Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil Hydroworld Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries CSG Systems International Reports Fourth Quarter and Full Year 2023 Results By: CSG Systems International, Inc. via Business Wire February 07, 2024 at 16:01 PM EST Achieved or Exceeded All 2023 Financial Guidance Targets 2023 Organic Revenue Grew 7.3% YoY; CSG’s Best Annual Results in Nearly Two Decades Dividend Payout Increased 7% in 2024; Marks 11th Consecutive Year of Increased Payout Returned Over $150 Million to Shareholders in 2023 including $117 Million of Share Repurchases Q4 Operating Cash Flow of $80 Million with Record Quarterly Non-GAAP Free Cash Flow of $74 Million CSG (NASDAQ: CSGS) today reported results for the quarter and year ended December 31, 2023. Financial Results: Fourth quarter 2023 financial results: Total revenue was $297.3 million. GAAP operating income was $24.7 million, or an operating margin of 8.3%, and non-GAAP operating income was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%. GAAP earnings per diluted share (EPS) was $0.44 and non-GAAP EPS was $0.92. Cash flows from operations were $79.5 million, with non-GAAP free cash flow of $74.5 million. Full year 2023 financial results: Total revenue was $1.17 billion. GAAP operating income was $123.9 million, or an operating margin of 10.6%, and non-GAAP operating income was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%. GAAP EPS was $2.20 and non-GAAP EPS was $3.69. Cash flows from operations were $131.9 million, with non-GAAP free cash flow of $103.9 million. Shareholder Returns: In November 2023, CSG declared its quarterly cash dividend of $0.28 per share of common stock, or a total of approximately $8 million, to shareholders, bringing total 2023 dividends to approximately $34 million. In January 2024, CSG’s Board of Directors approved a 7% increase in CSG’s cash dividend, with quarterly payments of $0.30 per share of common stock to be paid in March 2024. During the fourth quarter and full year 2023, CSG repurchased under its stock repurchase program, approximately 196,000 shares of its common stock for approximately $10 million and approximately 2,188,000 shares of its common stock for approximately $117 million, respectively. “Team CSG had a record-setting 2023 as we delivered excellent financial results across the board highlighted by 7.3% year-over-year organic revenue growth, our strongest annual result in nearly two decades,” said Brian Shepherd, President and Chief Executive Officer of CSG. “Additionally, we delivered strong profitability and cash flow generation as our non-GAAP adjusted operating margin improved from 16.6% in 2022 to 17.2% in 2023, while generating $104 million in non-GAAP free cash flow. Plus, we continue to return capital to shareholders in the form of buybacks and dividends, having delivered over $150 million in shareholder remuneration in 2023. On this note, we are pleased to announce our 11th consecutive year of increasing dividend payout in 2024. Looking forward, we anticipate mid-single-digit organic revenue growth, resulting in revenue between $1.2 and $1.24 billion in 2024 with non-GAAP adjusted operating margins in the range of 17.0% to 17.4%.” Financial Overview (unaudited) (in thousands, except per share amounts and percentages): Quarter Ended December 31, Year Ended December 31, Percent Percent 2023 2022 Changed 2023 2022 Changed GAAP Results: Revenue $ 297,324 $ 289,876 2.6 % $ 1,169,258 $ 1,089,752 7.3 % Operating Income 24,747 35,072 (29.4 %) 123,877 78,747 57.3 % Operating Margin Percentage 8.3 % 12.1 % 10.6 % 7.2 % EPS $ 0.44 $ 0.66 (33.3 %) $ 2.20 $ 1.41 56.0 % Non-GAAP Results: Operating Income $ 44,063 $ 45,157 (2.4 %) $ 185,727 $ 168,830 10.0 % Adjusted Operating Margin Percentage 16.1 % 16.8 % 17.2 % 16.6 % EPS $ 0.92 $ 0.84 9.5 % $ 3.69 $ 3.61 2.2 % 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 fourth quarter of 2023 was $297.3 million, a 2.6% increase when compared to revenue of $289.9 million for the fourth quarter of 2022. Total revenue for the full year 2023 was $1,169.3 million, a 7.3% increase when compared to revenue of $1,089.8 million for the full year 2022. The increases in revenue can be mainly attributed to the continued growth of CSG’s revenue management solutions, to include the conversion of customer accounts on CSG solutions, growth in digital solutions, and increased payments volumes. GAAP operating income for the fourth quarter of 2023 was $24.7 million, or 8.3% of total revenue, compared to $35.1 million, or 12.1% of total revenue, for the fourth quarter of 2022. GAAP operating income for the full year 2023 was $123.9 million, or 10.6% of total revenue, compared to $78.7 million, or 7.2% of total revenue, for the full year 2022. These changes in operating income can be mainly attributed to the $7.9 million quarterly increase in restructuring and reorganization charges, and the $30.0 million full year decrease in restructuring and reorganization charges. GAAP EPS for the fourth quarter of 2023 was $0.44, as compared to $0.66 for the fourth quarter of 2022. GAAP EPS for the full year 2023 was $2.20, compared to $1.41 for the full year 2022. The changes in GAAP EPS are mainly due to fluctuations in operating income, discussed above, with the full year increase in GAAP EPS partially offset by higher interest expense. Non-GAAP Results: Non-GAAP operating income for the fourth quarter of 2023 was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%, compared to $45.2 million, or a non-GAAP adjusted operating margin of 16.8% for the fourth quarter of 2022. Non-GAAP operating income for the full year 2023 was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%, compared to $168.8 million, or a non-GAAP adjusted operating margin of 16.6% for the full year 2022. Non-GAAP EPS for the fourth quarter of 2023 was $0.92 compared to $0.84 for the fourth quarter of 2022. Non-GAAP EPS for the full year 2023 was $3.69 compared to $3.61 for the full year 2022. Balance Sheet and Cash Flows Cash, cash equivalents, and short-term investments as of December 31, 2023 were $186.3 million compared to $146.7 million as of September 30, 2023 and $150.4 million as of December 31, 2022. CSG generated net cash flows from operations for the fourth quarters ended December 31, 2023 and 2022 of $79.5 million and $54.0 million, respectively, and had non-GAAP free cash flow of $74.5 million and $48.6 million, respectively. For the year ended December 31, 2023 and 2022, CSG generated net cash flows from operations of $131.9 million and $63.6 million, respectively, and had non-GAAP free cash flow of $103.9 million and $26.6 million, respectively. Summary of Financial Guidance CSG’s financial guidance for the full year 2024 is as follows: GAAP Measures: Revenue $1,200 - $1,240 million Non-GAAP Measures: Adjusted Operating Margin Percentage 17.0% - 17.4% EPS $3.85 - $4.15 Adjusted EBITDA $245 - $255 million Free Cash Flow $95 - $135 million For additional information and reconciliations regarding CSG’s use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG’s website at csgi.com. Conference Call CSG will host a conference call on Wednesday, February 7, 2024 at 5:00 p.m. ET, to discuss CSG’s fourth quarter and full year 2023 earnings results. The call will be carried live and archived on the Internet. A link to the conference call is available at http://ir.csgi.com. In addition, to reach the conference by phone, call 1-888-412-4131 and use the passcode 2327393. Additional Information For information about CSG, please visit CSG’s web site at csgi.com. Additional information can be found in the Investor Relations section of the website. About CSG CSG empowers companies to build unforgettable experiences, making it easier for people and businesses to connect with, use and pay for the services they value most. Our customer experience, billing and payments solutions help companies of any size make money and make a difference. With our SaaS solutions, company leaders can take control of their future and tap into guidance along the way from our fiercely committed and forward-thinking CSGers around the world. Want to be future-ready and a change-maker like the global brands that trust CSG? Visit csgi.com to learn more. Forward-Looking Statements This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. Some of these key factors include, but are not limited to the following items: CSG derives approximately forty percent of its revenue from its two largest customers; Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates; CSG’s ability to maintain a reliable, secure computing environment; Continued market acceptance of CSG’s products and services; CSG’s ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner; CSG’s ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations; CSG’s dependency on the global telecommunications industry, and in particular, the North American telecommunications industry; CSG’s ability to meet its financial expectations; Increasing competition in CSG’s market from companies of greater size and with broader presence; CSG’s ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals; CSG’s ability to protect its intellectual property rights; CSG’s ability to conduct business in the international marketplace; CSG’s ability to comply with applicable U.S. and International laws and regulations; and CSG’s business may be disrupted, and its results of operations and cash flows adversely affected by a global pandemic. This list is not exhaustive, and readers are encouraged to review the additional risks and important factors described in CSG’s reports on Forms 10-K and 10-Q and other filings made with the SEC. CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED (in thousands) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 186,264 $ 150,365 Short-term investments - 71 Total cash, cash equivalents, and short-term investments 186,264 150,436 Settlement and merchant reserve assets 274,699 238,653 Trade accounts receivable: Billed, net of allowance of $5,432 and $5,528 267,680 274,189 Unbilled 82,163 52,830 Income taxes receivable 1,345 1,270 Other current assets 50,075 48,577 Total current assets 862,226 765,955 Non-current assets: Property and equipment, net of depreciation of $121,816 and $105,466 65,545 71,787 Operating lease right-of-use assets 34,283 49,687 Software, net of amortization of $157,601 and $150,337 14,224 22,774 Goodwill 308,596 304,036 Acquired customer contracts, net of amortization of $126,469 and $120,080 35,879 45,417 Customer contract costs, net of amortization of $42,094 and $30,601 54,421 54,735 Deferred income taxes 57,855 26,206 Other assets 10,017 7,956 Total non-current assets 580,820 582,598 Total assets $ 1,443,046 $ 1,348,553 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 7,500 $ 37,500 Operating lease liabilities 15,946 21,012 Customer deposits 41,035 40,472 Trade accounts payable 46,406 47,720 Accrued employee compensation 84,380 68,321 Settlement and merchant reserve liabilities 273,817 237,810 Deferred revenue 54,199 46,033 Income taxes payable 4,104 5,455 Other current liabilities 33,449 22,886 Total current liabilities 560,836 527,209 Non-current liabilities: Long-term debt, net of unamortized discounts of $15,628 and $2,656 534,997 375,469 Operating lease liabilities 34,360 53,207 Deferred revenue 23,447 21,991 Income taxes payable 3,041 3,410 Deferred income taxes 123 117 Other non-current liabilities 12,916 11,901 Total non-current liabilities 608,884 466,095 Total liabilities 1,169,720 993,304 Stockholders' equity: Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding - - Common stock, par value $.01 per share; 100,000 shares authorized; 29,541 and 31,269 shares outstanding 713 708 Additional paid-in capital 490,947 495,189 Treasury stock, at cost; 40,398 and 38,210 shares (1,136,055 ) (1,018,034 ) Accumulated other comprehensive income (loss): Unrealized gain on short-term investments, net of tax 1 1 Cumulative foreign currency translation