BusinessWire

CSG Systems International Reports Second Quarter 2020 Results

GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)--CSG (NASDAQ: CSGS), the trusted partner to simplify the complexity of business transformation in the digital age, today reported results for the quarter ended June 30, 2020.

Financial Results:

  • Second quarter 2020 financial results:
    • Total revenue was $240.3 million and total non-GAAP adjusted revenue was $224.6 million.
    • GAAP operating income was $19.8 million, or 8.2% of total revenue, and non-GAAP operating income was $30.6 million, or 13.6% of non-GAAP adjusted revenue.
    • GAAP earnings per diluted share (EPS) was $0.32 and non-GAAP EPS was $0.59.
    • Cash flows from operations were $57.7 million, with non-GAAP free cash flow of $48.2 million.

Shareholder Returns:

  • CSG declared its quarterly cash dividend of $0.235 per share of common stock, or a total of approximately $8 million, to shareholders.

“We delivered another solid quarter during some very challenging times,” said Bret Griess, president and chief executive officer of CSG International. “Our predictable, resilient business provides us with good visibility, driven by our ability to lengthen and strengthen our relationships and expand our footprint within existing customers, while continuing to diversify our revenue by adding new customers in existing and new verticals. We feel very good about our performance thus far in 2020 and our ability to maintain our non-GAAP guidance in the midst of a global pandemic.”

Financial Overview (unaudited)

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

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

Percent

 

 

 

 

 

 

 

 

 

 

Percent

 

 

 

2020

 

 

2019

 

 

Changed

 

 

2020

 

 

2019

 

 

Changed

 

GAAP Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

240,321

 

 

$

245,856

 

 

 

(2

%)

 

$

485,938

 

 

$

490,649

 

 

 

(1

%)

Operating Income

 

 

19,775

 

 

 

30,338

 

 

 

(35

%)

 

 

52,934

 

 

 

62,431

 

 

 

(15

%)

Operating Margin Percentage

 

 

8.2

%

 

 

12.3

%

 

 

 

 

 

 

10.9

%

 

 

12.7

%

 

 

 

 

EPS

 

$

0.32

 

 

$

0.60

 

 

 

(47

%)

 

$

0.99

 

 

$

1.19

 

 

 

(17

%)

Non-GAAP Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Revenue

 

$

224,626

 

 

$

228,078

 

 

 

(2

%)

 

$

451,919

 

 

$

455,739

 

 

 

(1

%)

Operating Income

 

 

30,633

 

 

 

40,145

 

 

 

(24

%)

 

 

72,787

 

 

 

81,458

 

 

 

(11

%)

Adjusted Operating Margin Percentage

 

 

13.6

%

 

 

17.6

%

 

 

 

 

 

 

16.1

%

 

 

17.9

%

 

 

 

 

EPS

 

$

0.59

 

 

$

0.85

 

 

 

(31

%)

 

$

1.46

 

 

$

1.67

 

 

 

(13

%)

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 2020 was $240.3 million, a 2% decrease when compared to both revenue of $245.9 million for the second quarter of 2019 and $245.6 million for the first quarter of 2020. These decreases can be mainly attributed to the extended sales and implementation cycles and processing volume reductions as a result of the impact of the COVID-19 pandemic, as well as foreign currency headwinds. The year-over-year decrease also reflects pricing adjustments associated with the five-year Comcast extension effective January 1, 2020, however this was offset by the year-over-year growth in revenue management solutions.

GAAP operating income for the second quarter of 2020 was $19.8 million, or 8.2% of total revenue, compared to $30.3 million, or 12.3% of total revenue, for the second quarter of 2019, and $33.2 million, or 13.5% of total revenue, for the first quarter of 2020. The decrease in operating income for the second quarter of 2020 can be primarily attributed to the write-off of approximately $10 million of deferred contract costs resulting from the discontinuance of a project implementation.

GAAP EPS for the second quarter of 2020 was $0.32 as compared to $0.60 for the second quarter of 2019, and $0.66 for the first quarter of 2020. The decline in GAAP EPS is primarily due to the write-off of deferred contract costs, discussed above, which had a negative impact on GAAP EPS for the second quarter of 2020 of $0.23.

