12,379
Amortization 25,520 22,018
Amortization of original issue discount - 1,556
Asset impairment 24,436 415
Loss on short-term investments and other 20 32
Loss on derivative liability upon debt conversion 7,456 -
Deferred income taxes (7,816 ) 6,434
Stock-based compensation 12,117 10,417
Subtotal 87,373 92,203
Changes in operating assets and liabilities, net of acquired amounts:
Trade accounts receivable, net (8,638 ) 1,128
Other current and non-current assets and liabilities (16,098 ) (7,623 )
Income taxes payable/receivable (13,157 ) (11,620 )
Trade accounts payable and accrued liabilities (65,537 ) (29,817 )
Deferred revenue 2,792 (2,042 )
Net cash provided by (used in) operating activities (13,265 ) 42,229
Cash flows from investing activities:
Purchases of software, property and equipment (19,647 ) (15,158 )
Purchases of short-term investments - (46,195 )
Proceeds from sale/maturity of short-term investments 26,755 49,419
Acquisition of and investments in business, net of cash acquired - (12,097 )
Net cash provided by (used in) investing activities 7,108 (24,031 )
Cash flows from financing activities:
Proceeds from issuance of common stock 1,423 1,335
Payment of cash dividends (17,200 ) (16,654 )
Repurchase of common stock (45,113 ) (18,792 )
Proceeds from long-term debt 245,000 -
Payments on long-term debt (246,051 ) (6,563 )
Settlement and merchant reserve activity 26,754 (23,967 )
Net cash used in financing activities (35,187 ) (64,641 )
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash (3,328 ) (1,835 )
Net decrease in cash, cash equivalents and restricted cash (44,672 ) (48,278 )
Cash, cash equivalents and restricted cash, beginning of period 391,902 354,730
USD USD
Cash, cash equivalents and restricted cash, end of period
347,230 306,452
Supplemental disclosures of cash flow information:
Cash paid during the period for-
USD USD
Interest
8,323 6,370
Income taxes 23,324 20,540
Reconciliation of cash, cash equivalents and restricted cash:
USD USD
Cash and cash equivalents
133,770 163,768
Settlement and merchant reserve assets 213,460 142,684
USD USD
Total cash, cash equivalents and restricted cash
347,230 306,452
EXHIBIT 1
CSG SYSTEMS INTERNATIONAL, INC.
SUPPLEMENTAL REVENUE ANALYSIS
Revenue by Significant Customers: 10% or more of Revenue
Quarter Ended Quarter Ended Quarter Ended
June 30, 2022 March 31, 2022 June 30, 2021
Amount % of Revenue Amount % of Revenue Amount % of Revenue
USD % USD % USD %
Charter
53,173 20 52,069 20 55,102 22
% % %
Comcast 52,919 52,524 53,789
20 20 21
Revenue by Vertical
Quarter Quarter Quarter
Ended Ended Ended
June 30, March 31, June 30,
2022 2022 2021
% % %
Broadband/Cable/Satellite
55 54 58
% % %
Telecommunications
19 19 18
% % %
All other
26 27 24
% % %
Total revenue
100 100 100
Revenue by Geography
Quarter Quarter Quarter
Ended Ended Ended
June 30, March 31, June 30,
2022 2022 2021
% % %
Americas
85 84 85
% % %
Europe, Middle East and Africa
11 12 11
% % %
Asia Pacific
4 4 4
% % %
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 adjusted revenue, 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 followinginformation: . A more complete understanding of CSG's underlying operational results, trends, and cash generatingcapabilities; . Consistency and comparability with CSG's historical financial results; and . Comparability to similar companies, many of which present similar non-GAAP financial measures toinvestors. . Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not beconsidered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAPfinancial 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 othercompanies calculate similar non-GAAP financial measures; . Non-GAAP financial measures do not include all items of income and expense that affect CSG's operationsand 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 arerecurring 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 doimpact 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 n on-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 Adjusted Operating Adjusted Operating Margin EPS
Revenue Income Percentage
Transaction fees X - 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
Amortization of original issue discount - - - X
("OID")
Gain (loss) on debt extinguishment/ - - - X
conversion
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 interchange and other payment-related fees paid, inconjunction with the delivery of service to customers under CSG's payment services contracts, to third-partypayment processors and financial institutions by CSG. Because CSG controls the integrated service provided underits payment services customer contracts, these transaction fees are presented gross, and not netted againstrevenue; however, other payments companies who do not provide and/or control an integrated service present theirrevenue net of transaction fees. The exclusion of these fees in calculating CSG's non-GAAP adjusted revenueprovides management and investors an additional means to use to compare CSG's current revenue with historical andfuture periods, as well as with other payments companies. . Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/orsignificant changes to CSG's business, to include such things as involuntary employee terminations, changes inmanagement structure, divestitures of businesses, facility consolidations and abandonments, and fundamentalreorganizations impacting operational focus and direction. These charges are not considered reflective of CSG'srecurring business operating results. The exclusion of these items in calculating CSG's non-GAAP financial measuresallows management and investors an additional means to compare CSG's current financial results with historical andfuture periods. . Executive transition costs include expenses incurred related to a departure of a CSG executive officerunder the terms of the related separation agreement. These types of costs are not considered reflective of CSG'srecurring business operating results. The exclusion of these costs in calculating CSG's non-GAAP financial measuresallows management and investors an additional means to compare CSG's current financial results with historical andfuture 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 ofacquisition-related expenses can vary significantly between periods based on the number and size of acquisitionactivities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-outcompensation. In addition, the timing of these expenses may not directly correlate with underlying performance ofthe CSG's operations. Therefore, the exclusion of acquisition-related expenses in calculating CSG's non-GAAPfinancial measures allows management and investors an additional means to compare CSG's current financial resultswith historical and future periods. . Stock-based compensation results from CSG's issuance of equity awards to its employees under incentivecompensation programs. The amount of this incentive compensation in any period is not generally linked to the levelof performance by employees or CSG. The exclusion of these expenses in calculating CSG's non-GAAP financialmeasures allows management and investors an additional means to evaluate the non-cash expense related tocompensation included in CSG's results of operations, and therefore, the exclusion of this item allows investors tofurther evaluate the cash generating capabilities of CSG's business. . The convertible notes OID is the result of allocating a portion of the principal balance of the debt atissuance to the equity component of the instrument, as required under current accounting rules. This OID is thenamortized to interest expense over the life of the respective convertible debt instrument. The interest expenserelated to the amortization of the OID is a non-cash expense, and therefore, the exclusion of this item allowsinvestors to further evaluate the cash interest costs of CSG's convertible notes for cash flow, liquidity, and debtservice purposes. . Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancingof CSG's credit agreement and/or repurchase, conversion, or settlement of CSG's convertible notes. Theseactivities, to include any derivative activity related to debt conversions, are not considered reflective of CSG'srecurring business operating results. Any resulting gain or loss is generally non-cash income or expense, andtherefore, the exclusion of these items allows investors to further evaluate the cash impact of these activitiesfor cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG'snon-GAAP EPS allows management and investors an additional means to compare CSG's current operating results withhistorical and future periods. . Gains or losses related to the acquisition or disposition of certain of CSG's business activities are notconsidered reflective of CSG's recurring business operating results. Any resulting gain or loss is generallynon-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate thecash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains andlosses in calculating CSG's non-GAAP EPS allows management and investors an additional means to compare CSG'scurrent operating results with historical and future periods. . Unusual items within CSG's quarterly and/or annual income tax expense can occur from such things asincome tax accounting timing matters, income taxes related to unusual events, or as a result of different treatmentof certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG'snon-GAAP financial measures allows management and investors an additional means to compare CSG's current financialresults 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 Adjusted Revenue:
The reconciliations of GAAP revenue to non-GAAP adjusted revenue for the indicated periods are as follows (in thousands):
Quarter Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
USD USD USD USD
GAAP revenue
262,168 255,134 526,568 508,253
Less: Transaction fees (18,713 ) (16,655 ) (36,751 ) (33,105 )
USD USD USD USD
Non-GAAP adjusted revenue
243,455 238,479 489,817 475,148
Non-GAAP Operating Income:
The reconciliations of GAAP operating income to non-GAAP operating income for the indicated periods are as follows (in thousands, except percentages):
Quarter Ended
Six Months Ended June 30,
June 30,
2022 2021 2022 2021
USD USD USD USD
GAAP operating income
7,283 32,166 23,698 63,543
Restructuring and reorganization charges (1) 19,005 1,760 32,111 2,820
Executive transition costs - 5 1,275 60
Acquisition-related expenses:
Amortization of acquired intangible assets 3,956 2,618 7,612 4,859
Earn-out compensation - (2,521 ) - (2,521 )
Transaction-related costs (39 ) 623 (26 ) 702
Stock-based compensation (1) 6,535 5,138 12,256 10,533
USD USD USD USD
Non-GAAP operating income
36,740 39,789 76,926 79,996
USD USD USD USD
Non-GAAP adjusted revenue
243,455 238,479 489,817 475,148
% % % %
Non-GAAP adjusted operating margin percentage
15.1 16.7 15.7 16.8
(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 the Income Statement.