adjustments (50,414 ) (58,830 ) Accumulated earnings 968,134 936,215 Total stockholders' equity 273,326 355,249 Total liabilities and stockholders' equity $ 1,443,046 $ 1,348,553 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED (in thousands, except per share amounts) Quarter Ended Year Ended December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Revenue $ 297,324 $ 289,876 $ 1,169,258 $ 1,089,752 Cost of revenue (exclusive of depreciation, shown separately below) 156,145 150,154 615,042 565,168 Other operating expenses: Research and development 35,800 34,548 143,201 137,913 Selling, general and administrative 66,683 64,185 247,613 238,018 Depreciation 6,034 5,913 23,189 23,598 Restructuring and reorganization charges 7,915 4 16,336 46,308 Total operating expenses 272,577 254,804 1,045,381 1,011,005 Operating income 24,747 35,072 123,877 78,747 Other income (expense): Interest expense (8,084 ) (6,146 ) (31,176 ) (16,432 ) Interest and investment income, net 1,820 340 4,336 877 Loss on derivative liability upon debt conversion - - - (7,456 ) Other, net (1,639 ) (999 ) (4,686 ) 5,045 Total other (7,903 ) (6,805 ) (31,526 ) (17,966 ) Income before income taxes 16,844 28,267 92,351 60,781 Income tax provision (4,174 ) (8,118 ) (26,105 ) (16,721 ) Net income $ 12,670 $ 20,149 $ 66,246 $ 44,060 Weighted-average shares outstanding: Basic 28,607 30,455 29,938 31,028 Diluted 28,842 30,732 30,115 31,298 Earnings per common share: Basic $ 0.44 $ 0.66 $ 2.21 $ 1.42 Diluted 0.44 0.66 2.20 1.41 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands) Year Ended December 31, 2023 December 31, 2022 Cash flows from operating activities: Net income $ 66,246 $ 44,060 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 23,585 27,967 Amortization 47,667 48,984 Asset impairment 2,061 31,761 Gain on lease modifications (4,349 ) - Loss on short-term investments and other - 18 Loss on derivative liability upon debt conversion - 7,456 Unrealized foreign currency transactions (gain)/loss, net 225 (103 ) Deferred income taxes (23,560 ) (27,627 ) Stock-based compensation 28,990 27,243 Subtotal 140,865 159,759 Changes in operating assets and liabilities: Trade accounts receivable, net (22,401 ) (51,005 ) Other current and non-current assets and liabilities (6,566 ) (12,833 ) Income taxes payable/receivable (1,849 ) 9,336 Trade accounts payable and accrued liabilities 12,541 (36,971 ) Deferred revenue 9,306 (4,689 ) Net cash provided by operating activities 131,896 63,597 Cash flows from investing activities: Purchases of software, property and equipment (27,977 ) (36,991 ) Proceeds from sale/maturity of short-term investments 71 27,953 Net cash used in investing activities (27,906 ) (9,038 ) Cash flows from financing activities: Proceeds from issuance of common stock 3,284 2,969 Payment of cash dividends (33,930 ) (33,475 ) Repurchase of common stock (127,065 ) (96,720 ) Deferred acquisition payments (3,220 ) (2,314 ) Proceeds from long-term debt 470,000 290,000 Payments on long-term debt (327,500 ) (264,801 ) Purchase of capped call transactions related to convertible notes (34,298 ) - Payments of deferred financing costs (14,539 ) - Settlement and merchant reserve activity 35,963 52,656 Net cash used in financing activities (31,305 ) (51,685 ) Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash 2,173 (5,758 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 74,858 (2,884 ) Cash, cash equivalents, and restricted cash, beginning of period 389,018 391,902 Cash, cash equivalents, and restricted cash, end of period $ 463,876 $ 389,018 Supplemental disclosures of cash flow information: Cash paid during the period for- Interest $ 24,730 $ 18,314 Income taxes 51,675 34,671 Reconciliation of cash, cash equivalents, and restricted cash: Cash and cash equivalents $ 186,264 $ 150,365 Settlement and merchant reserve assets 274,699 238,653 Restricted cash included in current and non-current assets 2,913 - Total cash, cash equivalents, and restricted cash $ 463,876 $ 389,018 EXHIBIT 1 CSG SYSTEMS INTERNATIONAL, INC. SUPPLEMENTAL REVENUE ANALYSIS Revenue by Significant Customers: 10% or more of Revenue Quarter Ended Quarter Ended Quarter Ended December 31, 2023 September 30, 2023 December 31, 2022 Amount % of Revenue Amount % of Revenue Amount % of Revenue Charter $ 60,128 20 % $ 59,432 21 % $ 58,006 20 % Comcast 54,651 18 % 53,653 19 % 55,383 19 % Year Ended Year Ended December 31, 2023 December 31, 2022 Amount % of Revenue Amount % of Revenue Charter $ 241,267 21 % $ 221,222 20 % Comcast 215,476 18 % 214,359 20 % Revenue by Vertical Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2023 2023 2022 Broadband/Cable/Satellite 51 % 53 % 53 % Telecommunications 21 % 20 % 20 % All other 28 % 27 % 27 % Total revenue 100 % 100 % 100 % Year Ended Year Ended December 31, December 31, 2023 2022 Broadband/Cable/Satellite 52 % 54 % Telecommunications 20 % 20 % All other 28 % 26 % Total revenue 100 % 100 % Revenue by Geography Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2023 2023 2022 Americas 85 % 86 % 86 % Europe, Middle East and Africa 10 % 9 % 9 % Asia Pacific 5 % 5 % 5 % Total revenue 100 % 100 % 100 % Year Ended Year Ended December 31, December 31, 2023 2022 Americas 86 % 85 % Europe, Middle East and Africa 10 % 11 % Asia Pacific 4 % 4 % Total revenue 100 % 100 % EXHIBIT 2 CSG SYSTEMS INTERNATIONAL, INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES Use of Non-GAAP Financial Measures and Limitations To supplement its condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), CSG uses non-GAAP operating income, non-GAAP adjusted operating margin percentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed in conjunction with its GAAP financial measures, provide investors with greater transparency to the information used by CSG’s management in its financial and operational decision making. CSG uses these non-GAAP financial measures for the following purposes: Certain internal financial planning, reporting, and analysis; Forecasting and budgeting; Certain management compensation incentives; and Communications with CSG’s Board of Directors, stockholders, financial analysts, and investors. These non-GAAP financial measures are provided with the intent of providing investors with the following information: A more complete understanding of CSG’s underlying operational results, trends, and cash generating capabilities; Consistency and comparability with CSG’s historical financial results; and Comparability to similar companies, many of which present similar non-GAAP financial measures to investors. Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAP financial measures include the following items: Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles; The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures; Non-GAAP financial measures do not include all items of income and expense that affect CSG’s operations and that are required by GAAP to be included in financial statements; Certain adjustments to CSG’s non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSG’s financial statements in future periods; and Certain charges excluded from CSG’s non-GAAP financial measures are cash expenses, and therefore do impact CSG’s cash position. CSG compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures as a supplement only. Additionally, CSG provides specific information regarding the treatment of GAAP amounts considered in preparing the non-GAAP financial measures and reconciles each non-GAAP financial measure to the most directly comparable GAAP measure. Non-GAAP Financial Measures: Basis of Presentation The table below outlines the exclusions from CSG’s non-GAAP financial measures: Non-GAAP Exclusions Operating Income Adjusted Operating Margin Percentage EPS Transaction fees — X — Restructuring and reorganization charges X X X Executive transition costs X X X Acquisition-related expenses: Amortization of acquired intangible assets X X X Transaction-related costs X X X Stock-based compensation X X X Gain (loss) on debt extinguishment/conversion — — X Gain (loss) on acquisitions or dispositions — — X Unusual income tax matters — — X CSG believes that excluding certain items in calculating its non-GAAP financial measures provides meaningful supplemental information regarding CSG’s performance and these items are excluded for the following reasons: Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG’s Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors. Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/or significant changes to CSG’s business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. These charges are not considered reflective of CSG’s recurring business operating results. The exclusion of these items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Executive transition costs include expenses incurred related to a departure of a CSG executive officer under the terms of the related separation agreement. These types of costs are not considered reflective of CSG’s recurring business operating results. The exclusion of these costs in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Acquisition-related expenses include amortization of acquired intangible assets and transaction-related costs, to include earn-out compensation. Transaction-related costs, which typically include expenses related to legal, accounting, and other professional services, are direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSG’s recurring business operating results. The total amount of acquisition-related expenses can vary significantly between periods based on the number and size of acquisition activities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-out compensation. In addition, the timing of these expenses may not directly correlate with underlying performance of the CSG’s operations. Therefore, the exclusion of acquisition-related expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Stock-based compensation results from CSG’s issuance of equity awards to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG. The exclusion of these expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSG’s results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s business. Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancing of CSG’s credit agreement and/or repurchase, conversion, or settlement of CSG’s convertible notes. These activities, to include any derivative activity related to debt conversions, are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods. Gains or losses related to the acquisition or disposition of certain of CSG’s business activities are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods. Unusual items within CSG’s quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash flow. Management believes non-GAAP adjusted EBITDA is a useful measure to investors in evaluating CSG’s operating performance, debt servicing capabilities, and enterprise valuation. CSG defines non-GAAP adjusted EBITDA as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency transaction adjustments, acquisition-related expenses, and unusual items, such as restructuring and reorganization charges, executive transition costs, gains and losses related to the extinguishment of debt, and gains and losses on acquisitions or dispositions, as discussed above. Additionally, management uses non-GAAP free cash flow, among other measures, to assess its financial performance and cash generating capabilities, and believes that it is useful to investors because it shows CSG’s cash available to service debt, make strategic acquisitions and investments, repurchase its common stock, pay cash dividends, and fund ongoing operations. CSG defines non-GAAP free cash flow as net cash flows from operating activities less the purchases of software, property and equipment. Non-GAAP Financial Measures Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage: The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of CSG’s non- GAAP adjusted operating margin percentage, for the