Non-GAAP Results: Non-GAAP adjusted revenue for the second quarter of 2020 was $224.6 million, a 2% decrease when compared to non-GAAP adjusted revenue of $228.1 million for the second quarter of 2019, and a 1% decrease when compared to $227.3 million for the first quarter of 2020.

Non-GAAP operating income for the second quarter of 2020 was $30.6 million, or 13.6% of total non-GAAP adjusted revenue, compared to $40.1 million, or 17.6% of total non-GAAP adjusted revenue for the second quarter of 2019, and $42.2 million, or 18.5% of total non-GAAP adjusted revenue for the first quarter of 2020.

Non-GAAP EPS for the second quarter of 2020 was $0.59 compared to $0.85 for the second quarter of 2019, and $0.87 for the first quarter of 2020.

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, 2020 were $171.2 million compared to $131.3 million as of March 31, 2020 and $182.7 million as of December 31, 2019. CSG had net cash flows from operations for the second quarters ended June 30, 2020 and 2019 of $57.7 million and $15.6 million, respectively, and had non-GAAP free cash flow of $48.2 million and $6.0 million, respectively.

Summary of 2020 Financial Guidance

CSG’s is updating its financial guidance for the full year 2020, as follows:

 

 

As of

August 5, 2020

 

Previous

GAAP Measures:

 

 

 

 

Revenue

 

No change

 

$960 - $1,000 million

Operating Margin Percentage

 

11.1% - 11.7%

 

11.4% - 11.9%

EPS

 

$1.99 - $2.22

 

$2.04 - $2.27

Cash Flows from Operating Activities

 

No change

 

$110 - $135 million

Non-GAAP Measures:

 

 

 

 

Adjusted Revenue

 

No change

 

$891 - $924 million

Adjusted Operating Margin Percentage

 

No change

 

16.0% - 16.5%

EPS

 

No change

 

$2.87 - $3.10

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 5, 2020 at 5:00 p.m. EDT, to discuss CSG’s second quarter results for 2020. 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 800-437-2398 and ask the operator for the CSG Systems International conference call and David Banks, chairperson.

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 approximately forty percent of its revenue from its two largest clients;
  • 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,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

144,019

 

 

$

156,548

 

Short-term investments

 

 

27,183

 

 

 

26,109

 

Total cash, cash equivalents and short-term investments

 

 

171,202

 

 

 

182,657

 

Settlement assets

 

 

139,248

 

 

 

169,327

 

Trade accounts receivable:

 

 

 

 

 

 

 

 

Billed, net of allowance of $4,057 and $3,735

 

 

244,413

 

 

 

244,058

 

Unbilled

 

 

35,941

 

 

 

33,450

 

Income taxes receivable

 

 

7,516

 

 

 

4,297

 

Other current assets

 

 

44,448

 

 

 

35,293

 

Total current assets

 

 

642,768

 

 

 

669,082

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation of $100,883 and $98,029

 

 

84,689

 

 

 

84,429

 

Operating lease right-of-use assets

 

 

117,304

 

 

 

94,847

 

Software, net of amortization of $131,835 and $125,437

 

 

29,141

 

 

 

32,526

 

Goodwill

 

 

262,774

 

 

 

259,164

 

Acquired client contracts, net of amortization of $96,491 and $93,767

 

 

52,776

 

 

 

55,105

 

Client contract costs, net of amortization of $37,827 and $31,526

 

 

41,561

 

 

 

50,746

 

Deferred income taxes

 

 

9,193

 

 

 

9,392

 

Other assets

 

 

29,176

 

 

 

27,739

 

Total non-current assets

 

 

626,614

 

 

 

613,948

 

Total assets

 

$

1,269,382

 

 

$

1,283,030

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

12,188

 

 

$

10,313

 

Operating lease liabilities

 

 

21,771

 

 

 

22,442

 

Client deposits

 

 

37,278

 

 

 

38,687

 

Trade accounts payable

 

 

34,494

 

 

 

32,704

 

Accrued employee compensation

 

 

45,689

 

 

 

77,527

 

Settlement liabilities

 

 

137,894

 

 

 