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
June 30, 2022 June 30, 2021
Amounts EPS (3) Amounts EPS (3)
USD USD USD USD
GAAP net income
5,317 0.17 19,321 0.60
GAAP income tax provision (2) 1,848 8,412
GAAP income before income taxes 7,165 27,733
Restructuring and reorganization charges (1) 19,005 1,760
Executive transition costs - 5
Acquisition-related costs:
Amortization of acquired intangible assets 3,956 2,618
Earn-out compensation - (2,521 )
Transaction-related costs (39 ) 623
Stock-based compensation (1) 6,535 5,138
Amortization of OID - 784
Non-GAAP income before income taxes 36,622 36,140
Non-GAAP income tax provision (2) (10,071 ) (9,757 )
USD USD USD USD
Non-GAAP net income
26,551 0.84 26,383 0.82
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021
Amounts EPS (3) Amounts EPS (3)
USD USD USD USD
GAAP net income
11,430 0.36 38,952 1.21
GAAP income tax provision (2) 2,364 15,363
GAAP income before income taxes 13,794 54,315
Restructuring and reorganization charges (1) 32,111 2,820
Executive transition costs 1,275 60
Acquisition-related expenses:
Amortization of acquired intangible assets 7,612 4,859
Earn-out compensation - (2,521 )
Transaction-related costs (26 ) 702
Stock-based compensation (1) 12,256 10,533
Loss on extinguishment of debt 7,456 -
Amortization of OID - 1,556
Non-GAAP income before income taxes 74,478 72,324
Non-GAAP income tax provision (2) (20,481 ) (19,527 )
USD USD USD USD
Non-GAAP net income
53,997 1.71 52,797 1.65
(2) For the second quarter and six months ended June 30, 2022 the GAAP effective income tax rates were approximately 26% and 17%, respectively, and the non-GAAP effective income tax rates were 27.5%, for both periods. For the second quarter and six months ended June 30, 2021 the GAAP effective income tax rates were approximately 30% and 28%, respectively, and the non-GAAP effective income tax rates were 27%, for both periods.
(3) The outstanding diluted shares for the second quarter and six months ended June 30, 2022 were 31.5 million and 31.7 million, respectively, and for the second quarter and six months ended June 30, 2021 were 32.0 million and 32.1 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 Six Months Ended
June 30 June 30
2022 2021 2022 2021
USD USD USD USD
GAAP net income
5,317 19,321 11,430 38,952
GAAP income tax provision 1,848 8,412 2,364 15,363
Interest expense (4) 2,686 3,633 5,958 7,225
Amortization of OID - 784 - 1,556
Loss on derivative liability upon debt conversion - - 7,456 -
Interest and investment income and other, net (2,568 ) 16 (3,510 ) 447
GAAP operating income 7,283 32,166 23,698 63,543
Restructuring and reorganization charges (1) 19,005 1,760 32,111 2,820
Executive transition costs - 5 1,275 60
Acquisition-related expenses:
Amortization of acquired intangible assets (5) 3,956 2,618 7,612 4,859
Earn-out compensation - (2,521 ) - (2,521 )
Transaction-related costs (39 ) 623 (26 ) 702
Stock-based compensation (1) 6,535 5,138 12,256 10,533
Amortization of other intangible assets (5) 3,723 3,267 7,211 6,603
Amortization of customer contract costs (5) 3,784 4,956 10,321 9,678
Depreciation (1) 5,651 6,266 11,789 12,379
USD USD USD USD
Non-GAAP adjusted EBITDA
49,898 54,278 106,247 108,656
% % % %
Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue
20.5 22.8 21.7 22.9
(4) Interest expense includes amortization of deferred financing costs as provided in Note 5 below.