indicated periods are as follows (in thousands, except percentages): Quarter Ended December 31, Year Ended December 31, 2023 2022 2023 2022 Non-GAAP Operating Income GAAP operating income $ 24,747 $ 35,072 $ 123,877 $ 78,747 Restructuring and reorganization charges (1) 7,915 4 16,336 46,308 Executive transition costs 606 - 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets 2,982 3,338 12,185 14,355 Transaction-related costs (27 ) (296 ) 2,095 173 Stock-based compensation (1) 7,840 7,039 29,480 27,945 Non-GAAP operating income $ 44,063 $ 45,157 $ 185,727 $ 168,830 Non-GAAP Adjusted Operating Margin Percentage Revenue $ 297,324 $ 289,876 $ 1,169,258 $ 1,089,752 Less: Transaction fees (2) (23,967 ) (20,751 ) (87,430 ) (75,679 ) Revenue less transaction fees $ 273,357 $ 269,125 $ 1,081,828 $ 1,014,073 Non-GAAP adjusted operating margin percentage 16.1 % 16.8 % 17.2 % 16.6 % (1) Restructuring and reorganization charges include stock-based compensation, which is not included in the stock-based compensation line in the tables above and following, and depreciation, which has not been recorded to the depreciation line item on CSG’s Income Statement. (2) Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG's Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors. Non-GAAP EPS: The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts): Quarter Ended Quarter Ended December 31, 2023 December 31, 2022 Amounts EPS (4) Amounts EPS (4) GAAP net income $ 12,670 $ 0.44 $ 20,149 $ 0.66 GAAP income tax provision (3) 4,174 8,118 GAAP income before income taxes 16,844 28,267 Restructuring and reorganization charges (1) 7,915 4 Executive transition costs 606 - Acquisition-related costs: Amortization of acquired intangible assets 2,982 3,338 Transaction-related costs (27 ) (296 ) Stock-based compensation (1) 7,840 7,039 Non-GAAP income before income taxes 36,160 38,352 Non-GAAP income tax provision (3) (9,535 ) (12,435 ) Non-GAAP net income $ 26,625 $ 0.92 $ 25,917 $ 0.84 Year Ended Year Ended December 31, 2023 December 31, 2022 Amounts EPS (4) Amounts EPS (4) GAAP net income $ 66,246 $ 2.20 $ 44,060 $ 1.41 GAAP income tax provision (3) 26,105 16,721 GAAP income before income taxes 92,351 60,781 Restructuring and reorganization charges (1) 16,336 46,308 Executive transition costs 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets 12,185 14,355 Transaction-related costs 2,095 173 Stock-based compensation (1) 29,480 27,945 Loss on extinguishment of debt - 7,456 Non-GAAP income before income taxes 154,201 158,320 Non-GAAP income tax provision (3) (43,176 ) (45,427 ) Non-GAAP net income $ 111,025 $ 3.69 $ 112,893 $ 3.61 (3) For the fourth quarter and year ended December 31, 2023 the GAAP effective income tax rates were approximately 25% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 26% and 28%, respectively. For the fourth quarter and year ended December 31, 2022 the GAAP effective income tax rates were approximately 29% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 32% and 29%, respectively. (4) The outstanding diluted shares for the fourth quarter and year ended December 31, 2023 were 28.8 million and 30.1 million, respectively, and for the fourth quarter and year ended December 31, 2022 were 30.7 million and 31.3 million, respectively. Non-GAAP Adjusted EBITDA: CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for the indicated periods (in thousands, except percentages): Quarter Ended Year Ended December 31, December 31, 2023 2022 2023 2022 GAAP net income $ 12,670 $ 20,149 $ 66,246 $ 44,060 GAAP income tax provision 4,174 8,118 26,105 16,721 Interest expense (5) 8,084 6,146 31,176 16,432 Loss on derivative liability upon debt conversion - - - 7,456 Interest and investment income and other, net (181 ) 659 350 (5,922 ) GAAP operating income 24,747 35,072 123,877 78,747 Restructuring and reorganization charges (1) 7,915 4 16,336 46,308 Executive transition costs 606 - 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets (6) 2,982 3,338 12,185 14,355 Transaction-related costs (27 ) (296 ) 2,095 173 Stock-based compensation (1) 7,840 7,039 29,480 27,945 Amortization of other intangible assets (6) 3,350 3,399 13,624 14,140 Amortization of customer contract costs (6) 5,901 5,588 20,291 19,738 Depreciation (1) 6,034 5,913 23,189 23,598 Non-GAAP adjusted EBITDA $ 59,348 $ 60,057 $ 242,831 $ 226,306 Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2) 21.7 % 22.3 % 22.4 % 22.3 % (5) Interest expense includes amortization of deferred financing costs as provided in Note 6 below. (6) Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands): Quarter Ended Year Ended December 31, December 31, 2023 2022 2023 2022 Amortization of acquired intangible assets $ 2,982 $ 3,338 $ 12,185 $ 14,355 Amortization of other intangible assets 3,350 3,399 13,624 14,140 Amortization of customer contract costs 5,901 5,588 20,291 19,738 Amortization of deferred financing costs 891 189 1,567 751 Total amortization $ 13,124 $ 12,514 $ 47,667 $ 48,984 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 Year Ended December 31, December 31, 2023 2022 2023 2022 Cash flows from operating activities $ 79,531 $ 54,024 $ 131,896 $ 63,597 Purchases of software, property and equipment (5,037 ) (5,427 ) (27,977 ) (36,991 ) Non-GAAP free cash flow $ 74,494 $ 48,597 $ 103,919 $ 26,606 Non-GAAP Financial Measures – 2024 Financial Guidance Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage: The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of non-GAAP adjusted operating margin percentage, as included in CSG’s 2024 full year financial guidance, is as follows (in thousands, except percentages): 2024 Guidance Range Low Range High Range Non-GAAP Operating Income GAAP operating income $ 145,100 $ 155,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Non-GAAP operating income $ 187,700 $ 197,700 Non-GAAP Operating Margin Percentage Revenue $ 1,200,000 $ 1,240,000 Less: Transaction fees (98,000 ) (103,000 ) Revenue less transaction fees $ 1,102,000 $ 1,137,000 Non-GAAP adjusted operating margin percentage 17.0 % 17.4 % Non-GAAP EPS: The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2024 full year financial guidance is as follows (in thousands, except per share amounts): 2024 Guidance Range Low Range High Range Amounts EPS (8) Amounts EPS (8) GAAP net income $ 84,000 $ 2.86 $ 91,200 $ 3.13 GAAP income tax provision (7) 35,100 37,900 GAAP income before income taxes 119,100 129,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Non-GAAP income before income taxes 161,700 171,700 Non-GAAP income tax provision (7) (47,700 ) (50,500 ) Non-GAAP net income $ 114,000 $ 3.85 $ 121,200 $ 4.15 (7) For 2024, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 29%. (8) The weighted-average diluted shares outstanding are expected to be approximately 29 million. Non-GAAP Adjusted EBITDA: CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for CSG’s 2024 full year financial guidance (in thousands, except percentages): 2024 Guidance Range Low Range High Range GAAP net income $ 84,000 $ 91,200 GAAP income tax provision (7) 35,100 37,900 Interest expense 30,000 30,000 Interest and investment income (4,000 ) (4,000 ) GAAP operating income 145,100 155,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Amortization of other intangible assets 5,200 5,200 Amortization of client contract costs 22,100 22,100 Depreciation 30,000 30,000 Non-GAAP adjusted EBITDA $ 245,000 $ 255,000 Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2) 22.2 % 22.4 % Non-GAAP Free Cash Flow: CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities is provided below for CSG’s 2023 full year financial guidance (in thousands): 2024 Guidance Range Low Range High Range Cash flows from operating activities $ 120,000 $ 170,000 Purchases of software, property and equipment (25,000 ) (35,000 ) Non-GAAP free cash flow $ 95,000 $ 135,000 View source version on businesswire.com: https://www.businesswire.com/news/home/20240207762697/en/Contacts John Rea, Investor Relations (210) 687-4409 E-mail: john.rea@csgi.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. 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CSG Systems International Reports Fourth Quarter and Full Year 2023 Results By: CSG Systems International, Inc. via Business Wire February 07, 2024 at 16:01 PM EST Achieved or Exceeded All 2023 Financial Guidance Targets 2023 Organic Revenue Grew 7.3% YoY; CSG’s Best Annual Results in Nearly Two Decades Dividend Payout Increased 7% in 2024; Marks 11th Consecutive Year of Increased Payout Returned Over $150 Million to Shareholders in 2023 including $117 Million of Share Repurchases Q4 Operating Cash Flow of $80 Million with Record Quarterly Non-GAAP Free Cash Flow of $74 Million CSG (NASDAQ: CSGS) today reported results for the quarter and year ended December 31, 2023. Financial Results: Fourth quarter 2023 financial results: Total revenue was $297.3 million. GAAP operating income was $24.7 million, or an operating margin of 8.3%, and non-GAAP operating income was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%. GAAP earnings per diluted share (EPS) was $0.44 and non-GAAP EPS was $0.92. Cash flows from operations were $79.5 million, with non-GAAP free cash flow of $74.5 million. Full year 2023 financial results: Total revenue was $1.17 billion. GAAP operating income was $123.9 million, or an operating margin of 10.6%, and non-GAAP operating income was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%. GAAP EPS was $2.20 and non-GAAP EPS was $3.69. Cash flows from operations were $131.9 million, with non-GAAP free cash flow of $103.9 million. Shareholder Returns: In November 2023, CSG declared its quarterly cash dividend of $0.28 per share of common stock, or a total of approximately $8 million, to shareholders, bringing total 2023 dividends to approximately $34 million. In January 2024, CSG’s Board of Directors approved a 7% increase in CSG’s cash dividend, with quarterly payments of $0.30 per share of common stock to be paid in March 2024. During the fourth quarter and full year 2023, CSG repurchased under its stock repurchase program, approximately 196,000 shares of its common stock for approximately $10 million and approximately 2,188,000 shares of its common stock for approximately $117 million, respectively. “Team CSG had a record-setting 2023 as we delivered excellent financial results across the board highlighted by 7.3% year-over-year organic revenue growth, our strongest annual result in nearly two decades,” said Brian Shepherd, President and Chief Executive Officer of CSG. “Additionally, we delivered strong profitability and cash flow generation as our non-GAAP adjusted operating margin improved from 16.6% in 2022 to 17.2% in 2023, while generating $104 million in non-GAAP free cash flow. Plus, we continue to return capital to shareholders in the form of buybacks and dividends, having delivered over $150 million in shareholder remuneration in 2023. On this note, we are pleased to announce our 11th consecutive year of increasing dividend payout in 2024. Looking forward, we anticipate mid-single-digit organic revenue growth, resulting in revenue between $1.2 and $1.24 billion in 2024 with non-GAAP adjusted operating margins in the range of 17.0% to 17.4%.” Financial Overview (unaudited) (in thousands, except per share amounts and percentages): Quarter Ended December 31, Year Ended December 31, Percent Percent 2023 2022 Changed 2023 2022 Changed GAAP Results: Revenue $ 297,324 $ 289,876 2.6 % $ 1,169,258 $ 1,089,752 7.3 % Operating Income 24,747 35,072 (29.4 %) 123,877 78,747 57.3 % Operating Margin Percentage 8.3 % 12.1 % 10.6 % 7.2 % EPS $ 0.44 $ 0.66 (33.3 %) $ 2.20 $ 1.41 56.0 % Non-GAAP Results: Operating Income $ 44,063 $ 45,157 (2.4 %) $ 185,727 $ 168,830 10.0 % Adjusted Operating Margin Percentage 16.1 % 16.8 % 17.2 % 16.6 % EPS $ 0.92 $ 0.84 9.5 % $ 3.69 $ 3.61 2.2 % 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 fourth quarter of 2023 was $297.3 million, a 2.6% increase when compared to