168,342

 

Deferred revenue

 

 

52,195

 

 

 

45,094

 

Income taxes payable

 

 

7,632

 

 

 

2,806

 

Other current liabilities

 

 

21,626

 

 

 

20,778

 

Total current liabilities

 

 

370,767

 

 

 

418,693

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $7,726 and $10,053

 

 

342,274

 

 

 

346,509

 

Operating lease liabilities

 

 

102,609

 

 

 

78,936

 

Deferred revenue

 

 

16,772

 

 

 

18,552

 

Income taxes payable

 

 

2,706

 

 

 

2,543

 

Deferred income taxes

 

 

13,334

 

 

 

6,376

 

Other non-current liabilities

 

 

23,298

 

 

 

14,759

 

Total non-current liabilities

 

 

500,993

 

 

 

467,675

 

Total liabilities

 

 

871,760

 

 

 

886,368

 

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; 33,080 and 32,891 shares outstanding

 

 

699

 

 

 

696

 

Additional paid-in capital

 

 

458,362

 

 

 

454,663

 

Treasury stock, at cost; 35,507 and 35,356 shares

 

 

(874,592

)

 

 

(867,817

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains on short-term investments, net of tax

 

 

44

 

 

 

16

 

Cumulative foreign currency translation adjustments

 

 

(51,932

)

 

 

(39,519

)

Accumulated earnings

 

 

865,041

 

 

 

848,623

 

Total stockholders' equity

 

 

397,622

 

 

 

396,662

 

Total liabilities and stockholders' equity

 

$

1,269,382

 

 

$

1,283,030

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

 

 

Quarter Ended

 

 

Six Months Ended

 

 

June 30,

2020

 

 

June 30,

2019

 

 

June 30,

2020

 

 

June 30,

2019

 

Revenue

$

240,321

 

 

$

245,856

 

 

$

485,938

 

 

$

490,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

138,153

 

 

 

132,234

 

 

 

269,359

 

 

 

261,197

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

29,263

 

 

 

30,645

 

 

 

59,600

 

 

 

63,236

 

Selling, general and administrative

 

44,999

 

 

 

45,372

 

 

 

89,383

 

 

 

91,290

 

Depreciation

 

5,634

 

 

 

5,441

 

 

 

11,199

 

 

 

10,554

 

Restructuring and reorganization charges

 

2,497

 

 

 

1,826

 

 

 

3,463

 

 

 

1,941

 

Total operating expenses

 

220,546

 

 

 

215,518

 

 

 

433,004

 

 

 

428,218

 

Operating income

 

19,775

 

 

 

30,338

 

 

 

52,934

 

 

 

62,431

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(4,040

)

 

 

(4,498

)

 

 

(8,253

)

 

 

(9,058

)

Amortization of original issue discount

 

(740

)

 

 

(700

)

 

 

(1,470

)

 

 

(1,390

)

Interest and investment income, net

 

303

 

 

 

417

 

 

 

832

 

 

 

936

 

Other, net

 

(1,048

)

 

 

1,280

 

 

 

(1,117

)

 

 

(231

)

Total other

 

(5,525

)

 

 

(3,501

)

 

 

(10,008

)

 

 

(9,743

)

Income before income taxes

 

14,250

 

 

 

26,837

 

 

 

42,926

 

 

 

52,688

 

Income tax provision

 

(3,884

)

 

 

(7,458

)

 

 

(11,046

)

 

 

(14,058

)

Net income

$

10,366

 

 

$

19,379

 

 

$

31,880

 

 

$

38,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

32,100

 

 

 

32,093

 

 

 

32,047

 

 

 

32,111

 

Diluted

 

32,258

 

 

 

32,458

 

 

 

32,308

 

 

 

32,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.32

 

 

$

0.60

 

 

$

0.99

 

 

$

1.20

 

Diluted

 

0.32

 

 

 

0.60

 

 

 

0.99

 

 

 

1.19

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

 

 

Six Months Ended

 

 

June 30,

2020

 

 

June 30,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

31,880

 

 

$

38,630

 

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

 

 

 

 

 

 

 

Depreciation

 

11,199

 

 

 

10,554

 

