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CSG Systems International Reports Second Quarter 2021 Results

--News Direct--

Raising All 2021 Financial Guidance Targets on the Back of Strong H1 2021 Result

Robust Q2 2021 Revenue & Adjusted Revenue Growth; Each up 6.2% Year-Over-Year

Successful Conversion of ~300,000 Charter Communications Customers in Kansas City

CSG (NASDAQ: CSGS) today reported results for the quarter ended June 30, 2021.

Financial Results:

Second quarter 2021 financial results:

  • Total revenue was $255.1 million and total non-GAAP adjusted revenue was $238.5 million.
  • GAAP operating income was $32.2 million, or 12.6% of total revenue, and non-GAAP operating income was $39.8 million, or 16.7% of non-GAAP adjusted revenue.
  • GAAP earnings per diluted share (EPS) was $0.60 and non-GAAP EPS was $0.82.
  • Cash flows used in operations were $44.5 million, with a non-GAAP free cash flow of $37.5 million.

Shareholder Returns:

  • In May 2021, CSG declared its quarterly cash dividend of $0.25 per share of common stock, or a total of approximately $8 million, to shareholders.
  • During the second quarter of 2021, CSG repurchased under its stock repurchase program, approximately 153,000 shares of its common stock for approximately $7 million.

“CSG continued to build off our Q1 momentum and delivered 6.2% year-over-year revenue and adjusted revenue growth in Q2, which was predominantly all organic growth,” said Brian Shepherd, President and Chief Executive Officer of CSG. “On the back of our strong first half performance, we are boosting all 2021 financial guidance targets, including revenue, adjusted operating margin and EPS. Additionally, we are thrilled to expand our relationship with Charter Communications as we successfully converted approximately 300,000 of their Kansas City market subscribers from a competitor’s billing platform to CSG during the quarter. Looking ahead, we remain well positioned to lengthen and strengthen our relationships with existing customers, accelerate our organic revenue growth, close good new strategic acquisitions, and diversify into higher growth industry verticals.”

Financial Overview (unaudited)

(in thousands, except per share amounts and percentages):

Quarter Ended June 30,

Six Months Ended June 30,

Percent

Percent

2021

2020

Changed

2021

2020

Changed

GAAP Results:

Revenue

$

255,134

$

240,321

%

6.2

$

508,253

$

485,938

%

4.6

Operating Income

32,166

19,775

%

62.7

63,543

52,934

%

20.0

Operating Margin Percentage

%

12.6

%

8.2

%

12.5

%

10.9

EPS

$

0.60

$

0.32

%

87.5

$

1.21

$

0.99

%

22.2

Non-GAAP Results:

Adjusted Revenue

$

238,479

$

224,626

%

6.2

$

475,148

$

451,919

%

5.1

Operating Income

39,789

30,633

%

29.9

79,996

72,787

%

9.9

Adjusted Operating Margin Percentage

%

16.7

%

13.6

%

16.8

%

16.1

EPS

$

0.82

$

0.59

%

39.0

$

1.65

$

1.46

%

13.0

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 2021 was $255.1 million, a 6.2% increase when compared to revenue of $240.3 million for the second quarter of 2020, and a 0.8% increase when compared to revenue of $253.1 million for the first quarter of 2021. The year-over-year increase in revenue can be primarily attributed to continued growth of CSG’s revenue management solutions, favorable foreign currency movements, and to a lesser extent, the negative impact the COVID-19 pandemic had on CSG’s second quarter of 2020 revenue. The sequential quarterly increase is mainly due to the continued growth of CSG’s revenue management solutions.

GAAP operating income for the second quarter of 2021 was $32.2 million, or 12.6% of total revenue, compared to $19.8 million, or 8.2% of total revenue, for the second quarter of 2020, and $31.4 million, or 12.4% of total revenue, for the first quarter of 2021. The increase in operating income can be primarily attributed to the revenue growth in 2021 and an approximately $10 million impairment charge for the write-off of capitalized customer contract costs related to a discontinued project implementation in the second quarter of 2020.

GAAP EPS for the second quarter of 2021 was $0.60, as compared to $0.32 for the second quarter of 2020, and $0.61 for the first quarter of 2021. The year-over-year increase in GAAP EPS is mainly due to the increase in operating results, discussed above.

