CSG SYSTEMS INTERNATIONAL INC Q1 FY2021 earnings

CSG Systems International opened fiscal 2021 with revenue of $253.1 million in the first quarter, up 3.1% from the prior-year quarter. Non-GAAP adjusted revenue was $236.7 million, up 4.1%, which management called the best quarterly organic revenue growth since Q3 2019. GAAP operating income was $31.4 million, down 5.4%, and the operating margin was 12.4%, down 1.1 percentage points. Net income was $19.6 million, down 8.8%, while diluted EPS was $0.61, down 7.6%. The operating income decline came mainly from higher employee-related costs; the prior-year quarter benefited from a mark-to-market reduction in a compensation liability tied to the stock market decline. Non-GAAP operating income was $40.2 million, or 17.0% of adjusted revenue, and non-GAAP EPS was $0.82, down 5.7%. Revenue growth was driven by continued growth in revenue management solutions and a strong quarter of professional services revenue. The sequential quarterly decrease from the fourth quarter reflected the higher software and professional services revenue CSG typically records in the fourth quarter.

Cash flow remained seasonal and working-capital heavy. Operating cash flow was negative $2.8 million, up 61.1% from the prior-year quarter. A key recurring customer payment of about $26 million arrived just after quarter-end, and the company paid year-end accrued employee incentive compensation. Management said these delayed payments do not raise collectability concerns. Free cash flow, a non-GAAP measure, was a deficit of $11.0 million. Capital expenditures were $8.2 million, up 70.9%, as CSG invested in technology, security, infrastructure, and equipment modernization. Current deferred revenue was $55.8 million, up 11.0%. Remaining performance obligations were $900 million, down 10.0%.

CSG returned $15 million to shareholders during the first quarter, including a declared quarterly dividend of $0.25 per share, or approximately $8 million, and share repurchases. The company reaffirmed its full-year 2021 non-GAAP guidance: adjusted revenue of $922 million to $954 million, adjusted operating margin of 16.25% to 16.75%, non-GAAP EPS of $3.02 to $3.24, adjusted EBITDA of $212 million to $222 million, and free cash flow of $110 million to $120 million. The guidance is for the full fiscal year, not the next quarter. Management said it remains well positioned to lengthen and strengthen customer relationships, accelerate growth, and diversify the revenue base. The non-GAAP adjusted revenue growth of 4.1% outpaced GAAP revenue growth of 3.1%, partly because transaction fees are excluded from the adjusted figure. The reaffirmation suggests stable demand across the communications and adjacent verticals that CSG serves.

Customer concentration remains the clearest risk. Comcast and Charter each accounted for 21% of first-quarter revenue, and the agreement with Charter runs through December 31, 2021, with an option to extend for one additional year. Management is in renewal discussions with Charter. A termination, non-renewal, or significant reduction in scope or pricing from either large customer could materially hurt results. Other listed risks include the COVID-19 pandemic, dependence on the global telecommunications industry, competition from larger players, integration of acquisitions, protection of intellectual property, security of the computing environment, international operations, and foreign currency fluctuations. The company also faces working-capital timing risk, since the quarter's operating cash flow depended on customer payments that arrived after March 31, 2021. CSG continues to evaluate acquisitions and investments as part of its growth strategy.