(5) Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands):
Quarter Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021
USD USD USD USD
Amortization of acquired intangible assets
3,956 2,618 7,612 4,859
Amortization of other intangible assets 3,723 3,267 7,211 6,603
Amortization of customer contract costs 3,784 4,956 10,321 9,678
Amortization of deferred financing costs 187 440 376 878
USD USD USD USD
Total amortization
11,650 11,281 25,520 22,018
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 Six Months Ended
June 30 June 30
2022 2021 2022 2021
USD USD USD USD
Cash flows from operating activities ) )
(7,716 44,453 (13,265 42,229
Purchases of software, property and equipment (9,272 ) (6,919 ) (19,647 ) (15,158 )
USD USD USD USD
Non-GAAP free cash flow ) )
(16,988 37,534 (32,912 27,071
Non-GAAP Financial Measures - 2022 Financial Guidance
Non-GAAP Adjusted Revenue:
The reconciliation of GAAP revenue to non-GAAP adjusted revenue, as included in CSG's 2022 full year financial guidance, is as follows:
2022 Guidance Range
Low Range High Range
USD USD
GAAP revenue
1,070,000 1,110,000
Less: Transaction fees (70,000 ) (77,000 )
USD USD
Non-GAAP adjusted revenue
1,000,000 1,033,000
Non-GAAP Operating Income:
The reconciliation of GAAP operating income to non-GAAP operating income, as included in CSG's 2022 full year financial guidance, is as follows (in thousands, except percentages):
2022 Guidance Range
Low Range High
Range
Operating Income
USD USD
GAAP operating income
84,600 95,100
Restructuring and reorganization charges 34,700 34,700
Executive transition costs 1,300 1,300
Acquisition-related expenses:
Amortization of acquired intangible assets 14,400 14,400
Stock-based compensation 27,300 27,300
USD USD
Non-GAAP operating income
162,300 172,800
Operating Margin Percentage
USD USD
Non-GAAP adjusted revenue
1,000,000 1,033,000
% %
Non-GAAP adjusted operating margin percentage
16.2 16.7
Non-GAAP EPS:
The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG's 2022 full year financial guidance is as follows (in thousands, except per share amounts):
2022 Guidance Range
Low Range High Range
Amounts EPS (7) Amounts EPS (7)
USD USD USD USD
GAAP net income
48,200 1.53 55,800 1.77
GAAP income tax provision (6) 16,300 19,200
GAAP income before income taxes 64,500 75,000
Restructuring and reorganization charges 34,700 34,700
Executive transition costs 1,300 1,300
Acquisition-related expenses:
Amortization of acquired intangible assets 14,400 14,400
Stock-based compensation 27,300 27,300
Loss on debt extinguishment/conversion 7,500 7,500
Non-GAAP income before income taxes 149,700 160,200
Non-GAAP income tax provision (6) (41,100 ) (44,000 )
USD USD USD USD
Non-GAAP net income
108,600 3.44 116,200 3.68
(6) For 2022, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 26% and 27%, respectively.
(7) The weighted-average diluted shares outstanding are expected to be approximately 31.6 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 2022 full year financial guidance (in thousands, except percentages):
2022 Guidance Range
Low High
Range Range
USD USD
GAAP net income
48,200 55,800
GAAP income tax provision (6) 16,300 19,200
Interest expense 12,800 12,800
Loss on derivative liability upon debt conversion 7,500 7,500
Interest and investment income and other, net (200 ) (200 )
GAAP operating income 84,600 95,100
Restructuring and reorganization charges 34,700 34,700
Executive transition costs 1,300 1,300
Acquisition-related expenses:
Amortization of acquired intangible assets 14,400 14,400
Stock-based compensation 27,300 27,300
Amortization of other intangible assets 13,600 13,600
Amortization of client contract costs 18,800 18,800
Depreciation 25,000 25,000
USD USD
Non-GAAP adjusted EBITDA
219,700 230,200
% %
Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue
22.0 22.3
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 the indicated period (in thousands):
2022 Guidance Range
Low Range High Range
USD USD
Cash flows from operating activities
110,000 130,000
Purchases of software, property and equipment (30,000 ) (40,000 )
USD USD
Non-GAAP free cash flow
80,000 90,000 Contact Details
CSG
John Rea
+1 210-687-4409
tammy.hovey@csgi.com Company Website
https://www.csgi.com News Source: News Direct
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1412957 03-Aug-2022
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(END) Dow Jones Newswires
August 03, 2022 16:01 ET (20:01 GMT)