Non-GAAP Results: Non-GAAP adjusted revenue for the second quarter of 2021 was $238.5 million, a 6.2% increase when compared to non-GAAP adjusted revenue of $224.6 million for the second quarter of 2020, and a 0.8% increase when compared to $236.7 million for the first quarter of 2021.

Non-GAAP operating income for the second quarter of 2021 was $39.8 million, or 16.7% of total non-GAAP adjusted revenue, compared to $30.6 million, or 13.6% of total non-GAAP adjusted revenue for the second quarter of 2020, and $40.2 million, or 17.0% of total non-GAAP adjusted revenue for the first quarter of 2021.

Non-GAAP EPS for the second quarter of 2021 was $0.82 compared to $0.59 for the second quarter of 2020, and $0.82 for the first quarter of 2021.

The changes in non-GAAP adjusted revenue, non-GAAP operating income, and non-GAAP EPS between quarters are primarily due to the factors discussed above.

Balance Sheet and Cash Flows

Cash, cash equivalents and short-term investments as of June 30, 2021 were $212.1 million compared to $205.1 million as of March 31, 2021 and $240.3 million as of December 31, 2020. CSG had net cash flows from operations for the second quarters ended June 30, 2021 and 2020 of $44.5 million and $57.8 million, respectively, and had non-GAAP free cash flow of $37.5 million and $48.3 million, respectively.

Summary of 2021 Financial Guidance

CSG is updating its financial guidance for the full year 2021, as follows:

As of August 4,

2021

Previous

GAAP Measures:

Revenue

$

1,015 - $1,045 million

$

995 - $1,035 million

Operating Margin Percentage

12.3% - 12.7%

12.2% - 12.7%

EPS

$

2.35 - $2.53

$

2.30 - $2.53

Cash Flows from Operating Activities

$

140 - $160 million

$

135 - $155 million

Non-GAAP Measures:

Adjusted Revenue

$

946 - $964 million

$

922 - $954 million

Adjusted Operating Margin Percentage

16.5% - 17.0%

16.25% - 16.75%

EPS

$

3.16 - $3.34

$

3.02 - $3.24

Adjusted EBITDA

$

217 - $225 million

$

212 - $222 million

Free Cash Flow

$

115 - $125 million

$

110 - $120 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 4, 2021 at 5:00 p.m. EDT, to discuss CSG’s second quarter results for 2021. 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 1-833-921-1665 and use the passcode 4290448.

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

For more than 35 years, CSG has simplified the complexity of business, delivering innovative customer engagement solutions that help companies acquire, monetize, engage and retain customers. Operating across more than 120 countries worldwide, CSG manages billions of critical customer interactions annually, and its award-winning suite of software and services allow companies across dozens of industries to tackle their biggest business challenges and thrive in an ever-changing marketplace. CSG is the trusted partner for driving digital innovation for hundreds of leading global brands, including AT&T, Charter Communications, Comcast, DISH, Eastlink, Formula One, Maximus, MTN and Telstra. To learn more, visit our website at csgi.com and connect with us on LinkedIn, Twitter and Facebook.

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’s business may be disrupted, and its results of operations and cash flows adversely affected by the COVID-19 pandemic;
  • CSG derives over forty percent of its revenue from its two largest customers;
  • 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 maintain a reliable, secure computing environment;
  • 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
  • Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates.

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, except per share amounts)

June 30,

December 31,

2021

2020

ASSETS

Current assets:

Cash and cash equivalents

$

163,768

$

188,699

Short-term investments

48,325

51,598

Total cash, cash equivalents and short-term investments

212,093

240,297

Settlement and merchant reserve assets

142,684

166,031

Trade accounts receivable:

Billed, net of allowance of $3,546 and $3,628

223,228

226,623

Unbilled

43,583

37,785

Income taxes receivable

8,170

2,167

Other current assets

48,186

41,688

Total current assets

677,944

714,591

Non-current assets:

Property and equipment, net of depreciation of $117,113 and $105,073

81,261

81,759

Operating lease right-of-use assets

100,881

110,756

Software, net of amortization of $147,369 and $139,836

23,818

26,453

Goodwill

274,843

272,322

Acquired customer contracts, net of amortization of $110,438 and $105,778

52,995

48,012

Customer contract costs, net of amortization of $46,370 and $39,893

46,799

47,238

Deferred income taxes

9,500

10,205

Other assets

23,643

20,664

Total non-current assets

613,740

617,409

Total assets

$

1,291,684

$

1,332,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt, net of unamortized discounts of $2,032 and zero

