CSG Systems International(CSGS) - 2025 Q1 - Quarterly Results

Q1 2025 Financial Performance Overview CSG reported strong Q1 2025 results, raising its full-year non-GAAP profitability and EPS guidance while achieving record revenue diversification and returning capital to shareholders Financial and Operational Highlights CSG reported Q1 2025 revenue of $299.5 million and raised its 2025 non-GAAP profitability and EPS guidance, achieving record revenue diversification with 33% from outside its core Communication Service Provider (CSP) market Q1 2025 Financial Highlights (in millions) | Metric | Value | | :--- | :--- | | Total Revenue | $299.5 | | GAAP Operating Income | $29.4 | | Non-GAAP Operating Income | $51.5 | | GAAP EPS (diluted) | $0.57 | | Non-GAAP EPS | $1.14 | | Cash Flows from Operations | $11.5 | | Non-GAAP Adjusted Free Cash Flow | $7.1 | Q1 2025 Shareholder Returns (in millions, except per share) | Activity | Value | | :--- | :--- | | Quarterly Dividend per Share | $0.32 | | Total Dividends Paid | ~$9 | | Shares Repurchased | ~357,000 | | Total Share Repurchase Cost | ~$22 | - The company achieved record revenue diversification, with 33% of revenue now originating from industry verticals outside of Communication Service Providers (CSPs)[3] - In March 2025, CSG entered into a new five-year credit agreement for a $600.0 million revolving credit facility, replacing its existing agreement[3] Management Commentary CEO Brian Shepherd highlighted strong Q1 results driven by operating discipline and a growing revenue mix from faster-growing industry verticals, leading to increased 2025 non-GAAP profitability and EPS guidance - The non-GAAP adjusted operating margin expanded by over 240 basis points to 19.0% in Q1 2025 compared to 16.6% in Q1 2024, driven by operating discipline and improved revenue mix[5][6] - The midpoint of the 2025 cash flow guidance represents a 15% year-over-year growth[5] - CSG is committed to returning over $100 million in capital to shareholders in 2025[5] Summary of Financial Guidance for 2025 CSG raised its full-year 2025 guidance for non-GAAP adjusted operating margin, non-GAAP EPS, and non-GAAP adjusted EBITDA, while revenue and non-GAAP adjusted free cash flow guidance remain unchanged Revised 2025 Financial Guidance | Metric | As of May 7, 2025 | Previous | | :--- | :--- | :--- | | GAAP Measures: | | | | Revenue | No change ($1,210 - $1,250 million) | $1,210 - $1,250 million | | Non-GAAP Measures: | | | | Adjusted Operating Margin % | 18.4% - 18.8% | 18.1% - 18.5% | | EPS | $4.65 - $4.90 | $4.55 - $4.80 | | Adjusted EBITDA | $258 - $269 million | $256 - $267 million | | Adjusted Free Cash Flow | No change ($110 - $150 million) | $110 - $150 million | Financial Results This section details CSG's Q1 2025 financial performance, including revenue growth driven by acquisitions, changes in operating income due to restructuring, and improvements in cash flow Results of Operations In Q1 2025, total revenue increased 1.5% year-over-year to $299.5 million due to acquisitions, while GAAP operating income decreased 7.6% to $29.4 million due to higher restructuring charges, and non-GAAP operating income grew 14.7% to $51.5 million from cost efficiencies Q1 2025 vs. Q1 2024 Performance (in millions, except EPS) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | GAAP Results | | | | | Revenue | $299.5 | $295.1 | 1.5% | | Operating Income | $29.4 | $31.8 | (7.6%) | | EPS | $0.57 | $0.68 | (16.2%) | | Non-GAAP Results | | | | | Operating Income | $51.5 | $44.9 | 14.7% | | EPS | $1.14 | $1.01 | 12.9% | - The increase in total revenue was mainly attributed to revenue generated from businesses acquired during 2024[7] - The decrease in GAAP operating margin was primarily due to a $5.4 million increase in restructuring and reorganization charges related to cost efficiency actions[8] - The increase in non-GAAP operating margin was mainly attributed to cost efficiency actions taken in 2024 to optimize capacity and align resources[10] Balance Sheet and Cash Flow Analysis As of March 31, 2025, CSG held $136.0 million in cash and cash equivalents, a decrease from year-end 2024, while generating $11.5 million in cash from operations and $7.1 million in non-GAAP adjusted free