CSG Systems International Reports Results for Third Quarter 2019

CSG Systems International Reports Results for Third Quarter 2019

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 September 30, 2019.

Key Highlights:

Third quarter 2019 financial results:

Total revenues were $251.4 million and total non-GAAP adjusted revenues were $235.1 million.

GAAP operating income was $33.4 million, or 13.3% of total revenues, and non-GAAP operating income was $42.7 million, or 18.2% of non-GAAP adjusted revenues.

GAAP earnings per diluted share (EPS) was $0.66 and non-GAAP EPS was $0.88.

Cash flows from operations were $79.1 million.

CSG declared its quarterly cash dividend of $0.2225 per share of common stock, or a total of approximately $7 million, to shareholders.

During the quarter, CSG repurchased approximately 90,000 shares of its common stock for approximately $5 million (weighted-average price of $51.09 per share) under its stock repurchase program.

“We delivered record revenue in the third quarter, driving improved margins, strong cash flow and earnings growth,” said Bret Griess, president and chief executive officer for CSG. “We achieved these results as our clients continued to trust CSG’s cloud-based and on-premise solutions to better help them acquire, monetize, engage, and retain their customers as they reinvent the way they do business.”

Financial Overview (unaudited)

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

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

Percent

 

 

 

 

 

 

 

 

 

 

Percent

 

 

 

2019

 

 

2018

 

 

Changed

 

 

2019

 

 

2018

 

 

Changed

 

GAAP Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

251,414

 

 

$

213,055

 

 

 

18

%

 

$

742,063

 

 

$

627,792

 

 

 

18

%

Operating Income

 

 

33,420

 

 

 

25,653

 

 

 

30

%

 

 

95,851

 

 

 

75,507

 

 

 

27

%

Operating Margin Percentage

 

 

13.3

%

 

 

12.0

%

 

 

 

 

12.9

%

 

 

12.0

%

 

 

EPS

 

$

0.66

 

 

$

0.49

 

 

 

35

%

 

$

1.85

 

 

$

1.37

 

 

 

35

%

Non-GAAP Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Revenues

 

$

235,050

 

 

$

213,055

 

 

 

10

%

 

$

690,789

 

 

$

627,792

 

 

 

10

%

Operating Income

 

 

42,704

 

 

 

35,578

 

 

 

20

%

 

 

124,162

 

 

 

106,455

 

 

 

17

%

Adjusted Operating Margin Percentage

 

 

18.2

%

 

 

16.7

%

 

 

 

 

18.0

%

 

 

17.0

%

 

 

EPS

 

$

0.88

 

 

$

0.70

 

 

 

26

%

 

$

2.55

 

 

$

2.11

 

 

 

21

%

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 www.csgi.com.

Results of Operations

GAAP Results: Total revenues for the third quarter of 2019 were $251.4 million, an 18% increase when compared to revenues of $213.1 million for the third quarter of 2018, and a 2% increase when compared to $245.9 million for the second quarter of 2019. The year-over-year increase in revenues is primarily due to the acquisition of Forte on October 1, 2018, and the continued growth in our cloud solutions and managed services arrangements, while the sequential quarterly increase can be mainly attributed to stronger third quarter software, services, and maintenance revenues.

GAAP operating income for the third quarter of 2019 was $33.4 million, or 13.3% of total revenues, compared to $25.7 million, or 12.0% of total revenues, for the third quarter of 2018, and $30.3 million, or 12.3% of total revenues, for the second quarter of 2019.

GAAP EPS for the third quarter of 2019 was $0.66 as compared to $0.49 for the third quarter of 2018, and $0.60 for the second quarter of 2019. The increases in GAAP EPS between periods is reflective of the higher operating margin for the third quarter of 2019.

Non-GAAP Results: Non-GAAP adjusted revenues for the third quarter of 2019 were $235.1 million, a 10% increase when compared to $213.1 million for the third quarter of 2018, and a 3% increase when compared to $228.1 million for the second quarter of 2019.

Non-GAAP operating income for the third quarter of 2019 was $42.7 million, or 18.2% of total non-GAAP adjusted revenues, compared to $35.6 million, or 16.7% of total non-GAAP adjusted revenues for the third quarter of 2018, and $40.1 million, or 17.6% of total non-GAAP adjusted revenues for the second quarter of 2019.

Non-GAAP EPS for the third quarter of 2019 was $0.88, compared to $0.70 for the third quarter of 2018, and $0.85 for the second quarter of 2019.