$

242,968

$

14,063

Operating lease liabilities

23,303

22,651

Customer deposits

32,418

39,992

Trade accounts payable

31,852

29,834

Accrued employee compensation

76,851

86,289

Settlement and merchant reserve liabilities

141,130

165,064

Deferred revenue

54,956

52,357

Income taxes payable

937

6,627

Other current liabilities

18,824

19,383

Total current liabilities

623,239

436,260

Non-current liabilities:

Long-term debt, net of unamortized discounts of $880 and $5,346

104,120

337,154

Operating lease liabilities

85,599

95,926

Deferred revenue

14,288

17,275

Income taxes payable

2,508

2,436

Deferred income taxes

10,941

5,109

Other non-current liabilities

11,209

15,445

Total non-current liabilities

228,665

473,345

Total liabilities

851,904

909,605

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; 32,797 and 32,713 shares outstanding

704

700

Additional paid-in capital

477,010

470,557

Treasury stock, at cost; 36,275 and 35,980 shares

(907,601

)

(894,126

)

Accumulated other comprehensive income (loss):

Unrealized gains on short-term investments, net of tax

-

13

Cumulative foreign currency translation adjustments

(29,294

)

(31,151

)

Accumulated earnings

898,961

876,402

Total stockholders' equity

439,780

422,395

Total liabilities and stockholders' equity

$

1,291,684

$

1,332,000

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

Quarter Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Revenue

$

255,134

$

240,321

$

508,253

$

485,938

Cost of revenue (exclusive of depreciation, shown separately below)

132,938

138,153

266,480

269,359

Other operating expenses:

Research and development

32,754

29,263

64,966

59,600

Selling, general and administrative

49,250

44,999

98,065

89,383

Depreciation

6,266

5,634

12,379

11,199

Restructuring and reorganization charges

1,760

2,497

2,820

3,463

Total operating expenses

222,968

220,546

444,710

433,004

Operating income

32,166

19,775

63,543

52,934

Other income (expense):

Interest expense

(3,633

)

(4,040

)

(7,225

)

(8,253

)

Amortization of original issue discount

(784

)

(740

)

(1,556

)

(1,470

)

Interest and investment income, net

84

303

208

832

Other, net

(100

)

(1,048

)

(655

)

(1,117

)

Total other

(4,433

)

(5,525

)

(9,228

)

(10,008

)

Income before income taxes

27,733

14,250

54,315

42,926

Income tax provision

(8,412

)

(3,884

)

(15,363

)

(11,046

)

Net income

$

19,321

$

10,366

$

38,952

$

31,880

Weighted-average shares outstanding:

Basic

31,875

32,100

31,859

32,047

Diluted

31,993

32,258

32,070

32,308

Earnings per common share:

Basic

$

0.61

$

0.32

$

1.22

$

0.99

Diluted

0.60

0.32

1.21

0.99

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

Six Months Ended

June 30,

2021

June 30,

2020

Cash flows from operating activities(1):

Net income

$

38,952

$

31,880

Adjustments to reconcile net income to net cash provided by operating activities-

Depreciation

12,379

11,199

Amortization

22,018

22,043

Amortization of original issue discount

1,556

1,470

Asset impairment

415

10,595

(Gain)/loss on short-term investments

32

(110

)

Deferred income taxes

6,434

6,771

Stock-based compensation

10,417

10,112

Subtotal

92,203

93,960

Changes in operating assets and liabilities, net of acquired amounts:

Trade accounts receivable, net

1,128

(6,286

)

Other current and non-current assets and liabilities

(7,623

)

(8,568

)

Income taxes payable/receivable

(11,620

)

1,332

Trade accounts payable and accrued liabilities

(29,817

)

(36,381

)

Deferred revenue..