cash flow, a significant improvement year-over-year Cash Position (in millions) | Date | Cash and Cash Equivalents | | :--- | :--- | | March 31, 2025 | $136.0 | | December 31, 2024 | $161.8 | Q1 Cash Flow Comparison (YoY, in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Cash Flows from Operations | $11.5 | ($29.4) | | Non-GAAP Adjusted Free Cash Flow | $7.1 | ($34.1) | Supplemental Information This section provides detailed analysis of CSG's revenue by customer, vertical, and geography, along with explanations and reconciliations of non-GAAP financial measures Revenue Analysis CSG's revenue is concentrated, with its top two customers, Charter and Comcast, accounting for 37% of total revenue in Q1 2025, while the company diversifies with 33% of revenue from non-traditional CSP verticals, and the Americas remain the dominant region at 87% Revenue by Significant Customers In Q1 2025, Charter and Comcast were the two largest customers, contributing 19% and 18% of total revenue respectively, representing a combined concentration of 37%, down from 39% in Q1 2024 Revenue from Major Customers (% of Total Revenue) | Customer | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Charter | 19% | 19% | 21% | | Comcast | 18% | 19% | 18% | Revenue by Vertical Revenue from industry verticals outside of traditional CSPs ('All other') grew to 33% of total revenue in Q1 2025, up from 30% in Q1 2024, with Broadband/Cable/Satellite accounting for 50% and Telecommunications for 17% Revenue Mix by Vertical (% of Total Revenue) | Vertical | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Broadband/Cable/Satellite | 50% | 51% | 51% | | Telecommunications | 17% | 20% | 19% | | All other | 33% | 29% | 30% | Revenue by Geography The Americas region continues to be the primary source of revenue, accounting for 87% in Q1 2025, with Europe, Middle East and Africa (EMEA) contributing 9%, and Asia Pacific (APAC) contributing 4% Revenue Mix by Geography (% of Total Revenue) | Geography | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Americas | 87% | 84% | 86% | | Europe, Middle East and Africa | 9% | 10% | 9% | | Asia Pacific | 4% | 6% | 5% | Non-GAAP Financial Measures This section details CSG's use of non-GAAP financial measures, including operating income, EPS, adjusted EBITDA, and adjusted free cash flow, providing transparency into operational performance by excluding specific items and offering detailed reconciliations to GAAP equivalents Explanation of Non-GAAP Measures CSG uses non-GAAP measures to supplement GAAP financials, believing they offer a better understanding of underlying operational trends and cash generation, while acknowledging limitations and providing detailed reconciliations - Non-GAAP measures are used for internal financial planning, forecasting, management compensation incentives, and communications with the Board of Directors and investors[30][32] - Key exclusions from non-GAAP financial measures include: restructuring and reorganization charges, acquisition-related expenses (e.g., amortization of intangible assets, earn-out compensation), stock-based compensation, and gains/losses on debt extinguishment[33] Reconciliation of GAAP to Non-GAAP Measures (Q1 2025) For Q1 2025, CSG provides detailed reconciliations: GAAP operating income of $29.4 million to non-GAAP operating income of $51.5 million; GAAP net income of $16.1 million ($0.57 per share) to non-GAAP net income of $32.1 million ($1.14 per share); GAAP net income to non-GAAP adjusted EBITDA of $64.3 million; and cash from operations of $11.5 million to non-GAAP adjusted free cash flow of $7.1 million Reconciliation: GAAP to Non-GAAP Operating Income (Q1 2025 vs Q1 2024, in thousands) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | GAAP operating income | $29,383 | $31,797 | | Restructuring charges | $7,368 | $1,998 | | Executive transition costs | $0 | $352 | | Amortization of acquired intangibles | $3,453 | $2,852 | | Earn-out compensation | $2,559 | $0 | | Stock-based compensation | $8,712 | $7,869 | | Non-GAAP operating income | $51,475 | $44,868 | Reconciliation: GAAP to Non-GAAP EPS (Q1 2025) | Description | Net Income (in thousands) | EPS | | :--- | :--- | :--- | | GAAP | $16,130 | $0.57 | | Adjustments (pre-tax) | $22,545 | - | | Tax effect of adjustments | ($6,529) | - | | Non-GAAP | $32,146 | $1.14 | Reconciliation of GAAP to Non-GAAP Measures (2025 Guidance) CSG provides reconciliations for its full-year 2025 financial guidance, including GAAP operating income of $134.7-$145.7 million to non-GAAP operating income of $203.1-$214.1 million, GAAP EPS of $2.86-$3.13 to non-GAAP EPS of $4.65-$4.90, GAAP net income to non-GAAP adjusted EBITDA of $258-$269 million, and cash from operations to non-GAAP adjusted free cash flow of $110-$150 million Reconciliation: FY2025 Guided GAAP to Non-GAAP EPS | Description | Low Range | High Range | | :--- | :--- | :--- | | GAAP EPS | $2.86 | $3.13 | | Restructuring, Acquisition, Stock Comp, etc. (per share) | $1.79 | $1.77 | | Non-GAAP EPS | $4.65 | $4.90 | Reconciliation: FY2025 Guided Operating Cash Flow to Adjusted Free Cash Flow (in thousands) | Description | Low Range | High Range | | :--- | :--- | :--- | | Cash flows from operating activities | $122,100 | $172,100 | | Earn-out compensation payments | $7,900 | $7,900 | | Purchases of software, property, and equipment | ($20,000) | ($30,000) | | Non-GAAP adjusted free cash flow | $110,000 | $150,000 | Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the period ended March 31, 2025, including the Balance Sheets, Statements of Income, and Statements of Cash Flows, with comparative data for prior periods Condensed Consolidated Balance Sheets As of March 31, 2025, CSG reported total assets of $1.42 billion and total liabilities of $1.14 billion, with total stockholders' equity at $283.1 million, compared to total assets of $1.50 billion and total equity of $282.6 million at year-end 2024 Key Balance Sheet Items (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $136,024 | $161,789 | | Total Assets | $1,419,004 | $1,500,687 | | Total Liabilities | $1,135,909 | $1,218,118 | | Total Stockholders' Equity | $283,095 | $282,569 | Condensed Consolidated Statements of Income For Q1 2025, CSG generated revenue of $299.5 million and reported net income of $16.1 million ($0.57 per diluted share), a decrease from Q1 2024's revenue of $295.1 million and net income of $19.5 million ($0.68 per diluted share), primarily due to higher restructuring charges Key Income Statement Items (in thousands, except per share data) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $299,453 | $295,135 | | Operating Income | $29,383 | $31,797 | | Net Income | $16,130 | $19,467 | | Diluted EPS | $0.57 | $0.68 | Condensed Consolidated Statements of Cash Flows For Q1 2025, net cash provided by operating activities was $11.5 million, a significant turnaround from the $29.4 million used in Q1 2024, with net cash used in investing activities at $4.2 million and in financing activities at $104.5 million, largely due to share repurchases and dividend payments Key Cash Flow Items (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $11,469 | ($29,351) | | Net cash used in investing activities | ($4,249) | ($4,774) | | Net cash used in financing activities | ($104,460) | ($111,145) | Other Information This section provides an overview of CSG's business and a standard safe harbor statement regarding forward-looking statements and associated risks About CSG CSG provides customer experience, billing, and payment solutions through a Software-as-a-Service (SaaS) model, enabling companies to manage and monetize their services and emphasizing their commitment to helping clients become 'future-ready' - CSG offers SaaS solutions for customer experience, billing, and payments to help companies of any size monetize their services[16] Forward-Looking Statements This section contains a standard safe harbor statement, warning that the press release includes forward-looking statements subject to various risks and uncertainties, including revenue concentration, market competition, and dependency on the telecommunications industry - A significant portion of revenue (approximately 40%) is derived from its two largest customers, representing a key risk factor[19] - Other major risks include dependency on the global telecommunications industry, market competition, ability to integrate acquisitions, and maintaining a secure computing environment[19]