Balance Sheet and Cash Flows

Cash, cash equivalents and short-term investments as of September 30, 2019 were $172.0 million compared to $131.5 million as of June 30, 2019 and $162.9 million as of December 31, 2018. CSG had net cash flows from operations for the third quarters ended September 30, 2019 and 2018 of $79.1 million and $47.1 million, respectively, and had non-GAAP free cash flow of $69.3 million and $29.7 million, respectively. For the nine months ended September 30, 2019 and 2018, CSG generated net cash flows from operations of $107.5 million and $73.3 million, respectively, and had non-GAAP free cash flow of $79.8 million and $29.2 million, respectively.

Summary of 2019 Financial Guidance

CSG is updating its financial guidance for the full year 2019 as follows:

 

 

As of
October 30, 2019

 

Previous

GAAP Measures:

 

 

 

 

Revenues

 

$975 – $995 million

 

$965 – $995 million

Operating Margin Percentage

 

12.6% – 12.9%

 

11.9% – 12.2%

EPS

 

$2.36 – $2.49

 

$2.16 – $2.33

Cash Flows from Operating Activities

 

No change

 

$125 – $150 million

Non-GAAP Measures:

 

 

 

 

Adjusted Revenues

 

$913 – $920 million

 

$903 – $920 million

Adjusted Operating Margin Percentage

 

17.5% – 18.0%

 

17.0% – 17.5%

EPS

 

$3.28 – $3.41

 

$3.15 – $3.31

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 www.csgi.com.

Conference Call

CSG will host a conference call on Wednesday, October 30, 2019 at 5:00 p.m. EDT, to discuss CSG’s third quarter results for 2019. 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, dial 1-888-254-3590 and ask the operator for the CSG conference call and Liz Bauer, chairperson.

Additional Information

For information about CSG, please visit CSG’s web site at www.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, iflix, 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 derives approximately forty percent of its revenues 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 as a result of its dependency on software solution sales, which are subject to greater volatility;

• 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

160,630

 

 

$

139,277

 

Short-term investments

 

 

11,337

 

 

 

23,603

 

Total cash, cash equivalents and short-term investments

 

 

171,967

 

 

 

162,880

 

Settlement assets

 

 

112,760

 

 

 

124,627

 

Trade accounts receivable:

 

 

 

 

 

 

 

 

Billed, net of allowance of $3,356 and $3,115

 

 

242,616

 

 

 

235,827

 

Unbilled

 

 

37,451

 

 

 

37,227

 

Income taxes receivable

 

 

4,204

 

 

 

6,720

 

Other current assets

 

 

38,467

 

 

 

32,286

 

Total current assets

 

 

607,465

 

 

 

599,567

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net of depreciation of $96,520 and $93,278

 

 

84,230

 

 

 

81,813

 

Operating lease right-of-use assets

 

 

92,949

 

 

 

 

Software, net of amortization of $121,516 and $119,381

 

 

31,335

 

 

 

36,400

 

Goodwill

 

 

253,050

 

 

 

255,816

 

Acquired client contracts, net of amortization of $88,946 and $82,692

 

 

57,556

 

 

 

65,456

 

Client contract costs, net of amortization of $32,109 and $43,051

 

 

42,902

 

 

 

37,289

 

Deferred income taxes

 

 

9,822

 

 

 

11,087

 

Other assets

 

 

27,848

 

 

 

26,934

 

Total non-current assets

 

 

599,692

 

 

 

514,795

 

Total assets

 

$

1,207,157

 

 

$

1,114,362

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

9,375

 

 

$

7,500

 

Operating lease liabilities

 

 

22,888

 

 

 

 

Client deposits

 

 

38,010

 

 

 

36,889

 

Trade accounts payable

 

 

39,534

 

 

 

45,386

 

Accrued employee compensation

 

 

68,343

 

 

 

61,107

 

Settlement liabilities

 

 

111,522

 

 

 

123,613

 

Deferred revenue

 

 

46,970

 

 

 

40,236

 

Income taxes payable

 

 

1,236

 

 

 

218

 

Other current liabilities

 

 

19,201

 

 

 

35,442

 

Total current liabilities

 

 

357,079

 

 

 

350,391

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of unamortized discounts of $11,197 and $14,549

 

 

348,178

 

 

 

352,326

 

Operating lease liabilities

 

 

76,574

 

 

 

 

Deferred revenue

 

 

13,879

 

 

 

17,527

 

Income taxes payable

 

 

2,704

 

 

 

2,284

 

Deferred income taxes

 

 

12,822

 

 

 

8,205

 

Other non-current liabilities

 

 

13,885

 

 

 

22,605

 

Total non-current liabilities

 

 

468,042

 

 

 

402,947

 

Total liabilities

 

 

825,121

 

 

 

753,338

 

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; 32,979 and 33,158 shares outstanding

 

 

696

 

 

 

693

 