(2,042

)

6,803

Net cash provided by operating activities

42,229

50,860

Cash flows from investing activities:

Purchases of software, property and equipment

(15,158

)

(14,334

)

Purchases of short-term investments

(46,195

)

(35,112

)

Proceeds from sale/maturity of short-term investments

49,419

34,185

Acquisition of and investments in business, net of cash acquired

(12,097

)

(9,991

)

Net cash used in investing activities

(24,031

)

(25,252

)

Cash flows from financing activities(1):

Proceeds from issuance of common stock

1,335

1,247

Payment of cash dividends

(16,654

)

(15,856

)

Repurchase of common stock

(18,792

)

(14,515

)

Payments on long-term debt

(6,563

)

(4,687

)

Settlement and merchant reserve activity

(23,967

)

(28,745

)

Net cash used in financing activities

(64,641

)

(62,556

)

Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash

(1,835

)

(3,981

)

Net decrease in cash, cash equivalents and restricted cash

(48,278

)

(40,929

)

Cash, cash equivalents and restricted cash, beginning of period

354,730

337,654

Cash, cash equivalents and restricted cash, end of period

$

306,452

$

296,725

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

$

6,370

$

7,327

Income taxes

20,540

2,865

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents

$

163,768

$

144,019

Settlement and merchant reserve assets

142,684

152,706

Total cash, cash equivalents and restricted cash

$

306,452

$

296,725

  1. Beginning with the second quarter of 2021, CSG reclassified certain cash flows related to settlement and merchant reserve assets and liabilities from cash flows from operating activities to cash flows from financing activities within the Condensed Consolidated Statements of Cash Flows. Prior period amounts have been reclassified to conform to the current period presentation.

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, 2021

March 31, 2021

June 30, 2020

Amount

% of Revenue

Amount

% of Revenue

Amount

% of Revenue

Charter

$

55,102

%

22

$

53,382

%

21

$

51,364

%

21

Comcast

53,789

%

21

53,454

%

21

53,282

%

22

Revenue by Vertical

Quarter Ended

Quarter Ended

Quarter Ended

June 30,

March 31,

June 30,

2021

2021

2020

Broadband/Cable/Satellite

%

58

%

57

%

60

Telecommunications

%

18

%

18

%

18

All other

%

24

%

25

%

22

Total revenue

%

100

%

100

%

100

Revenue by Geography

Quarter Ended

Quarter Ended

Quarter Ended

June 30,

March 31,

June 30,

2021

2021

2020

Americas

%

85

%

86

%

87

Europe, Middle East and Africa

%

11

%

10

%

9

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 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 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

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:

X

X

X

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 (“OID”)

X

Gain (loss) on extinguishment of debt

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, in conjunction with the delivery of service to customers under CSG’s payment services contracts, to third-party payment processors and financial institutions by CSG. Because CSG controls the integrated service provided under its payment services customer contracts, these transaction fees are presented gross, and not netted against revenue; however, other payments companies who do not provide and/or control an integrated service present their revenue net of transaction fees. The exclusion of these fees in calculating CSG’s non-GAAP adjusted revenue provides management and investors an additional means to use to compare CSG’s current revenue with historical and future periods, as well as with other payments companies.
  • 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 the departure of CSG’s former CEO under the terms of his separation agreement. These costs were primarily recognized during the third and fourth quarters of 2020 (the CEO’s remaining term) and were 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.
  • The convertible notes OID is the result of allocating a portion of the principal balance of the debt at issuance to the equity component of the instrument, as required under current accounting rules. This OID is then amortized to interest expense over the life of the respective convertible debt instrument. The interest expense related to the amortization of the OID is a non-cash expense, and therefore, the exclusion of this item allows investors to further evaluate the cash interest costs of CSG’s convertible notes for cash flow, liquidity, and debt service purposes.
  • Gains and losses related to the extinguishment of debt are a result of the refinancing of CSG’s credit agreement and/or repurchase of CSG’s convertible notes. These 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 this item allows investors to further evaluate the cash impact of these repurchases 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, and gains and losses related to the extinguishment of debt, 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

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

GAAP revenue

$

255,134

$

240,321

$

508,253

$

485,938

Less: Transaction fees

(16,655

)

(15,695

)

(33,105

)

(34,019

)

Non-GAAP adjusted revenue

$

238,479

$

224,626

$

475,148

$

451,919

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

June 30,

Six Months Ended

June 30,

2021

2020

2021

2020

GAAP operating income

$

32,166

$

19,775

$

63,543

$

52,934

Restructuring and reorganization charges (1)

1,760

2,497

2,820

3,463

Executive transition costs

5

-

60

-

Acquisition-related expenses:

