CSG SYSTEMS INTERNATIONAL INC Q1 FY2022 earnings

CSG Systems International opened fiscal 2022 with revenue growth and much lower GAAP profit. First quarter revenue was $264.4 million, up 4.5% from $253.1 million in the prior-year quarter. Management credited continued growth in revenue management solutions, noting that roughly two-thirds of the increase came from organic growth. Profitability moved the other way. GAAP operating income fell 47.7% to $16.4 million from $31.4 million, and the operating margin dropped to 6.2% from 12.4%. Net income fell 68.9% to $6.1 million, and diluted EPS came in at $0.19, down 68.9% from $0.61.

Two charges drove most of the GAAP decline. Restructuring and reorganization charges were $13.1 million, a $12.0 million increase from $1.1 million a year earlier, and stemmed mostly from real estate restructurings as the company reshapes its office footprint for flexible work. A $7.5 million loss on a derivative liability followed the March 2022 conversion of the 2016 convertible notes. Selling, general and administrative expense climbed 17.5% to $57.3 million. The non-GAAP picture is calmer. Adjusted revenue was $246.4 million, up 4.1%, non-GAAP operating income was $40.2 million, or 16.3% of adjusted revenue versus 17.0% a year ago, and non-GAAP EPS was $0.86 compared with $0.82. Adjusted EBITDA was $56.3 million, or 22.9% of adjusted revenue.

Cash flow was the weak spot. Operating cash flow was -$5.5 million, down 149.5% from -$2.2 million in the prior-year quarter, and non-GAAP free cash flow was a deficit of $15.9 million against a $10.5 million deficit a year earlier. The quarter absorbed the payment of 2021 year-end accrued employee incentive compensation. Capital expenditures were $10.4 million, up 25.9% from $8.2 million. CSG borrowed $245 million on its 2021 revolver to settle the 2016 convertible notes for about $242 million in cash. Cash, cash equivalents and short-term investments totaled $187.6 million at March 31, 2022, down from $233.7 million at December 31, 2021.

Backlog was the standout. Remaining performance obligations reached $2.0 billion, up 122.2% from $900 million a year earlier. Current deferred revenue moved in the opposite direction, down 6.9% to $52.0 million from $55.8 million. For the full year 2022, CSG reaffirmed its previously issued guidance: adjusted revenue of $1,000 to $1,033 million, an adjusted operating margin of 16.5% to 17.0%, non-GAAP EPS of $3.44 to $3.68, adjusted EBITDA of $225 to $236 million, and free cash flow of $115 to $125 million.

The company kept returning cash to shareholders while it invests. The board declared a quarterly dividend of $0.265 per share, about $9 million in total, and CSG repurchased roughly 266,000 shares for about $16 million. On the product side, it launched CSG Encompass, a 5G-ready, SaaS-based offering for global telecom customers. The risks are the usual ones for this business. CSG draws approximately forty percent of revenue from its two largest customers, and Comcast and Charter each represented 20% of first quarter revenue. Management flagged discounts tied to the Charter Communications and DISH contract renewals. Other stated risks include foreign currency swings, dependence on the global telecommunications industry, integration of the businesses acquired in 2021, competition from larger vendors, and the COVID-19 pandemic. With the first quarter cash outflow and $10.4 million of capital spending, cash conversion is the metric to watch as the year progresses.