Common stock warrants; 439 warrants vested; 1,425 issued

 

 

9,082

 

 

 

9,082

 

Additional paid-in capital

 

 

451,606

 

 

 

441,417

 

Treasury stock, at cost; 35,265 and 34,779 shares

 

 

(862,917

)

 

 

(842,360

)

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains on short-term investments, net of tax

 

 

26

 

 

 

2

 

Cumulative foreign currency translation adjustments

 

 

(49,805

)

 

 

(42,937

)

Accumulated earnings

 

 

833,348

 

 

 

795,127

 

Total stockholders’ equity

 

 

382,036

 

 

 

361,024

 

Total liabilities and stockholders’ equity

 

$

1,207,157

$

1,114,362

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

 

 

Quarter Ended

 

 

Nine Months Ended

 

 

 

September 30,
2019

 

 

September 30,
2018

 

 

September 30,
2019

 

 

September 30,
2018

 

 

Revenues

$

251,414

 

 

$

213,055

 

 

$

742,063

 

 

$

627,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

132,054

 

 

 

109,052

 

 

 

393,251

 

 

 

319,640

 

 

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

32,551

 

 

 

31,477

 

 

 

95,787

 

 

 

91,809

 

 

Selling, general and administrative

 

46,694

 

 

 

39,243

 

 

 

137,984

 

 

 

120,515

 

 

Depreciation

 

5,365

 

 

 

4,831

 

 

 

15,919

 

 

 

13,293

 

 

Restructuring and reorganization charges

 

1,330

 

 

 

2,799

 

 

 

3,271

 

 

 

7,028

 

 

Total operating expenses

 

217,994

 

 

 

187,402

 

 

 

646,212

 

 

 

552,285

 

 

Operating income

 

33,420

 

 

 

25,653

 

 

 

95,851

 

 

 

75,507

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(4,390

)

 

 

(4,456

)

 

 

(13,448

)

 

 

(13,202

)

 

Amortization of original issue discount

 

(709

)

 

 

(671

)

 

 

(2,099

)

 

 

(1,984

)

 

Interest and investment income, net

 

392

 

 

 

675

 

 

 

1,328

 

 

 

2,256

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

(810

)

 

Other, net

 

108

 

 

 

(709

)

 

 

(123

)

 

 

(347

)

 

Total other

 

(4,599

)

 

 

(5,161

)

 

 

(14,342

)

 

 

(14,087

)

 

Income before income taxes

 

28,821

 

 

 

20,492

 

 

 

81,509

 

 

 

61,420

 

 

Income tax provision

 

(7,262

)

 

 

(4,391

)

 

 

(21,320

)

 

 

(16,188

)

 

Net income

$

21,559

 

 

$

16,101

 

 

$

60,189

 

 

$

45,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

32,016

 

 

 

32,507

 

 

 

32,079

 

 

 

32,541

 

 

Diluted

 

32,518

 

 

 

32,806

 

 

 

32,472

 

 

 

32,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.67

 

 

$

0.50

 

 

$

1.88

 

 

$

1.39

 

 

Diluted

 

0.66

 

 

 

0.49

 

 

 

1.85

 

 

 

1.37

 

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

 

 

Nine Months Ended

 

 

 

September 30,
2019

 

 

September 30,
2018

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

$

60,189

 

 

$

45,232

 

 

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

 

 

 

 

 

 

 

 

Depreciation

 

15,919

 

 

 

13,293

 

 

Amortization

 

34,579

 

 

 

31,974

 

 

Amortization of original issue discount

 

2,099

 

 

 

1,984

 

 

Asset impairment

 

365

 

 

 

1,428

 

 

Gain on short-term investments and other

 

(285

)

 

 

(65

)

 

Loss on extinguishment of debt

 

 

 

 

810

 

 

Deferred income taxes

 

6,124

 

 

 

2,150

 

 

Stock-based compensation

 

13,295

 

 

 

14,805

 

 

Subtotal

 

132,285

 

 

 

111,611

 

 

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

 

 

 

 

 

 

 

 

Trade accounts receivable, net

 

(8,748

)

 

 

(15,952

)

 

Other current and non-current assets and liabilities

 

(15,312

)

 

 

(21,763

)

 

Income taxes payable/receivable

 

3,468

 

 

 

5,365

 

 

Trade accounts payable and accrued liabilities

 

(7,978

)

 

 

(13,174

)

 

Deferred revenue

 

3,812

 

 

 

7,182

 

 

Net cash provided by operating activities

 

107,527

 

 

 

73,269

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of software, property and equipment

 

(27,706

)

 

 

(44,047

)

 

Purchases of short-term investments

 

(25,446

)

 

 

(53,285

)

 