Amortization of acquired intangible assets

2,618

3,033

4,859

6,084

Earn-out compensation

(2,521

)

-

(2,521

)

-

Transaction-related costs

623

73

702

126

Stock-based compensation (1)

5,138

5,255

10,533

10,180

Non-GAAP operating income

$

39,789

$

30,633

$

79,996

$

72,787

Non-GAAP adjusted revenue

$

238,479

$

224,626

$

475,148

$

451,919

Non-GAAP adjusted operating margin percentage

%

16.7

%

13.6

%

16.8

%

16.1

(1) Stock-based compensation included in the tables above and following excludes amounts that have been recorded in restructuring and reorganization charges.

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, 2021

June 30, 2020

Amounts

EPS (3)

Amounts

EPS (3)

GAAP net income

$

19,321

$

0.60

$

10,366

$

0.32

GAAP income tax provision (2)

8,412

3,884

GAAP income before income taxes

27,733

14,250

Restructuring and reorganization charges (1)

1,760

2,497

Executive transition costs

5

-

Acquisition-related costs:

Amortization of acquired intangible assets

2,618

3,033

Earn-out compensation

(2,521

)

-

Transaction-related costs

623

73

Stock-based compensation (1)

5,138

5,255

Amortization of OID

784

740

Non-GAAP income before income taxes

36,140

25,848

Non-GAAP income tax provision (2)

(9,757

)

(6,850

)

Non-GAAP net income

$

26,383

$

0.82

$

18,998

$

0.59

Six Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

Amounts

EPS (3)

Amounts

EPS (3)

GAAP net income

$

38,952

$

1.21

$

31,880

$

0.99

GAAP income tax provision (2)

15,363

11,046

GAAP income before income taxes

54,315

42,926

Restructuring and reorganization charges (1)

2,820

3,463

Executive transition costs

60

-

Acquisition-related expenses:

Amortization of acquired intangible assets

4,859

6,084

Earn-out compensation

(2,521

)

-

Transaction-related costs

702

126

Stock-based compensation (1)

10,533

10,180

Amortization of OID

1,556

1,470

Non-GAAP income before income taxes

72,324

64,249

Non-GAAP income tax provision (2)

(19,527

)

(17,026

)

Non-GAAP net income

$

52,797

$

1.65

$

47,223

$

1.46

(2) 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 approximately 27% for both periods. For the second quarter and six months ended June 30, 2020 the GAAP effective income tax rates were approximately 27% and 26%, respectively, and the non-GAAP effective income tax rates were approximately 27% for both periods.

(3) The outstanding diluted shares for the second quarter and six months ended June 30, 2021 were 32.0 million and 32.1 million, respectively, and for the second quarter and six months ended June 30, 2020 were 32.3 million for both periods.

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,

2021

2020

2021

2020

GAAP net income

$

19,321

$

10,366

$

38,952

$

31,880

GAAP income tax provision

8,412

3,884

15,363

11,046

Interest expense (4)

3,633

4,040

7,225

8,253

Amortization of OID

784

740

1,556

1,470

Interest and investment income and other, net

16

745

447

285

GAAP operating income

32,166

19,775

63,543

52,934

Restructuring and reorganization charges (1)

1,760

2,497

2,820

3,463

Executive transition costs

5

-

60

-

Acquisition-related expenses:

Amortization of acquired intangible assets (5)

2,618

3,033

4,859

6,084

Earn-out compensation

(2,521

)

-

(2,521

)

-

Transaction-related costs

623

73

702

126

Stock-based compensation (1)

5,138

5,255

10,533

10,180

Amortization of other intangible assets (5)

3,267

3,249

6,603

6,534

Amortization of customer contract costs (5)

4,956

4,542

9,678

8,568

Depreciation

6,266

5,634

12,379

11,199

Non-GAAP adjusted EBITDA

$

54,278

$

44,058

$

108,656

$

99,088

Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue

%

23

%

20

%

23

%

22

(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,

2021

2020

2021

2020

Amortization of acquired intangible assets

$

2,618

$

3,033

$

4,859

$

6,084

Amortization of other intangible assets

3,267

3,249

6,603

6,534

Amortization of customer contract costs

4,956

4,542

9,678

8,568

Amortization of deferred financing costs

440

431

878

857

Total amortization

$

11,281

$

11,255

$

22,018

$

22,043

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,

2021

2020

2021

2020

Cash flows from operating activities

$

44,453

$

57,822

$

42,229

$

50,860

Purchases of software, property and equipment

(6,919

)