revenue of $289.9 million for the fourth quarter of 2022. Total revenue for the full year 2023 was $1,169.3 million, a 7.3% increase when compared to revenue of $1,089.8 million for the full year 2022. The increases in revenue can be mainly attributed to the continued growth of CSG’s revenue management solutions, to include the conversion of customer accounts on CSG solutions, growth in digital solutions, and increased payments volumes. GAAP operating income for the fourth quarter of 2023 was $24.7 million, or 8.3% of total revenue, compared to $35.1 million, or 12.1% of total revenue, for the fourth quarter of 2022. GAAP operating income for the full year 2023 was $123.9 million, or 10.6% of total revenue, compared to $78.7 million, or 7.2% of total revenue, for the full year 2022. These changes in operating income can be mainly attributed to the $7.9 million quarterly increase in restructuring and reorganization charges, and the $30.0 million full year decrease in restructuring and reorganization charges. GAAP EPS for the fourth quarter of 2023 was $0.44, as compared to $0.66 for the fourth quarter of 2022. GAAP EPS for the full year 2023 was $2.20, compared to $1.41 for the full year 2022. The changes in GAAP EPS are mainly due to fluctuations in operating income, discussed above, with the full year increase in GAAP EPS partially offset by higher interest expense. Non-GAAP Results: Non-GAAP operating income for the fourth quarter of 2023 was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%, compared to $45.2 million, or a non-GAAP adjusted operating margin of 16.8% for the fourth quarter of 2022. Non-GAAP operating income for the full year 2023 was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%, compared to $168.8 million, or a non-GAAP adjusted operating margin of 16.6% for the full year 2022. Non-GAAP EPS for the fourth quarter of 2023 was $0.92 compared to $0.84 for the fourth quarter of 2022. Non-GAAP EPS for the full year 2023 was $3.69 compared to $3.61 for the full year 2022. Balance Sheet and Cash Flows Cash, cash equivalents, and short-term investments as of December 31, 2023 were $186.3 million compared to $146.7 million as of September 30, 2023 and $150.4 million as of December 31, 2022. CSG generated net cash flows from operations for the fourth quarters ended December 31, 2023 and 2022 of $79.5 million and $54.0 million, respectively, and had non-GAAP free cash flow of $74.5 million and $48.6 million, respectively. For the year ended December 31, 2023 and 2022, CSG generated net cash flows from operations of $131.9 million and $63.6 million, respectively, and had non-GAAP free cash flow of $103.9 million and $26.6 million, respectively. Summary of Financial Guidance CSG’s financial guidance for the full year 2024 is as follows: GAAP Measures: Revenue $1,200 - $1,240 million Non-GAAP Measures: Adjusted Operating Margin Percentage 17.0% - 17.4% EPS $3.85 - $4.15 Adjusted EBITDA $245 - $255 million Free Cash Flow $95 - $135 million For additional information and reconciliations regarding CSG’s use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG’s website at csgi.com. Conference Call CSG will host a conference call on Wednesday, February 7, 2024 at 5:00 p.m. ET, to discuss CSG’s fourth quarter and full year 2023 earnings results. The call will be carried live and archived on the Internet. A link to the conference call is available at http://ir.csgi.com. In addition, to reach the conference by phone, call 1-888-412-4131 and use the passcode 2327393. Additional Information For information about CSG, please visit CSG’s web site at csgi.com. Additional information can be found in the Investor Relations section of the website. About CSG CSG empowers companies to build unforgettable experiences, making it easier for people and businesses to connect with, use and pay for the services they value most. Our customer experience, billing and payments solutions help companies of any size make money and make a difference. With our SaaS solutions, company leaders can take control of their future and tap into guidance along the way from our fiercely committed and forward-thinking CSGers around the world. Want to be future-ready and a change-maker like the global brands that trust CSG? Visit csgi.com to learn more. Forward-Looking Statements This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. Some of these key factors include, but are not limited to the following items: CSG derives approximately forty percent of its revenue from its two largest customers; Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates; CSG’s ability to maintain a reliable, secure computing environment; Continued market acceptance of CSG’s products and services; CSG’s ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner; CSG’s ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations; CSG’s dependency on the global telecommunications industry, and in particular, the North American telecommunications industry; CSG’s ability to meet its financial expectations; Increasing competition in CSG’s market from companies of greater size and with broader presence; CSG’s ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals; CSG’s ability to protect its intellectual property rights; CSG’s ability to conduct business in the international marketplace; CSG’s ability to comply with applicable U.S. and International laws and regulations; and CSG’s business may be disrupted, and its results of operations and cash flows adversely affected by a global pandemic. This list is not exhaustive, and readers are encouraged to review the additional risks and important factors described in CSG’s reports on Forms 10-K and 10-Q and other filings made with the SEC. CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED (in thousands) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 186,264 $ 150,365 Short-term investments - 71 Total cash, cash equivalents, and short-term investments 186,264 150,436 Settlement and merchant reserve assets 274,699 238,653 Trade accounts receivable: Billed, net of allowance of $5,432 and $5,528 267,680 274,189 Unbilled 82,163 52,830 Income taxes receivable 1,345 1,270 Other current assets 50,075 48,577 Total current assets 862,226 765,955 Non-current assets: Property and equipment, net of depreciation of $121,816 and $105,466 65,545 71,787 Operating lease right-of-use assets 34,283 49,687 Software, net of amortization of $157,601 and $150,337 14,224 22,774 Goodwill 308,596 304,036 Acquired customer contracts, net of amortization of $126,469 and $120,080 35,879 45,417 Customer contract costs, net of amortization of $42,094 and $30,601 54,421 54,735 Deferred income taxes 57,855 26,206 Other assets 10,017 7,956 Total non-current assets 580,820 582,598 Total assets $ 1,443,046 $ 1,348,553 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 7,500 $ 37,500 Operating lease liabilities 15,946 21,012 Customer deposits 41,035 40,472 Trade accounts payable 46,406 47,720 Accrued employee compensation 84,380 68,321 Settlement and merchant reserve liabilities 273,817 237,810 Deferred revenue 54,199 46,033 Income taxes payable 4,104 5,455 Other current liabilities 33,449 22,886 Total current liabilities 560,836 527,209 Non-current liabilities: Long-term debt, net of unamortized discounts of $15,628 and $2,656 534,997 375,469 Operating lease liabilities 34,360 53,207 Deferred revenue 23,447 21,991 Income taxes payable 3,041 3,410 Deferred income taxes 123 117 Other non-current liabilities 12,916 11,901 Total non-current liabilities 608,884 466,095 Total liabilities 1,169,720 993,304 Stockholders' equity: Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding - - Common stock, par value $.01 per share; 100,000 shares authorized; 29,541 and 31,269 shares outstanding 713 708 Additional paid-in capital 490,947 495,189 Treasury stock, at cost; 40,398 and 38,210 shares (1,136,055 ) (1,018,034 ) Accumulated other comprehensive income (loss): Unrealized gain on short-term investments, net of tax 1 1 Cumulative foreign currency translation adjustments (50,414 ) (58,830 ) Accumulated earnings 968,134 936,215 Total stockholders' equity 273,326 355,249 Total liabilities and stockholders' equity $ 1,443,046 $ 1,348,553 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED (in thousands, except per share amounts) Quarter Ended Year Ended December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Revenue $ 297,324 $ 289,876 $ 1,169,258 $ 1,089,752 Cost of revenue (exclusive of depreciation, shown separately below) 156,145 150,154 615,042 565,168 Other operating expenses: Research and development 35,800 34,548 143,201 137,913 Selling, general and administrative 66,683 64,185 247,613 238,018 Depreciation 6,034 5,913 23,189 23,598 Restructuring and reorganization charges 7,915 4 16,336 46,308 Total operating expenses 272,577 254,804 1,045,381 1,011,005 Operating income 24,747 35,072 123,877 78,747 Other income (expense): Interest expense (8,084 ) (6,146 ) (31,176 ) (16,432 ) Interest and investment income, net 1,820 340 4,336 877 Loss on derivative liability upon debt conversion - - - (7,456 ) Other, net (1,639 ) (999 ) (4,686 ) 5,045 Total other (7,903 ) (6,805 ) (31,526 ) (17,966 ) Income before income taxes 16,844 28,267 92,351 60,781 Income tax provision (4,174 ) (8,118 ) (26,105 ) (16,721 ) Net income $ 12,670 $ 20,149 $ 66,246 $ 44,060 Weighted-average shares outstanding: Basic 28,607 30,455 29,938 31,028 Diluted 28,842 30,732 30,115 31,298 Earnings per common share: Basic $ 0.44 $ 0.66 $ 2.21 $ 1.42 Diluted 0.44 0.66 2.20 1.41 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands) Year Ended December 31, 2023 December 31, 2022 Cash flows from operating activities: Net income $ 66,246 $ 44,060 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 23,585 27,967 Amortization 47,667 48,984 Asset impairment 2,061 31,761 Gain on lease modifications (4,349 ) - Loss on short-term investments and other - 18 Loss on derivative liability upon debt conversion - 7,456 Unrealized foreign currency transactions (gain)/loss, net 225 (103 ) Deferred income taxes (23,560 ) (27,627 ) Stock-based compensation 28,990 27,243 Subtotal 140,865 159,759 Changes in operating assets and liabilities: Trade accounts receivable, net (22,401 ) (51,005 ) Other current and non-current assets and liabilities (6,566 ) (12,833 ) Income taxes payable/receivable (1,849 ) 9,336 Trade accounts payable and accrued liabilities 12,541 (36,971 ) Deferred revenue 9,306 (4,689 ) Net cash provided by operating activities 131,896 63,597 Cash flows from investing activities: Purchases of software, property and equipment (27,977 ) (36,991 ) Proceeds from sale/maturity of short-term investments 71 27,953 Net cash used in investing activities (27,906 ) (9,038 ) Cash flows from financing activities: Proceeds from issuance of common stock 3,284 2,969 Payment of cash dividends (33,930 ) (33,475 ) Repurchase of common stock (127,065 ) (96,720 ) Deferred acquisition payments (3,220 ) (2,314 ) Proceeds from long-term debt 470,000 290,000 Payments on long-term debt (327,500 ) (264,801 ) Purchase of capped call transactions related to convertible notes (34,298 ) - Payments of deferred financing costs (14,539 ) - Settlement and merchant reserve activity 35,963 52,656 Net cash used in financing activities (31,305 ) (51,685 ) Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash 2,173 (5,758 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 74,858 (2,884 ) Cash, cash equivalents, and restricted cash, beginning of period 389,018 391,902 Cash, cash equivalents, and restricted cash, end of period $ 463,876 $ 389,018 Supplemental disclosures of cash flow information: Cash paid during the period for- Interest $ 24,730 $ 18,314 Income taxes 51,675 34,671 Reconciliation of cash, cash equivalents, and restricted cash: Cash and cash equivalents $ 186,264 $ 150,365 Settlement and merchant reserve assets 274,699 238,653 Restricted cash included in current and non-current assets 2,913 - Total cash, cash equivalents, and restricted cash $ 