CSG Systems International(CSGS) - 2025 Q2 - Quarterly Results

Executive Summary and Q2 2025 Highlights CSG reported strong Q2 2025 results, leading to raised full-year guidance and significant operating income growth Key Financial and Operational Highlights CSG reported strong Q2 2025 results, raising full-year profitability and non-GAAP adjusted free cash flow guidance, achieving significant operating income growth and highest first-half free cash flow in a decade * CSG is raising its 2025 full-year profitability and non-GAAP adjusted free cash flow guidance targets[2] * The company achieved strong operating income growth, with a 19.5% H1 non-GAAP operating margin, up 250 basis points year-over-year[2] * CSG reported strong cash flow from operations, marking its highest first-half non-GAAP adjusted free cash flow in a decade[2] Q2 2025 Key Financial Results | Metric | Value | | :-------------------------------- | :------------------- | | Total Revenue | $297.1 million | | GAAP Operating Income | $29.9 million | | GAAP Operating Margin | 10.0% | | Non-GAAP Operating Income | $54.5 million | | Non-GAAP Adjusted Operating Margin | 20.1% | | GAAP EPS (diluted) | $0.44 | | Non-GAAP EPS | $1.16 | | Cash Flows from Operations | $37.3 million | | Non-GAAP Adjusted Free Cash Flow | $39.6 million | * CSG declared a quarterly cash dividend of $0.32 per share and repurchased approximately 289,000 shares for $18 million during Q2 2025[4] CEO's Strategic Commentary CEO Brian Shepherd highlighted strong first-half performance, enabling raised profitability and free cash flow targets, emphasizing efficiency, SaaS strategy, and customer wins * Team CSG's strong first-half results led to raised profitability targets for the second consecutive quarter and an increased full-year non-GAAP adjusted free cash flow target[5] * The 19.5% non-GAAP operating margin reflects continued success in unlocking efficiency gains across the business[5] * CSG is executing on its commitment to deliver double-digit free cash flow growth year-over-year in both 2025 and 2026, supporting its strategy to become a more asset-light SaaS company[5] * New wins and expanded long-term relationships with Orange Business and Liberty Puerto Rico, combined with a strong balance sheet and commitment to return over $100 million in capital to shareholders in 2025, position CSG as a compelling investment[5] Condensed Consolidated Financial Results This section provides a detailed breakdown of CSG's GAAP and non-GAAP financial performance for Q2 2025 GAAP Results CSG's GAAP Q2 2025 results showed revenue growth from SaaS, increased operating income from efficiencies, but decreased EPS due to a higher tax rate Revenue Analysis This section analyzes CSG's GAAP revenue performance for Q2 2025 and the first half of 2025 GAAP Revenue (in thousands) | Period | 2025 | 2024 | Change (%) | | :------------------- | :--------- | :--------- | :--------- | | Quarter Ended June 30 | $297,128 | $290,318 | 2.3% | | Six Months Ended June 30 | $596,581 | $585,453 | 1.9% | * The increase in revenue is mainly attributed to the continued growth of CSG's SaaS and related solutions, including revenue from the acquired iCG business, and approximately $6 million from a software license arrangement in Q2 2025, partially offset by lower professional services revenue[7] Operating Income and Margin This section details CSG's GAAP operating income and margin performance for Q2 2025 and the first half of 2025 GAAP Operating Income and Margin (in thousands) | Period | 2025 Operating Income | 2024 Operating Income | Change (%) | 2025 Operating Margin | 2024 Operating Margin | | :------------------- | :-------------------- | :-------------------- | :--------- | :-------------------- | :-------------------- | | Quarter Ended June 30 | $29,857 | $25,420 | 17.5% | 10.0% | 8.8% | | Six Months Ended June 30 | $59,240 | $57,217 | 3.5% | 9.9% | 9.8% | * The increase in GAAP operating margin is mainly due to a decrease in restructuring and reorganization charges and benefits from cost efficiency actions taken in 2024 and H1 2025[8] Earnings Per Share (EPS) This section presents CSG's GAAP diluted Earnings Per Share for Q2 2025 and the first half of 2025 GAAP EPS (diluted) | Period | 2025 EPS | 2024 EPS | Change (%) | | :------------------- | :------- | :------- | :--------- | | Quarter Ended June 30 | $0.44 | $0.48 | (8.3%) | | Six Months Ended June 30 | $1.01 | $1.16 | (12.9%) | * The decrease in GAAP EPS for Q2 2025 is mainly attributed to a higher effective income tax rate due to an increase in earn-out compensation related to a prior acquisition[9] Cash Flows from Operating Activities This section outlines CSG's GAAP cash flows from operating activities for Q2 2025 and the first half of 2025 GAAP Cash Flows from Operating Activities (in thousands) | Period | 2025 | 2024 | Change (%) | | :------------------- | :--------- | :--------- | :--------- | | Quarter Ended June 30 | $37,326 | $43,105 | (13.4%) | | Six Months Ended June 30 | $48,795 | $13,754 | 254.8% | Non-GAAP Results CSG's non-GAAP Q2 2025 results showed strong growth in operating income, EPS, EBITDA, and free cash flow, driven by cost efficiencies Non-GAAP Operating Income and Margin This section details CSG's non-GAAP operating income and adjusted operating margin for Q2 2025 and the first half