CSG SYSTEMS INTERNATIONAL INC Q1 FY2023 earnings

CSG Systems International reported first quarter 2023 revenue of $298.7 million, up 13.0% year over year. GAAP operating income was $38.2 million, up 132.7%. The operating margin was 12.8%, up 6.6 percentage points. GAAP net income was $20.9 million, up 242.4%, and diluted EPS was $0.68, up 257.9%. Non-GAAP operating income was $53.5 million, with a non-GAAP adjusted operating margin of 19.3%. Non-GAAP EPS was $1.04. The company called the top line its strongest quarterly organic revenue result in nearly two decades. Revenue growth came from software and services, mainly on the timing of deal closures, as well as increased payments volumes, conversions of customer accounts onto CSG solutions, and other ancillary services.

Cash flow and backlog present a mixed picture. Operating cash flow was $15.4 million, up year over year, and non-GAAP free cash flow was $6.7 million. Capital expenditures were $8.7 million, down 16.1%. Current deferred revenue was $54.8 million, up 5.4%. Remaining performance obligations were $1.60 billion, down 20.0%. Non-GAAP adjusted EBITDA was $67.3 million. The board declared a quarterly dividend of $0.28 per share, about $9 million.

Operationally, CSG completed the migration of Charter subscribers from a competitor's billing system in the quarter. The company converted over nine million customer accounts in the past twelve months and more than fourteen million in total. The migration was the final step in consolidating Charter's residential and small and medium business internet, video, and landline voice customers onto CSG platforms. Charter and Comcast remain the two largest customers, together representing approximately forty percent of revenue. Broadband, cable, and satellite made up 52% of revenue, telecommunications 20%, and all other 28%. The Americas generated 84% of revenue, EMEA 12%, and Asia Pacific 4%. Software and services revenue grew on the timing of software license upgrades.

Management reaffirmed its full year 2023 guidance. Revenue guidance is $1,130 million to $1,170 million. Non-GAAP adjusted operating margin is targeted at 16.5% to 17.0%, non-GAAP EPS at $3.35 to $3.65, adjusted EBITDA at $231 million to $242 million, and free cash flow at $80 million to $120 million. The guidance is for the full fiscal year, not the next quarter.

Risks remain concentrated. CSG derives approximately forty percent of its revenue from its two largest customers, so a termination, non-renewal, account reduction, price pressure, or financial difficulty at either customer could hurt results. The company also faces exposure to the global telecommunications industry, credit market conditions, foreign currency moves, competition, acquisition integration, and the need to maintain a secure computing environment. The 10-Q also cites risks around CSG's ability to develop and enhance products in a timely, cost-effective, and competitive manner, to deliver large and complex software implementations, and to protect its intellectual property rights. The remaining performance obligation decline to $1.60 billion is a reminder that backlog can move sharply. The company also completed a large subscriber migration in the quarter, which carries execution and transition risk. Management's guidance depends on continued software and services momentum and on converting customer accounts onto CSG solutions.