463,876 $ 389,018 EXHIBIT 1 CSG SYSTEMS INTERNATIONAL, INC. SUPPLEMENTAL REVENUE ANALYSIS Revenue by Significant Customers: 10% or more of Revenue Quarter Ended Quarter Ended Quarter Ended December 31, 2023 September 30, 2023 December 31, 2022 Amount % of Revenue Amount % of Revenue Amount % of Revenue Charter $ 60,128 20 % $ 59,432 21 % $ 58,006 20 % Comcast 54,651 18 % 53,653 19 % 55,383 19 % Year Ended Year Ended December 31, 2023 December 31, 2022 Amount % of Revenue Amount % of Revenue Charter $ 241,267 21 % $ 221,222 20 % Comcast 215,476 18 % 214,359 20 % Revenue by Vertical Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2023 2023 2022 Broadband/Cable/Satellite 51 % 53 % 53 % Telecommunications 21 % 20 % 20 % All other 28 % 27 % 27 % Total revenue 100 % 100 % 100 % Year Ended Year Ended December 31, December 31, 2023 2022 Broadband/Cable/Satellite 52 % 54 % Telecommunications 20 % 20 % All other 28 % 26 % Total revenue 100 % 100 % Revenue by Geography Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2023 2023 2022 Americas 85 % 86 % 86 % Europe, Middle East and Africa 10 % 9 % 9 % Asia Pacific 5 % 5 % 5 % Total revenue 100 % 100 % 100 % Year Ended Year Ended December 31, December 31, 2023 2022 Americas 86 % 85 % Europe, Middle East and Africa 10 % 11 % Asia Pacific 4 % 4 % Total revenue 100 % 100 % EXHIBIT 2 CSG SYSTEMS INTERNATIONAL, INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES Use of Non-GAAP Financial Measures and Limitations To supplement its condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), CSG uses non-GAAP operating income, non-GAAP adjusted operating margin percentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed in conjunction with its GAAP financial measures, provide investors with greater transparency to the information used by CSG’s management in its financial and operational decision making. CSG uses these non-GAAP financial measures for the following purposes: Certain internal financial planning, reporting, and analysis; Forecasting and budgeting; Certain management compensation incentives; and Communications with CSG’s Board of Directors, stockholders, financial analysts, and investors. These non-GAAP financial measures are provided with the intent of providing investors with the following information: A more complete understanding of CSG’s underlying operational results, trends, and cash generating capabilities; Consistency and comparability with CSG’s historical financial results; and Comparability to similar companies, many of which present similar non-GAAP financial measures to investors. Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAP financial measures include the following items: Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles; The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures; Non-GAAP financial measures do not include all items of income and expense that affect CSG’s operations and that are required by GAAP to be included in financial statements; Certain adjustments to CSG’s non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSG’s financial statements in future periods; and Certain charges excluded from CSG’s non-GAAP financial measures are cash expenses, and therefore do impact CSG’s cash position. CSG compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures as a supplement only. Additionally, CSG provides specific information regarding the treatment of GAAP amounts considered in preparing the non-GAAP financial measures and reconciles each non-GAAP financial measure to the most directly comparable GAAP measure. Non-GAAP Financial Measures: Basis of Presentation The table below outlines the exclusions from CSG’s non-GAAP financial measures: Non-GAAP Exclusions Operating Income Adjusted Operating Margin Percentage EPS Transaction fees — X — Restructuring and reorganization charges X X X Executive transition costs X X X Acquisition-related expenses: Amortization of acquired intangible assets X X X Transaction-related costs X X X Stock-based compensation X X X Gain (loss) on debt extinguishment/conversion — — X Gain (loss) on acquisitions or dispositions — — X Unusual income tax matters — — X CSG believes that excluding certain items in calculating its non-GAAP financial measures provides meaningful supplemental information regarding CSG’s performance and these items are excluded for the following reasons: Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG’s Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors. Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/or significant changes to CSG’s business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. These charges are not considered reflective of CSG’s recurring business operating results. The exclusion of these items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Executive transition costs include expenses incurred related to a departure of a CSG executive officer under the terms of the related separation agreement. These types of costs are not considered reflective of CSG’s recurring business operating results. The exclusion of these costs in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Acquisition-related expenses include amortization of acquired intangible assets and transaction-related costs, to include earn-out compensation. Transaction-related costs, which typically include expenses related to legal, accounting, and other professional services, are direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSG’s recurring business operating results. The total amount of acquisition-related expenses can vary significantly between periods based on the number and size of acquisition activities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-out compensation. In addition, the timing of these expenses may not directly correlate with underlying performance of the CSG’s operations. Therefore, the exclusion of acquisition-related expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Stock-based compensation results from CSG’s issuance of equity awards to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG. The exclusion of these expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSG’s results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s business. Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancing of CSG’s credit agreement and/or repurchase, conversion, or settlement of CSG’s convertible notes. These activities, to include any derivative activity related to debt conversions, are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods. Gains or losses related to the acquisition or disposition of certain of CSG’s business activities are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods. Unusual items within CSG’s quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash flow. Management believes non-GAAP adjusted EBITDA is a useful measure to investors in evaluating CSG’s operating performance, debt servicing capabilities, and enterprise valuation. CSG defines non-GAAP adjusted EBITDA as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency transaction adjustments, acquisition-related expenses, and unusual items, such as restructuring and reorganization charges, executive transition costs, gains and losses related to the extinguishment of debt, and gains and losses on acquisitions or dispositions, as discussed above. Additionally, management uses non-GAAP free cash flow, among other measures, to assess its financial performance and cash generating capabilities, and believes that it is useful to investors because it shows CSG’s cash available to service debt, make strategic acquisitions and investments, repurchase its common stock, pay cash dividends, and fund ongoing operations. CSG defines non-GAAP free cash flow as net cash flows from operating activities less the purchases of software, property and equipment. Non-GAAP Financial Measures Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage: The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of CSG’s non- GAAP adjusted operating margin percentage, for the indicated periods are as follows (in thousands, except percentages): Quarter Ended December 31, Year Ended December 31, 2023 2022 2023 2022 Non-GAAP Operating Income GAAP operating income $ 24,747 $ 35,072 $ 123,877 $ 78,747 Restructuring and reorganization charges (1) 7,915 4 16,336 46,308 Executive transition costs 606 - 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets 2,982 3,338 12,185 14,355 Transaction-related costs (27 ) (296 ) 2,095 173 Stock-based compensation (1) 7,840 7,039 29,480 27,945 Non-GAAP operating income $ 44,063 $ 45,157 $ 185,727 $ 168,830 Non-GAAP Adjusted Operating Margin Percentage Revenue $ 297,324 $ 289,876 $ 1,169,258 $ 1,089,752 Less: Transaction fees (2) (23,967 ) (20,751 ) (87,430 ) (75,679 ) Revenue less transaction fees $ 273,357 $ 269,125 $ 1,081,828 $ 1,014,073 Non-GAAP adjusted operating margin percentage 16.1 % 16.8 % 17.2 % 16.6 % (1) Restructuring and reorganization charges include stock-based compensation, which is not included in the stock-based compensation line in the tables above and following, and depreciation, which has not been recorded to the depreciation line item on CSG’s Income Statement. (2) Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG's Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors. Non-GAAP EPS: The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts): Quarter Ended Quarter Ended December 31, 2023 December 31, 2022 Amounts EPS (4) Amounts EPS (4) GAAP net income $ 12,670 $ 0.44 $ 20,149 $ 0.66 GAAP income tax provision (3) 4,174 8,118 GAAP income before income taxes 16,844 28,267 Restructuring and reorganization charges (1) 7,915 4 Executive transition costs 606 - Acquisition-related costs: Amortization of acquired intangible assets 2,982 3,338 Transaction-related costs (27 ) (296 ) Stock-based compensation (1) 7,840 7,039 Non-GAAP income before income taxes 36,160 38,352 Non-GAAP income tax provision (3) (9,535 ) (12,435 ) Non-GAAP net income $ 26,625 $ 0.92 $ 25,917 $ 0.84 Year Ended Year Ended December 31, 2023 December 31, 2022 Amounts EPS (4) Amounts EPS (4) GAAP net income $ 66,246 $ 2.20 $ 44,060 $ 1.41 GAAP income tax provision (3) 26,105 16,721 GAAP income before income taxes 92,351 60,781 Restructuring and reorganization charges (1) 16,336 46,308 Executive transition costs 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets 12,185 14,355 Transaction-related costs 2,095 173 Stock-based compensation (1) 29,480 27,945 Loss on extinguishment of debt - 7,456 Non-GAAP income before income taxes 154,201 158,320 Non-GAAP income tax provision (3) (43,176 ) (45,427 ) Non-GAAP net income $ 111,025 $ 3.69 $ 112,893 $ 3.61 (3) For the fourth quarter and year ended December 31, 2023 the GAAP effective income tax rates were approximately 25% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 26% and 28%, respectively. For the fourth quarter and year ended December 31, 2022 the GAAP effective income tax rates were approximately 29% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 32% and 29%, respectively. (4) The outstanding diluted shares for the fourth quarter and year ended December 31, 2023 were 28.8 million and 30.1 million, respectively, and for the fourth quarter and year ended December 31, 2022 were 30.7 million and 31.3 million, respectively. Non-GAAP Adjusted EBITDA: CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for the indicated periods (in thousands, except percentages): Quarter Ended Year Ended December 31, December 31, 2023 2022 2023 2022 GAAP net income $ 12,670 $ 20,149 $ 66,246 $ 44,060 GAAP income tax provision 4,174 8,118 26,105 16,721 Interest expense (5) 8,084 6,146 31,176 16,432 Loss on derivative liability upon debt conversion - - - 7,456 Interest and investment income and other, net (181 ) 659 350 (5,922 ) GAAP operating income 24,747 35,072 123,877 78,747 Restructuring and reorganization charges (1) 7,915 4 16,336 46,308 Executive transition costs 606 - 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets (6) 2,982 3,338 