of 2025 Non-GAAP Operating Income and Adjusted Operating Margin (in thousands) | Period | 2025 Operating Income | 2024 Operating Income | Change (%) | 2025 Adjusted Operating Margin | 2024 Adjusted Operating Margin | | :------------------- | :-------------------- | :-------------------- | :--------- | :----------------------------- | :----------------------------- | | Quarter Ended June 30 | $54,472 | $46,141 | 18.1% | 20.1% | 17.3% | | Six Months Ended June 30 | $105,947 | $91,009 | 16.4% | 19.5% | 17.0% | * The increase in non-GAAP operating margin is mainly attributed to cost efficiency actions[10] Non-GAAP EPS This section presents CSG's non-GAAP Earnings Per Share for Q2 2025 and the first half of 2025 Non-GAAP EPS | Period | 2025 EPS | 2024 EPS | Change (%) | | :------------------- | :------- | :------- | :--------- | | Quarter Ended June 30 | $1.16 | $1.02 | 13.7% | | Six Months Ended June 30 | $2.29 | $2.02 | 13.4% | * The increase in non-GAAP EPS is mainly due to higher non-GAAP operating income, partially offset by foreign currency movements[11] Non-GAAP Adjusted EBITDA This section details CSG's non-GAAP Adjusted EBITDA for Q2 2025 and the first half of 2025 Non-GAAP Adjusted EBITDA (in thousands) | Period | 2025 | 2024 | Change (%) | | :------------------- | :--------- | :--------- | :--------- | | Quarter Ended June 30 | $67,980 | $60,052 | 13.2% | | Six Months Ended June 30 | $132,317 | $118,149 | 12.0% | Non-GAAP Adjusted Free Cash Flow This section outlines CSG's non-GAAP Adjusted Free Cash Flow for Q2 2025 and the first half of 2025 Non-GAAP Adjusted Free Cash Flow (in thousands) | Period | 2025 | 2024 | Change (%) | | :------------------- | :--------- | :--------- | :--------- | | Quarter Ended June 30 | $39,575 | $38,806 | 2.0% | | Six Months Ended June 30 | $46,643 | $4,681 | 896.4% | Balance Sheet and Cash Flow Statements This section presents CSG's condensed consolidated balance sheets and statements of cash flows Condensed Consolidated Balance Sheets CSG's total assets decreased to $1,421.2 million as of June 30, 2025, driven by lower settlement assets and cash, while liabilities also decreased and equity increased Key Balance Sheet Items (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $145,875 | $161,789 | | Settlement and merchant reserve assets | $256,145 | $343,235 | | Total Current Assets | $804,094 | $900,882 | | Goodwill | $325,773 | $316,041 | | Total Assets | $1,421,238 | $1,500,687 | | Total Current Liabilities | $515,962 | $615,209 | | Long-term debt, net | $537,767 | $530,997 | | Total Liabilities | $1,130,517 | $1,218,118 | | Total Stockholders' Equity | $290,721 | $282,569 | * Cash and cash equivalents decreased from $161.8 million at December 31, 2024, to $145.9 million at June 30, 2025[12][21] Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased for the six months ended June 30, 2025, with investing and financing activities remaining net cash outflows Key Cash Flow Items (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | | :-------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $48,795 | $13,754 | | Net cash provided by (used in) investing activities | $(7,000) | $8,220 | | Net cash used in financing activities | $(152,111) | $(137,823) | | Net decrease in cash, cash equivalents, and restricted cash | $(102,941) | $(118,287) | | Cash, cash equivalents, and restricted cash, end of period | $403,822 | $345,589 | * The substantial increase in net cash provided by operating activities for the six months ended June 30, 2025, was driven by various adjustments to reconcile net income, including higher amortization and stock-based compensation, and favorable changes in operating assets and liabilities[24] * Financing activities included significant proceeds from long-term debt ($150.6 million) and payments on long-term debt ($151.3 million), as well as $40.5 million in common stock repurchases[24] Supplemental Revenue Analysis This section provides a detailed breakdown of CSG's revenue by significant customers, vertical, and geography Revenue by Significant Customers In Q2 2025, Charter and Comcast remained CSG's two largest customers, collectively accounting for 36% of total revenue, a slight decrease from Q2 2024 Revenue by Significant Customers (Quarter Ended June 30, 2025, in thousands) | Customer | Amount | % of Revenue | | :------- | :------- | :----------- | | Charter | $57,667 | 19% | | Comcast | $51,415 | 17% | * Charter's revenue contribution decreased from 21% in Q2 2024 to 19% in Q2 2025, while Comcast's decreased from 19% to 17% over the same period[26] Revenue by Vertical CSG's Q2 2025 revenue by vertical shows Broadband/Cable/Satellite as the largest segment, with Telecommunications seeing a slight increase Revenue by Vertical (Quarter Ended June 30, 2025) | Vertical | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------ | :-------------- | :--------------- | :-------------- | | Broadband/Cable/Satellite | 51% | 50% | 53% | | Telecommunications | 18% | 17% | 16% | | All other | 31% | 33% | 31% | Revenue by Geography The Americas remains CSG's dominant revenue source, with its share slightly decreasing in Q2 2025, while EMEA showed growth Revenue by Geography (Quarter Ended June 30, 2025) | Geography | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------- | :-------------- | :--------------- | :-------------- | | Americas | 85% | 87% | 89% | | Europe, Middle East and Africa | 11% | 9% | 6% | | Asia Pacific | 4% | 4% | 5% | Full Year 2025 Financial Guidance CSG provides its revised full-year 2025 financial guidance and detailed non-GAAP reconciliations Revised Guidance Targets CSG revised its full-year 2025 financial guidance, raising non-GAAP adjusted operating margin, Adjusted EBITDA, and Adjusted Free Cash Flow targets while maintaining revenue and GAAP EPS Revised Full Year 2025 Financial Guidance | Metric | As of August 6, 2025 | Previous | | :-------------------------- | :------------------- | :------------------- | | GAAP Revenue | No change | $1,210 - $1,250 million | | Non-GAAP Adjusted Operating Margin Percentage | 18.6% - 19.0% | 18.4% - 18.8% | | GAAP EPS | No change | $4.65 - $4.90 | | Non-GAAP Adjusted EBITDA | $261 - $272 million | $258 - $269 million | | Non-GAAP Adjusted Free Cash Flow | $120 - $150 million | $110 - $150 million | Non-GAAP Guidance Reconciliations CSG provides detailed reconciliations for its full-year 2025 non-GAAP financial guidance, outlining specific adjustments from GAAP measures for key metrics * The guidance for non-GAAP adjusted operating margin percentage is 18.6% - 19.0%, calculated by adjusting GAAP operating income for items like restructuring charges, acquisition-related expenses, and stock-based compensation, and then dividing by revenue less transaction fees[43] * Non-GAAP EPS guidance is $4.65 - $4.90, derived by adjusting GAAP net income for various non-recurring and non-cash items and applying a non-GAAP effective income tax rate of approximately 27%[44] * Non-GAAP adjusted EBITDA guidance is $261 - $272 million, which includes adjustments for interest, taxes, depreciation, amortization, stock-based compensation, and other specific non-GAAP exclusions[45] * Non-GAAP adjusted free cash flow guidance is $120 - $150 million, calculated by adjusting cash flows from operating activities for earn-out compensation payments and purchases of software, property, and equipment[46] Company Information and Non-GAAP Disclosures This section outlines CSG's business, forward-looking statement caveats, and non-GAAP financial measure disclosures About CSG CSG provides customer experience, billing, and payments SaaS solutions, empowering businesses and offering guidance for long-term success * CSG's core business involves empowering companies to build unforgettable experiences through customer experience, billing, and payments solutions[16] * The company offers SaaS solutions to help leaders take control of their future and benefit from the guidance of CSG's global team[16] Forward-Looking Statements This news release contains forward-looking statements subject to risks and uncertainties, including customer concentration, market conditions, security, product development, and regulatory compliance * The news release includes forward-looking statements based on assumptions that involve risks and uncertainties, which could cause actual results to differ materially[18] * Key risk factors include reliance on a limited number of customers (approximately 40% of revenue from two largest customers), fluctuations in credit markets, global economic/political conditions, foreign currency exchange rates, and the ability to maintain a reliable computing environment[19] * Other significant risks involve market acceptance of products, continuous product development, timely solution delivery, dependency on the global telecommunications industry, competition, successful integration of acquisitions, intellectual property protection, international business conduct, and compliance with laws and regulations[19] Disclosures for Non-GAAP Financial Measures CSG uses non-GAAP financial measures for transparency in financial and operational decision-making, internal planning, and investor communications, acknowledging their limitations compared to GAAP * CSG uses non-GAAP financial measures (non-GAAP operating income, adjusted operating margin percentage, EPS, adjusted EBITDA, and adjusted free cash flow) to supplement GAAP results, providing greater transparency for management and investors[30] * These non-GAAP measures are used for internal financial planning, forecasting, management compensation, and communications with stakeholders, aiming to provide a clearer understanding of operational results, trends, and cash generation[30][32] * Limitations of non-GAAP measures include their non-adherence to comprehensive accounting rules, potential differences in calculation compared to other companies, exclusion of certain recurring income/expense items, and the fact that some excluded charges are cash expenses[30][32] * Key exclusions from non-GAAP measures include restructuring and reorganization charges, acquisition-related expenses (amortization of acquired intangibles, earn-out compensation, transaction costs), stock-based compensation, and certain gains/losses on debt extinguishment or acquisitions/dispositions[33][34] * Non-GAAP adjusted EBITDA is defined as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency adjustments, acquisition-related expenses, and unusual items. Non-GAAP adjusted free cash flow is net cash flows from operating activities before earn-out compensation payments less purchases of software, property, and equipment[35]