Amortization

 

22,043

 

 

 

24,625

 

Amortization of original issue discount

 

1,470

 

 

 

1,390

 

Asset impairment

 

10,595

 

 

 

365

 

Gain on short-term investments and other

 

(110

)

 

 

(170

)

Deferred income taxes

 

6,771

 

 

 

4,181

 

Stock-based compensation

 

10,112

 

 

 

8,500

 

Subtotal

 

93,960

 

 

 

88,075

 

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

 

 

 

 

 

 

 

Trade accounts receivable, net

 

(6,286

)

 

 

(31,751

)

Other current and non-current assets and liabilities

 

(8,951

)

 

 

(16,222

)

Income taxes payable/receivable

 

1,332

 

 

 

(315

)

Trade accounts payable and accrued liabilities

 

(36,381

)

 

 

(17,328

)

Deferred revenue

 

6,803

 

 

 

5,970

 

Net cash provided by operating activities

 

50,477

 

 

 

28,429

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of software, property and equipment

 

(14,334

)

 

 

(17,858

)

Purchases of short-term investments

 

(35,112

)

 

 

(22,542

)

Proceeds from sale/maturity of short-term investments

 

34,185

 

 

 

28,753

 

Acquisition of and investments in business, net of cash acquired

 

(9,991

)

 

 

(4,000

)

Net cash used in investing activities

 

(25,252

)

 

 

(15,647

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

1,247

 

 

 

1,115

 

Payment of cash dividends

 

(15,856

)

 

 

(14,808

)

Repurchase of common stock

 

(14,515

)

 

 

(20,741

)

Payments on long-term debt

 

(4,687

)

 

 

(3,750

)

Net cash used in financing activities

 

(33,811

)

 

 

(38,184

)

Effect of exchange rate fluctuations on cash

 

(3,943

)

 

 

(98

)

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(12,529

)

 

 

(25,500

)

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

156,548

 

 

 

139,277

 

Cash and cash equivalents, end of period

$

144,019

 

 

$

113,777

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for-

 

 

 

 

 

 

 

Interest

$

7,327

 

 

$

8,110

 

Income taxes

 

2,865

 

 

 

10,244

 

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, 2020

 

 

March 31, 2020

 

 

June 30, 2019

 

 

 

Amount

 

 

% of

Revenue

 

 

Amount

 

 

% of

Revenue

 

 

Amount

 

 

% of

Revenue

 

Comcast

 

$

53,282

 

 

 

22

%

 

$

52,679

 

 

 

21

%

 

$

55,439

 

 

 

23

%

Charter

 

 

51,364

 

 

 

21

%

 

 

50,712

 

 

 

21

%

 

 

48,455

 

 

 

20

%

Revenue by Vertical

 

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Quarter Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

 

2020

 

 

2020

 

 

2019

 

Broadband/Cable/Satellite

 

 

60

%

 

 

58

%

 

 

58

%

Telecommunications

 

 

18

%

 

 

17

%

 

 

19

%

All other

 

 

22

%

 

 

25

%

 

 

23

%

Total revenue

 

 

100

%

 

 

100

%

 

 

100

%

Revenue by Geography

 

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Quarter Ended

 

 

 

June 30,

 

 

March 31,

 

 

June 30,

 

 

 

2020

 

 

2020

 

 

2019

 

Americas

 

 

87

%

 

 

88

%

 

 

87

%

Europe, Middle East and Africa

 

 

9

%

 

 

9

%

 

 

9

%

Asia Pacific

 

 

4

%

 

 

3

%

 

 

4

%

Total revenue

 

 

100

%

 

 

100

%

 

 

100

%

EXHIBIT 2
CSG SYSTEMS INTERNATIONAL, INC.
D
ISCLOSURES 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 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

 

Adjusted

Revenue

 

Operating

Income

 

Adjusted

Operating

Margin

Percentage

 

EPS

Transaction fees

 

X

 

 

X

 

Restructuring and reorganization charges

 

 

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 (“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 clients 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 client 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 core 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.
  • 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 core 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.

Contacts

David Banks, Investor Relations
(303) 200-3127
E-mail: david.banks@csgi.com


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