12,185 14,355 Transaction-related costs (27 ) (296 ) 2,095 173 Stock-based compensation (1) 7,840 7,039 29,480 27,945 Amortization of other intangible assets (6) 3,350 3,399 13,624 14,140 Amortization of customer contract costs (6) 5,901 5,588 20,291 19,738 Depreciation (1) 6,034 5,913 23,189 23,598 Non-GAAP adjusted EBITDA $ 59,348 $ 60,057 $ 242,831 $ 226,306 Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2) 21.7 % 22.3 % 22.4 % 22.3 % (5) Interest expense includes amortization of deferred financing costs as provided in Note 6 below. (6) Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands): Quarter Ended Year Ended December 31, December 31, 2023 2022 2023 2022 Amortization of acquired intangible assets $ 2,982 $ 3,338 $ 12,185 $ 14,355 Amortization of other intangible assets 3,350 3,399 13,624 14,140 Amortization of customer contract costs 5,901 5,588 20,291 19,738 Amortization of deferred financing costs 891 189 1,567 751 Total amortization $ 13,124 $ 12,514 $ 47,667 $ 48,984 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 Year Ended December 31, December 31, 2023 2022 2023 2022 Cash flows from operating activities $ 79,531 $ 54,024 $ 131,896 $ 63,597 Purchases of software, property and equipment (5,037 ) (5,427 ) (27,977 ) (36,991 ) Non-GAAP free cash flow $ 74,494 $ 48,597 $ 103,919 $ 26,606 Non-GAAP Financial Measures – 2024 Financial Guidance Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage: The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of non-GAAP adjusted operating margin percentage, as included in CSG’s 2024 full year financial guidance, is as follows (in thousands, except percentages): 2024 Guidance Range Low Range High Range Non-GAAP Operating Income GAAP operating income $ 145,100 $ 155,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Non-GAAP operating income $ 187,700 $ 197,700 Non-GAAP Operating Margin Percentage Revenue $ 1,200,000 $ 1,240,000 Less: Transaction fees (98,000 ) (103,000 ) Revenue less transaction fees $ 1,102,000 $ 1,137,000 Non-GAAP adjusted operating margin percentage 17.0 % 17.4 % Non-GAAP EPS: The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2024 full year financial guidance is as follows (in thousands, except per share amounts): 2024 Guidance Range Low Range High Range Amounts EPS (8) Amounts EPS (8) GAAP net income $ 84,000 $ 2.86 $ 91,200 $ 3.13 GAAP income tax provision (7) 35,100 37,900 GAAP income before income taxes 119,100 129,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Non-GAAP income before income taxes 161,700 171,700 Non-GAAP income tax provision (7) (47,700 ) (50,500 ) Non-GAAP net income $ 114,000 $ 3.85 $ 121,200 $ 4.15 (7) For 2024, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 29%. (8) The weighted-average diluted shares outstanding are expected to be approximately 29 million. Non-GAAP Adjusted EBITDA: CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for CSG’s 2024 full year financial guidance (in thousands, except percentages): 2024 Guidance Range Low Range High Range GAAP net income $ 84,000 $ 91,200 GAAP income tax provision (7) 35,100 37,900 Interest expense 30,000 30,000 Interest and investment income (4,000 ) (4,000 ) GAAP operating income 145,100 155,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Amortization of other intangible assets 5,200 5,200 Amortization of client contract costs 22,100 22,100 Depreciation 30,000 30,000 Non-GAAP adjusted EBITDA $ 245,000 $ 255,000 Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2) 22.2 % 22.4 % Non-GAAP Free Cash Flow: CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities is provided below for CSG’s 2023 full year financial guidance (in thousands): 2024 Guidance Range Low Range High Range Cash flows from operating activities $ 120,000 $ 170,000 Purchases of software, property and equipment (25,000 ) (35,000 ) Non-GAAP free cash flow $ 95,000 $ 135,000 View source version on businesswire.com: https://www.businesswire.com/news/home/20240207762697/en/Contacts John Rea, Investor Relations (210) 687-4409 E-mail: john.rea@csgi.com
Achieved or Exceeded All 2023 Financial Guidance Targets 2023 Organic Revenue Grew 7.3% YoY; CSG’s Best Annual Results in Nearly Two Decades Dividend Payout Increased 7% in 2024; Marks 11th Consecutive Year of Increased Payout Returned Over $150 Million to Shareholders in 2023 including $117 Million of Share Repurchases Q4 Operating Cash Flow of $80 Million with Record Quarterly Non-GAAP Free Cash Flow of $74 Million
CSG (NASDAQ: CSGS) today reported results for the quarter and year ended December 31, 2023. Financial Results: Fourth quarter 2023 financial results: Total revenue was $297.3 million. GAAP operating income was $24.7 million, or an operating margin of 8.3%, and non-GAAP operating income was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%. GAAP earnings per diluted share (EPS) was $0.44 and non-GAAP EPS was $0.92. Cash flows from operations were $79.5 million, with non-GAAP free cash flow of $74.5 million. Full year 2023 financial results: Total revenue was $1.17 billion. GAAP operating income was $123.9 million, or an operating margin of 10.6%, and non-GAAP operating income was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%. GAAP EPS was $2.20 and non-GAAP EPS was $3.69. Cash flows from operations were $131.9 million, with non-GAAP free cash flow of $103.9 million. Shareholder Returns: In November 2023, CSG declared its quarterly cash dividend of $0.28 per share of common stock, or a total of approximately $8 million, to shareholders, bringing total 2023 dividends to approximately $34 million. In January 2024, CSG’s Board of Directors approved a 7% increase in CSG’s cash dividend, with quarterly payments of $0.30 per share of common stock to be paid in March 2024. During the fourth quarter and full year 2023, CSG repurchased under its stock repurchase program, approximately 196,000 shares of its common stock for approximately $10 million and approximately 2,188,000 shares of its common stock for approximately $117 million, respectively. “Team CSG had a record-setting 2023 as we delivered excellent financial results across the board highlighted by 7.3% year-over-year organic revenue growth, our strongest annual result in nearly two decades,” said Brian Shepherd, President and Chief Executive Officer of CSG. “Additionally, we delivered strong profitability and cash flow generation as our non-GAAP adjusted operating margin improved from 16.6% in 2022 to 17.2% in 2023, while generating $104 million in non-GAAP free cash flow. Plus, we continue to return capital to shareholders in the form of buybacks and dividends, having delivered over $150 million in shareholder remuneration in 2023. On this note, we are pleased to announce our 11th consecutive year of increasing dividend payout in 2024. Looking forward, we anticipate mid-single-digit organic revenue growth, resulting in revenue between $1.2 and $1.24 billion in 2024 with non-GAAP adjusted operating margins in the range of 17.0% to 17.4%.” Financial Overview (unaudited) (in thousands, except per share amounts and percentages): Quarter Ended December 31, Year Ended December 31, Percent Percent 2023 2022 Changed 2023 2022 Changed GAAP Results: Revenue $ 297,324 $ 289,876 2.6 % $ 1,169,258 $ 1,089,752 7.3 % Operating Income 24,747 35,072 (29.4 %) 123,877 78,747 57.3 % Operating Margin Percentage 8.3 % 12.1 % 10.6 % 7.2 % EPS $ 0.44 $ 0.66 (33.3 %) $ 2.20 $ 1.41 56.0 % Non-GAAP Results: Operating Income $ 44,063 $ 45,157 (2.4 %) $ 185,727 $ 168,830 10.0 % Adjusted Operating Margin Percentage 16.1 % 16.8 % 17.2 % 16.6 % EPS $ 0.92 $ 0.84 9.5 % $ 3.69 $ 3.61 2.2 % 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 fourth quarter of 2023 was $297.3 million, a 2.6% increase when compared to revenue of $289.9 million for the fourth quarter of 2022. Total revenue for the full year 2023 was $1,169.3 million, a 7.3% increase when compared to revenue of $1,089.8 million for the full year 2022. The increases in revenue can be mainly attributed to the continued growth of CSG’s revenue management solutions, to include the conversion of customer accounts on CSG solutions, growth in digital solutions, and increased payments volumes. GAAP operating income for the fourth quarter of 2023 was $24.7 million, or 8.3% of total revenue, compared to $35.1 million, or 12.1% of total revenue, for the fourth quarter of 2022. GAAP operating income for the full year 2023 was $123.9 million, or 10.6% of total revenue, compared to $78.7 million, or 7.2% of total revenue, for the full year 2022. These changes in operating income can be mainly attributed to the $7.9 million quarterly increase in restructuring and reorganization charges, and the $30.0 million full year decrease in restructuring and reorganization charges. GAAP EPS for the fourth quarter of 2023 was $0.44, as compared to $0.66 for the fourth quarter of 2022. GAAP EPS for the full year 2023 was $2.20, compared to $1.41 for the full year 2022. The changes in GAAP EPS are mainly due to fluctuations in operating income, discussed above, with the full year increase in GAAP EPS partially offset by higher interest expense. Non-GAAP Results: Non-GAAP operating income for the fourth quarter of 2023 was $44.1 million, or a non-GAAP adjusted operating margin of 16.1%, compared to $45.2 million, or a non-GAAP adjusted operating margin of 16.8% for the fourth quarter of 2022. Non-GAAP operating income for the full year 2023 was $185.7 million, or a non-GAAP adjusted operating margin of 17.2%, compared to $168.8 million, or a non-GAAP adjusted operating margin of 16.6% for the full year 2022. Non-GAAP EPS for the fourth quarter of 2023 was $0.92 compared to $0.84 for the fourth quarter of 2022. Non-GAAP EPS for the full year 2023 was $3.69 compared to $3.61 for the full year 2022. Balance Sheet and Cash Flows Cash, cash equivalents, and short-term investments as of December 31, 2023 were $186.3 million compared to $146.7 million as of September 30, 2023 and $150.4 million as of December 31, 2022. CSG generated net cash flows from operations for the fourth quarters ended December 31, 2023 and 2022 of $79.5 million and $54.0 million, respectively, and had non-GAAP free cash flow of $74.5 million and $48.6 million, respectively. For the year ended December 31, 2023 and 2022, CSG generated net cash flows from operations of $131.9 million and $63.6 million, respectively, and had non-GAAP free cash flow of $103.9 million and $26.6 million, respectively. Summary of Financial Guidance CSG’s financial guidance for the full year 2024 is as follows: GAAP Measures: Revenue $1,200 - $1,240 million Non-GAAP Measures: Adjusted Operating Margin Percentage 17.0% - 17.4% EPS $3.85 - $4.15 Adjusted EBITDA $245 - $255 million Free Cash Flow $95 - $135 million For additional information and reconciliations regarding CSG’s use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG’s website at csgi.com. Conference Call CSG will host a conference call on Wednesday, February 7, 2024 at 5:00 p.m. ET, to discuss CSG’s fourth quarter and full year 2023 earnings results. The call will be carried live and archived on the Internet. A link to the conference call is available at http://ir.csgi.com. In addition, to reach the conference by phone, call 1-888-412-4131 and use the passcode 2327393. Additional Information For information about CSG, please visit CSG’s web site at csgi.com. Additional information can be found in the Investor Relations section of the website. About CSG CSG empowers companies to build unforgettable experiences, making it easier for people and businesses to connect with, use and pay for the services they value most. Our customer experience, billing and payments solutions help companies of any size make money and make a difference. With our SaaS solutions, company leaders can take control of their future and tap into guidance along the way from our fiercely committed and forward-thinking CSGers around the world. Want to be future-ready and a change-maker like the global brands that