Proceeds from sale/maturity of short-term investments

 

38,029

 

 

 

190,467

 

 

Acquisition of and investments in business, net of cash acquired

 

(17,194

)

 

 

(71,443

)

 

Net cash provided by (used in) investing activities

 

(32,317

)

 

 

21,692

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

1,630

 

 

 

1,701

 

 

Payment of cash dividends

 

(21,980

)

 

 

(21,197

)

 

Repurchase of common stock

 

(25,683

)

 

 

(24,034

)

 

Proceeds from long-term debt

 

 

 

 

150,000

 

 

Payments on long-term debt

 

(5,625

)

 

 

(123,750

)

 

Payments of deferred financing costs

 

 

 

 

(1,490

)

 

Net cash used in financing activities

 

(51,658

)

 

 

(18,770

)

 

Effect of exchange rate fluctuations on cash

 

(2,199

)

 

 

(1,262

)

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

21,353

 

 

 

74,929

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

139,277

 

 

 

122,243

 

 

Cash and cash equivalents, end of period

$

160,630

 

 

$

197,172

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for-

 

 

 

 

 

 

 

 

Interest

$

14,521

 

 

$

14,181

 

 

Income taxes

 

11,779

 

 

 

8,426

 

 

EXHIBIT 1
CSG SYSTEMS INTERNATIONAL, INC.
SUPPLEMENTAL REVENUE ANALYSIS

Revenues by Geography

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Quarter Ended

 

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

 

2019

 

 

2019

 

 

2018

 

Americas

 

 

87

%

 

 

87

%

 

 

85

%

Europe, Middle East and Africa

 

 

9

%

 

 

9

%

 

 

10

%

Asia Pacific

 

 

4

%

 

 

4

%

 

 

5

%

Total revenues

 

 

100

%

 

 

100

%

 

 

100

%

Revenues by Significant Customers: 10% or more of Revenues

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Quarter Ended

 

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

 

2019

 

 

2019

 

 

2018

 

Comcast

 

 

23

%

 

 

23

%

 

 

26

%

Charter

 

 

20

%

 

 

20

%

 

 

21

%

Components of Revenues

 

 

Quarter Ended

 

 

Quarter Ended

 

 

Quarter Ended

 

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

 

2019

 

 

2019

 

 

2018

 

Cloud and related solutions

 

$

224,347

 

 

$

222,183

 

 

$

186,473

 

Software and services

 

 

14,406

 

 

 

12,173

 

 

 

14,283

 

Maintenance

 

 

12,661

 

 

 

11,500

 

 

 

12,299

 

Total revenues

 

$

251,414

 

 

$

245,856

 

 

$

213,055

 

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 revenues, non-GAAP operating income, non-GAAP adjusted operating margin percentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed in conjunction with its GAAP financial measures, provide investors with greater transparency to the information used by CSG’s management in its financial and operational decision making. CSG uses these non-GAAP financial measures for the following purposes:

• Certain internal financial planning, reporting, and analysis;

• Forecasting and budgeting;

• Certain management compensation incentives; and

• Communications with CSG’s Board of Directors, stockholders, financial analysts, and investors.

These non-GAAP financial measures are provided with the intent of providing investors with the following information:

• A more complete understanding of CSG’s underlying operational results, trends, and cash generating capabilities;

• Consistency and comparability with CSG’s historical financial results; and

• Comparability to similar companies, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAP financial measures include the following items:

• Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles;

• The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures;

• Non-GAAP financial measures do not include all items of income and expense that affect CSG’s operations and that are required by GAAP to be included in financial statements;

• Certain adjustments to CSG’s non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSG’s financial statements in future periods; and

• Certain charges excluded from CSG’s non-GAAP financial measures are cash expenses, and therefore do impact CSG’s cash position.

CSG compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures as a supplement only. Additionally, CSG provides specific information regarding the treatment of GAAP amounts considered in preparing the non-GAAP financial measures and reconciles each non-GAAP financial measure to the most directly comparable GAAP measure.

Non-GAAP Financial Measures: Basis of Presentation

The table below outlines the exclusions from CSG’s non-GAAP financial measures:

Non-GAAP Exclusions

 

Operating Income

 

Adjusted Operating
Margin Percentage

 

EPS

Transaction fees

 

 

X

 

Restructuring and reorganization charges

 

X

 

X

 

X

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 revenues; however, other payments companies who do not provide and/or control an integrated service present their revenues net of transaction fees. The exclusion of these fees in calculating CSG’s non-GAAP adjusted revenues provides management and investors an additional means to use to compare CSG’s current revenues 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
Liz Bauer, Chief Communications and Investor Relations Officer
(303) 804-4065
E-mail: [email protected]
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