(9,512

)

(15,158

)

(14,334

)

Non-GAAP free cash flow

$

37,534

$

48,310

$

27,071

$

36,526

Non-GAAP Financial Measures – 2021 Financial Guidance

Non-GAAP Adjusted Revenue:

The reconciliation of GAAP revenue to non-GAAP adjusted revenue, as included in CSG’s 2021 full year financial guidance, is as follows:

2021 Guidance Range

Low Range

High Range

GAAP revenue

$

1,015,000

$

1,045,000

Less: Transaction fees

(69,000

)

(81,000

)

Non-GAAP adjusted revenue

$

946,000

$

964,000

Non-GAAP Operating Income:

The reconciliation of GAAP operating income to non-GAAP operating income, as included in CSG’s 2021 full year financial guidance, is as follows (in thousands, except percentages):

2021 Guidance Range

Low Range

High Range

Operating Income

GAAP operating income

$

125,200

$

133,000

Restructuring and reorganization charges

2,900

2,900

Executive transition costs

100

100

Acquisition-related expenses:

Amortization of acquired intangible assets

9,300

9,300

Earn-out compensation

(2,500

)

(2,500

)

Transaction-related costs

700

700

Stock-based compensation

20,500

20,500

Non-GAAP operating income

$

156,200

$

164,000

Operating Margin Percentage

GAAP revenue

$

1,015,000

$

1,045,000

GAAP operating margin percentage

%

12.3

%

12.7

Non-GAAP adjusted revenue

$

946,000

$

964,000

Non-GAAP adjusted operating margin percentage

%

16.5

%

17.0

Non-GAAP EPS:

The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2021 full year financial guidance is as follows (in thousands, except per share amounts):

2021 Guidance Range

Low Range

High Range

Amounts

EPS (7)

Amounts

EPS (7)

GAAP net income

$

75,200

$

2.35

$

80,900

$

2.53

GAAP income tax provision (6)

29,300

31,400

GAAP income before income taxes

104,500

112,300

Restructuring and reorganization charges

2,900

2,900

Executive transition costs

100

100

Acquisition-related expenses:

Amortization of acquired intangible assets

9,300

9,300

Earn-out compensation

(2,500

)

(2,500

)

Transaction-related costs

700

700

Stock-based compensation

20,500

20,500

Amortization of OID

3,000

3,000

Non-GAAP income before income taxes

138,500

146,300

Non-GAAP income tax provision (6)

(37,400

)

(39,500

)

Non-GAAP net income

$

101,100

$

3.16

$

106,800

$

3.34

(6) For 2021, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 28% and approximately 27%, respectively.

(7) The weighted-average diluted shares outstanding are expected to be approximately 32 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 2021 full year financial guidance (in thousands, except percentages):

2021 Guidance Range

Low Range

High Range

GAAP net income

$

75,200

$

80,900

GAAP income tax provision (6)

29,300

31,400

Interest expense

18,400

18,400

Amortization of OID

3,000

3,000

Interest and investment income and other, net

(700

)

(700

)

GAAP operating income

125,200

133,000

Restructuring and reorganization charges

2,900

2,900

Executive transition costs

100

100

Acquisition-related expenses:

Amortization of acquired intangible assets

9,300

9,300

Earn-out compensation

(2,500

)

(2,500

)

Transaction-related costs

700

700

Stock-based compensation

20,500

20,500

Amortization of other intangible assets

12,300

12,300

Amortization of client contract costs

22,200

22,200

Depreciation

26,500

26,500

Non-GAAP adjusted EBITDA

$

217,200

$

225,000

Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue

%

23

%

23

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):

2021 Guidance Range

Low Range

High Range

Cash flows from operating activities

$

140,000

$

160,000

Purchases of software, property and equipment

(25,000

)

(35,000

)

Non-GAAP free cash flow

$

115,000

$

125,000

Contact Details

John Rea

+1 210-687-4409

john.rea@csgi.com

Company Website

https://www.csgi.com

View source version on newsdirect.com: https://newsdirect.com/news/csg-systems-international-reports-second-quarter-2021-results-966732618

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