trust CSG? Visit csgi.com to learn more. Forward-Looking Statements This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. Some of these key factors include, but are not limited to the following items: CSG derives approximately forty percent of its revenue from its two largest customers; Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates; CSG’s ability to maintain a reliable, secure computing environment; Continued market acceptance of CSG’s products and services; CSG’s ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner; CSG’s ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations; CSG’s dependency on the global telecommunications industry, and in particular, the North American telecommunications industry; CSG’s ability to meet its financial expectations; Increasing competition in CSG’s market from companies of greater size and with broader presence; CSG’s ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals; CSG’s ability to protect its intellectual property rights; CSG’s ability to conduct business in the international marketplace; CSG’s ability to comply with applicable U.S. and International laws and regulations; and CSG’s business may be disrupted, and its results of operations and cash flows adversely affected by a global pandemic. This list is not exhaustive, and readers are encouraged to review the additional risks and important factors described in CSG’s reports on Forms 10-K and 10-Q and other filings made with the SEC. CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED (in thousands) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 186,264 $ 150,365 Short-term investments - 71 Total cash, cash equivalents, and short-term investments 186,264 150,436 Settlement and merchant reserve assets 274,699 238,653 Trade accounts receivable: Billed, net of allowance of $5,432 and $5,528 267,680 274,189 Unbilled 82,163 52,830 Income taxes receivable 1,345 1,270 Other current assets 50,075 48,577 Total current assets 862,226 765,955 Non-current assets: Property and equipment, net of depreciation of $121,816 and $105,466 65,545 71,787 Operating lease right-of-use assets 34,283 49,687 Software, net of amortization of $157,601 and $150,337 14,224 22,774 Goodwill 308,596 304,036 Acquired customer contracts, net of amortization of $126,469 and $120,080 35,879 45,417 Customer contract costs, net of amortization of $42,094 and $30,601 54,421 54,735 Deferred income taxes 57,855 26,206 Other assets 10,017 7,956 Total non-current assets 580,820 582,598 Total assets $ 1,443,046 $ 1,348,553 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 7,500 $ 37,500 Operating lease liabilities 15,946 21,012 Customer deposits 41,035 40,472 Trade accounts payable 46,406 47,720 Accrued employee compensation 84,380 68,321 Settlement and merchant reserve liabilities 273,817 237,810 Deferred revenue 54,199 46,033 Income taxes payable 4,104 5,455 Other current liabilities 33,449 22,886 Total current liabilities 560,836 527,209 Non-current liabilities: Long-term debt, net of unamortized discounts of $15,628 and $2,656 534,997 375,469 Operating lease liabilities 34,360 53,207 Deferred revenue 23,447 21,991 Income taxes payable 3,041 3,410 Deferred income taxes 123 117 Other non-current liabilities 12,916 11,901 Total non-current liabilities 608,884 466,095 Total liabilities 1,169,720 993,304 Stockholders' equity: Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding - - Common stock, par value $.01 per share; 100,000 shares authorized; 29,541 and 31,269 shares outstanding 713 708 Additional paid-in capital 490,947 495,189 Treasury stock, at cost; 40,398 and 38,210 shares (1,136,055 ) (1,018,034 ) Accumulated other comprehensive income (loss): Unrealized gain on short-term investments, net of tax 1 1 Cumulative foreign currency translation adjustments (50,414 ) (58,830 ) Accumulated earnings 968,134 936,215 Total stockholders' equity 273,326 355,249 Total liabilities and stockholders' equity $ 1,443,046 $ 1,348,553 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED (in thousands, except per share amounts) Quarter Ended Year Ended December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Revenue $ 297,324 $ 289,876 $ 1,169,258 $ 1,089,752 Cost of revenue (exclusive of depreciation, shown separately below) 156,145 150,154 615,042 565,168 Other operating expenses: Research and development 35,800 34,548 143,201 137,913 Selling, general and administrative 66,683 64,185 247,613 238,018 Depreciation 6,034 5,913 23,189 23,598 Restructuring and reorganization charges 7,915 4 16,336 46,308 Total operating expenses 272,577 254,804 1,045,381 1,011,005 Operating income 24,747 35,072 123,877 78,747 Other income (expense): Interest expense (8,084 ) (6,146 ) (31,176 ) (16,432 ) Interest and investment income, net 1,820 340 4,336 877 Loss on derivative liability upon debt conversion - - - (7,456 ) Other, net (1,639 ) (999 ) (4,686 ) 5,045 Total other (7,903 ) (6,805 ) (31,526 ) (17,966 ) Income before income taxes 16,844 28,267 92,351 60,781 Income tax provision (4,174 ) (8,118 ) (26,105 ) (16,721 ) Net income $ 12,670 $ 20,149 $ 66,246 $ 44,060 Weighted-average shares outstanding: Basic 28,607 30,455 29,938 31,028 Diluted 28,842 30,732 30,115 31,298 Earnings per common share: Basic $ 0.44 $ 0.66 $ 2.21 $ 1.42 Diluted 0.44 0.66 2.20 1.41 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands) Year Ended December 31, 2023 December 31, 2022 Cash flows from operating activities: Net income $ 66,246 $ 44,060 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 23,585 27,967 Amortization 47,667 48,984 Asset impairment 2,061 31,761 Gain on lease modifications (4,349 ) - Loss on short-term investments and other - 18 Loss on derivative liability upon debt conversion - 7,456 Unrealized foreign currency transactions (gain)/loss, net 225 (103 ) Deferred income taxes (23,560 ) (27,627 ) Stock-based compensation 28,990 27,243 Subtotal 140,865 159,759 Changes in operating assets and liabilities: Trade accounts receivable, net (22,401 ) (51,005 ) Other current and non-current assets and liabilities (6,566 ) (12,833 ) Income taxes payable/receivable (1,849 ) 9,336 Trade accounts payable and accrued liabilities 12,541 (36,971 ) Deferred revenue 9,306 (4,689 ) Net cash provided by operating activities 131,896 63,597 Cash flows from investing activities: Purchases of software, property and equipment (27,977 ) (36,991 ) Proceeds from sale/maturity of short-term investments 71 27,953 Net cash used in investing activities (27,906 ) (9,038 ) Cash flows from financing activities: Proceeds from issuance of common stock 3,284 2,969 Payment of cash dividends (33,930 ) (33,475 ) Repurchase of common stock (127,065 ) (96,720 ) Deferred acquisition payments (3,220 ) (2,314 ) Proceeds from long-term debt 470,000 290,000 Payments on long-term debt (327,500 ) (264,801 ) Purchase of capped call transactions related to convertible notes (34,298 ) - Payments of deferred financing costs (14,539 ) - Settlement and merchant reserve activity 35,963 52,656 Net cash used in financing activities (31,305 ) (51,685 ) Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash 2,173 (5,758 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 74,858 (2,884 ) Cash, cash equivalents, and restricted cash, beginning of period 389,018 391,902 Cash, cash equivalents, and restricted cash, end of period $ 463,876 $ 389,018 Supplemental disclosures of cash flow information: Cash paid during the period for- Interest $ 24,730 $ 18,314 Income taxes 51,675 34,671 Reconciliation of cash, cash equivalents, and restricted cash: Cash and cash equivalents $ 186,264 $ 150,365 Settlement and merchant reserve assets 274,699 238,653 Restricted cash included in current and non-current assets 2,913 - Total cash, cash equivalents, and restricted cash $ 463,876 $ 389,018 EXHIBIT 1 CSG SYSTEMS INTERNATIONAL, INC. SUPPLEMENTAL REVENUE ANALYSIS Revenue by Significant Customers: 10% or more of Revenue Quarter Ended Quarter Ended Quarter Ended December 31, 2023 September 30, 2023 December 31, 2022 Amount % of Revenue Amount % of Revenue Amount % of Revenue Charter $ 60,128 20 % $ 59,432 21 % $ 58,006 20 % Comcast 54,651 18 % 53,653 19 % 55,383 19 % Year Ended Year Ended December 31, 2023 December 31, 2022 Amount % of Revenue Amount % of Revenue Charter $ 241,267 21 % $ 221,222 20 % Comcast 215,476 18 % 214,359 20 % Revenue by Vertical Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2023 2023 2022 Broadband/Cable/Satellite 51 % 53 % 53 % Telecommunications 21 % 20 % 20 % All other 28 % 27 % 27 % Total revenue 100 % 100 % 100 % Year Ended Year Ended December 31, December 31, 2023 2022 Broadband/Cable/Satellite 52 % 54 % Telecommunications 20 % 20 % All other 28 % 26 % Total revenue 100 % 100 % Revenue by Geography Quarter Ended Quarter Ended Quarter Ended December 31, September 30, December 31, 2023 2023 2022 Americas 85 % 86 % 86 % Europe, Middle East and Africa 10 % 9 % 9 % Asia Pacific 5 % 5 % 5 % Total revenue 100 % 100 % 100 % Year Ended Year Ended December 31, December 31, 2023 2022 Americas 86 % 85 % Europe, Middle East and Africa 10 % 11 % Asia Pacific 4 % 4 % Total revenue 100 % 100 % EXHIBIT 2 CSG SYSTEMS INTERNATIONAL, INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES Use of Non-GAAP Financial Measures and Limitations To supplement its condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), CSG uses non-GAAP operating income, non-GAAP adjusted operating margin percentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed in conjunction with its GAAP financial measures, provide investors with greater transparency to the information used by CSG’s management in its financial and operational decision making. CSG uses these non-GAAP financial measures for the following purposes: Certain internal financial planning, reporting, and analysis; Forecasting and budgeting; Certain management compensation incentives; and Communications with CSG’s Board of Directors, stockholders, financial analysts, and investors. These non-GAAP financial measures are provided with the intent of providing investors with the following information: A more complete understanding of CSG’s underlying operational results, trends, and cash generating capabilities; Consistency and comparability with CSG’s historical financial results; and Comparability to similar companies, many of which present similar non-GAAP financial measures to investors. Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAP financial measures include the following items: Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles; The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures; Non-GAAP financial measures do not include all items of income and expense that affect CSG’s operations and that are required by GAAP to be included in financial statements; Certain adjustments to CSG’s non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSG’s financial statements in future periods; and Certain charges excluded from CSG’s non-GAAP financial measures are cash expenses, and therefore do impact CSG’s cash position. CSG compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures as a supplement only. Additionally, CSG provides specific information regarding the treatment of GAAP amounts considered in preparing the non-GAAP financial measures and reconciles each non-GAAP financial measure to the most directly comparable GAAP measure. Non-GAAP Financial Measures: Basis of Presentation The table below outlines the exclusions from CSG’s non-GAAP financial measures: Non-GAAP Exclusions Operating Income Adjusted Operating Margin Percentage EPS Transaction fees — X — Restructuring and reorganization charges X X X Executive transition costs X X X Acquisition-related expenses: Amortization of acquired intangible assets X X X Transaction-related costs X X X Stock-based compensation X X X Gain (loss) on debt extinguishment/conversion — — X Gain (loss) on acquisitions or dispositions — — X Unusual income tax matters — — X CSG believes that excluding certain items in calculating its non-GAAP financial measures provides meaningful supplemental information regarding CSG’s performance and these items are excluded for the following reasons: Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG’s Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors. Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/or significant changes to CSG’s business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. These charges are not considered reflective of CSG’s recurring business operating results. The exclusion of these items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Executive transition costs include expenses incurred related to a departure of a CSG executive officer under the terms of the related separation agreement. These types of costs are not considered reflective of CSG’s recurring business operating results. The exclusion of these costs in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Acquisition-related expenses include amortization of acquired intangible assets and transaction-related costs, to include earn-out compensation. Transaction-related costs, which typically include expenses related to legal, accounting, and other professional services, are direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSG’s recurring business operating results. The total amount of acquisition-related expenses can vary significantly between periods based on the number and size of acquisition activities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-out compensation. In addition, the timing of these expenses may not directly correlate with underlying performance of the CSG’s operations. Therefore, the exclusion of acquisition-related expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. Stock-based compensation results from CSG’s issuance of equity awards to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG. The exclusion of these expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSG’s results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s business. Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancing of CSG’s credit agreement and/or repurchase, conversion, or settlement of CSG’s convertible notes. These activities, to include any derivative activity related to debt conversions, are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods. Gains or losses related to the acquisition or disposition of certain of CSG’s business activities are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods. Unusual items within CSG’s quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods. CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash flow. Management believes non-GAAP adjusted EBITDA is a useful measure to investors in evaluating CSG’s operating performance, debt servicing capabilities, and enterprise valuation. CSG defines non-GAAP adjusted EBITDA as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency transaction adjustments, acquisition-related expenses, and unusual items, such as restructuring and reorganization charges, executive transition costs, gains and losses related to the extinguishment of debt, and gains and losses on acquisitions or dispositions, as discussed above. Additionally, management uses non-GAAP free cash flow, among other measures, to assess its financial performance and cash generating capabilities, and believes that it is useful to investors because it shows CSG’s cash available to service debt, make strategic acquisitions and investments, repurchase its common stock, pay cash dividends, and fund ongoing operations. CSG defines non-GAAP free cash flow as net cash flows from operating activities less the purchases of software, property and equipment. Non-GAAP Financial Measures Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage: The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of CSG’s non- GAAP adjusted operating margin percentage, for the indicated periods are as follows (in thousands, except percentages): Quarter Ended December 31, Year Ended December 31, 2023 2022 2023 2022 Non-GAAP Operating Income GAAP operating income $ 24,747 $ 35,072 $ 123,877 $ 78,747 Restructuring and reorganization charges (1) 7,915 4 16,336 46,308 Executive transition costs 606 - 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets 2,982 3,338 12,185 14,355 Transaction-related costs (27 ) (296 ) 2,095 173 Stock-based compensation (1) 7,840 7,039 29,480 27,945 Non-GAAP operating income $ 44,063 $ 45,157 $ 185,727 $ 168,830 Non-GAAP Adjusted Operating Margin Percentage Revenue $ 297,324 $ 289,876 $ 1,169,258 $ 1,089,752 Less: Transaction fees (2) (23,967 ) (20,751 ) (87,430 ) (75,679 ) Revenue less transaction fees $ 273,357 $ 269,125 $ 1,081,828 $ 1,014,073 Non-GAAP adjusted operating margin percentage 16.1 % 16.8 % 17.2 % 16.6 % (1) Restructuring and reorganization charges include stock-based compensation, which is not included in the stock-based compensation line in the tables above and following, and depreciation, which has not been recorded to the depreciation line item on CSG’s Income Statement. (2) Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG's Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors. Non-GAAP EPS: The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts): Quarter Ended Quarter Ended December 31, 2023 December 31, 2022 Amounts EPS (4) Amounts EPS (4) GAAP net income $ 12,670 $ 0.44 $ 20,149 $ 0.66 GAAP income tax provision (3) 4,174 8,118 GAAP income before income taxes 16,844 28,267 Restructuring and reorganization charges (1) 7,915 4 Executive transition costs 606 - Acquisition-related costs: Amortization of acquired intangible assets 2,982 3,338 Transaction-related costs (27 ) (296 ) Stock-based compensation (1) 7,840 7,039 Non-GAAP income before income taxes 36,160 38,352 Non-GAAP income tax provision (3) (9,535 ) (12,435 ) Non-GAAP net income $ 26,625 $ 0.92 $ 25,917 $ 0.84 Year Ended Year Ended December 31, 2023 December 31, 2022 Amounts EPS (4) Amounts EPS (4) GAAP net income $ 66,246 $ 2.20 $ 44,060 $ 1.41 GAAP income tax provision (3) 26,105 16,721 GAAP income before income taxes 92,351 60,781 Restructuring and reorganization charges (1) 16,336 46,308 Executive transition costs 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets 12,185 14,355 Transaction-related costs 2,095 173 Stock-based compensation (1) 29,480 27,945 Loss on extinguishment of debt - 7,456 Non-GAAP income before income taxes 154,201 158,320 Non-GAAP income tax provision (3) (43,176 ) (45,427 ) Non-GAAP net income $ 111,025 $ 3.69 $ 112,893 $ 3.61 (3) For the fourth quarter and year ended December 31, 2023 the GAAP effective income tax rates were approximately 25% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 26% and 28%, respectively. For the fourth quarter and year ended December 31, 2022 the GAAP effective income tax rates were approximately 29% and 28%, respectively, and the non-GAAP effective income tax rates were approximately 32% and 29%, respectively. (4) The outstanding diluted shares for the fourth quarter and year ended December 31, 2023 were 28.8 million and 30.1 million, respectively, and for the fourth quarter and year ended December 31, 2022 were 30.7 million and 31.3 million, respectively. Non-GAAP Adjusted EBITDA: CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for the indicated periods (in thousands, except percentages): Quarter Ended Year Ended December 31, December 31, 2023 2022 2023 2022 GAAP net income $ 12,670 $ 20,149 $ 66,246 $ 44,060 GAAP income tax provision 4,174 8,118 26,105 16,721 Interest expense (5) 8,084 6,146 31,176 16,432 Loss on derivative liability upon debt conversion - - - 7,456 Interest and investment income and other, net (181 ) 659 350 (5,922 ) GAAP operating income 24,747 35,072 123,877 78,747 Restructuring and reorganization charges (1) 7,915 4 16,336 46,308 Executive transition costs 606 - 1,754 1,302 Acquisition-related expenses: Amortization of acquired intangible assets (6) 2,982 3,338 12,185 14,355 Transaction-related costs (27 ) (296 ) 2,095 173 Stock-based compensation (1) 7,840 7,039 29,480 27,945 Amortization of other intangible assets (6) 3,350 3,399 13,624 14,140 Amortization of customer contract costs (6) 5,901 5,588 20,291 19,738 Depreciation (1) 6,034 5,913 23,189 23,598 Non-GAAP adjusted EBITDA $ 59,348 $ 60,057 $ 242,831 $ 226,306 Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2) 21.7 % 22.3 % 22.4 % 22.3 % (5) Interest expense includes amortization of deferred financing costs as provided in Note 6 below. (6) Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands): Quarter Ended Year Ended December 31, December 31, 2023 2022 2023 2022 Amortization of acquired intangible assets $ 2,982 $ 3,338 $ 12,185 $ 14,355 Amortization of other intangible assets 3,350 3,399 13,624 14,140 Amortization of customer contract costs 5,901 5,588 20,291 19,738 Amortization of deferred financing costs 891 189 1,567 751 Total amortization $ 13,124 $ 12,514 $ 47,667 $ 48,984 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 Year Ended December 31, December 31, 2023 2022 2023 2022 Cash flows from operating activities $ 79,531 $ 54,024 $ 131,896 $ 63,597 Purchases of software, property and equipment (5,037 ) (5,427 ) (27,977 ) (36,991 ) Non-GAAP free cash flow $ 74,494 $ 48,597 $ 103,919 $ 26,606 Non-GAAP Financial Measures – 2024 Financial Guidance Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage: The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of non-GAAP adjusted operating margin percentage, as included in CSG’s 2024 full year financial guidance, is as follows (in thousands, except percentages): 2024 Guidance Range Low Range High Range Non-GAAP Operating Income GAAP operating income $ 145,100 $ 155,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Non-GAAP operating income $ 187,700 $ 197,700 Non-GAAP Operating Margin Percentage Revenue $ 1,200,000 $ 1,240,000 Less: Transaction fees (98,000 ) (103,000 ) Revenue less transaction fees $ 1,102,000 $ 1,137,000 Non-GAAP adjusted operating margin percentage 17.0 % 17.4 % Non-GAAP EPS: The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2024 full year financial guidance is as follows (in thousands, except per share amounts): 2024 Guidance Range Low Range High Range Amounts EPS (8) Amounts EPS (8) GAAP net income $ 84,000 $ 2.86 $ 91,200 $ 3.13 GAAP income tax provision (7) 35,100 37,900 GAAP income before income taxes 119,100 129,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Non-GAAP income before income taxes 161,700 171,700 Non-GAAP income tax provision (7) (47,700 ) (50,500 ) Non-GAAP net income $ 114,000 $ 3.85 $ 121,200 $ 4.15 (7) For 2024, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 29%. (8) The weighted-average diluted shares outstanding are expected to be approximately 29 million. Non-GAAP Adjusted EBITDA: CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for CSG’s 2024 full year financial guidance (in thousands, except percentages): 2024 Guidance Range Low Range High Range GAAP net income $ 84,000 $ 91,200 GAAP income tax provision (7) 35,100 37,900 Interest expense 30,000 30,000 Interest and investment income (4,000 ) (4,000 ) GAAP operating income 145,100 155,100 Executive transition costs 500 500 Acquisition-related expenses: Amortization of acquired intangible assets 11,100 11,100 Stock-based compensation 31,000 31,000 Amortization of other intangible assets 5,200 5,200 Amortization of client contract costs 22,100 22,100 Depreciation 30,000 30,000 Non-GAAP adjusted EBITDA $ 245,000 $ 255,000 Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2) 22.2 % 22.4 % Non-GAAP Free Cash Flow: CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities is provided below for CSG’s 2023 full year financial guidance (in thousands): 2024 Guidance Range Low Range High Range Cash flows from operating activities $ 120,000 $ 170,000 Purchases of software, property and equipment (25,000 ) (35,000 ) Non-GAAP free cash flow $ 95,000 $ 135,000 View source version on businesswire.com: https://www.businesswire.com/news/home/20240207762697/en/