Summary
CSG Systems International grew revenue modestly in the second quarter of fiscal 2022 while profit collapsed. Revenue was $262.2 million, up 2.8% from $255.1 million a year earlier, and first-half revenue of $526.6 million rose 3.6% from $508.3 million. Growth came partly from businesses acquired in 2021 and partly from organic expansion of the revenue management solutions. Profit went the other way. GAAP operating income dropped 77.4% to $7.3 million from $32.2 million, and the operating margin fell to 2.8% from 12.6%, a decline of 9.8 percentage points. Diluted EPS was $0.17, down 71.7% from $0.60, and net income was $5.3 million, down 72.5% from $19.3 million.
Restructuring did the damage. The quarter carried $19.0 million of restructuring and reorganization charges, a $17.2 million increase from the prior-year quarter. That included $6.2 million of real estate impairment charges, $1.9 million of accelerated depreciation as the company shrinks its office footprint for flexible work, $7.0 million of net impairment charges tied to the dissolution of the MobileCard business, and $2.2 million of severance from involuntary terminations. Six-month charges reached $32.1 million against $2.8 million a year earlier.
The non-GAAP view was far less ugly. Adjusted revenue of $243.5 million rose 2.1%, and non-GAAP operating income was $36.7 million, or 15.1% of adjusted revenue, down from 16.7%. Non-GAAP EPS of $0.84 rose 2.4% from $0.82. Management attributed the margin pressure to the 2021 acquisitions, which run at lower margins and need time to generate expected synergies, plus staffing for large new deals and upcoming projects, inflation and supply chain costs, and more travel spending. CSG said it began a margin improvement initiative in the second quarter to restore profitability in the third and fourth quarters.
Cash generation is the bigger problem. Operating cash flow was a use of $7.7 million for the quarter, down from $44.5 million provided in the prior-year quarter, and the first half was a use of $13.3 million. Non-GAAP free cash flow was a deficit of $17.0 million, against positive free cash flow of $37.5 million a year earlier. Capital expenditures of $9.3 million rose 34.0%. The company pointed to unfavorable changes in working capital, with the timing of customer payments and employee-related accruals moving against it.
Backlog offers some offset. Remaining performance obligations were $2.0 billion at June 30, 2022, up 122.2% from $900.0 million a year earlier. Deferred revenue, current portion only, slipped 4.4% to $52.5 million. CSG signed one of the largest telecom wins in its history with a new Latin American customer, migrated about 75% of new Charter subscribers during the quarter, and converted roughly six million Charter accounts onto its ACP platform in June 2022. First-half sales bookings grew more than 10% year over year.
Full-year 2022 guidance was trimmed at the bottom. GAAP revenue guidance stayed at $1,070 million to $1,110 million, and non-GAAP EPS stayed at $3.44 to $3.68. Adjusted operating margin guidance moved to 16.2% to 16.7% from 16.5% to 17.0%, adjusted EBITDA to $220 million to $230 million from $225 million to $236 million, and free cash flow to $80 million to $90 million from $115 million to $125 million. Adjusted revenue guidance was unchanged at $1,000 million to $1,033 million.
The risks are concrete. Charter and Comcast each produced 20% of second-quarter revenue, and broadband, cable, and satellite customers supplied 55% of the total, so the customer base is narrow. The 2021 acquisitions still dilute margins, and the margin initiative has to work. Inflation, supply chain costs, and travel are all pushing expenses up, while free cash flow depends on working capital swings that went the wrong way this quarter. CSG returned $55 million to shareholders in the first half through repurchases and dividends, buying back about 360,000 shares for about $22 million in the second quarter and declaring a quarterly dividend of $0.265 per share.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $262.2M | $264.4M | -0.8% | $255.1M | +2.8% |
| Gross profit | $124.0M | $126.0M | -1.5% | $122.2M | +1.5% |
| Gross margin | 47.3% | 47.6% | -0.3 pp | 47.9% | -0.6 pp |
| Research & development | $34.6M | $33.0M | +5.0% | $32.8M | +5.7% |
| Sales & marketing | $57.5M | $57.3M | +0.2% | $49.3M | +16.7% |
| Total operating expenses | $254.9M | $248.0M | +2.8% | $223.0M | +14.3% |
| Operating income (loss) | $7.3M | $16.4M | -55.6% | $32.2M | -77.4% |
| Operating margin | 2.8% | 6.2% | -3.4 pp | 12.6% | -9.8 pp |
| Net income (loss) | $5.3M | $6.1M | -13.0% | $19.3M | -72.5% |
| Net margin | 2.0% | 2.3% | -0.3 pp | 7.6% | -5.5 pp |
| Diluted EPS | $0.17 | $0.19 | -$0.02 | $0.60 | -$0.43 |
| Customers | 900 | 900 | ±0.0% | — | — |
Risks
A large percentage of historical revenue comes from two largest customers, Charter and Comcast, and MD&A says the company expects to continue generating a significant percentage of future revenue from them. The loss, non-renewal, reduced processing volume, or financial difficulty of a significant customer could materially adversely affect financial condition and results of operations.
Operating income was down 77.4% to $7.3 million in FY2022 Q2 from $32.2 million in FY2021 Q2, and operating margin was down to 2.8% from 12.6%. MD&A attributes the decline mainly to increased restructuring and reorganization charges, plus dilutive 2021 acquisitions and inflationary pressures.
Operating cash flow was down to negative $7.7 million in FY2022 Q2 from positive $44.5 million in FY2021 Q2, and year-to-date operating cash flow was negative $13.3 million versus positive $42.2 million in the prior-year period. MD&A cites unfavorable working capital changes and tax-related capitalization of R&D expenses as negative impacts.
Restructuring and reorganization charges rose to $19.0 million in Q2 2022, a $17.2 million increase from $1.8 million in Q2 2021, driven mainly by real estate impairments, the MobileCard dissolution, and workforce reductions. The company decided in June 2022 to shut down MobileCard because it was not meeting projected targets.
The 2021 acquired businesses are operating at a lower operating margin than the organic business and are dilutive to operating results while synergies are realized. MD&A says year-over-year comparability is affected by the timing of acquisitions and that they contribute to margin pressure.
MD&A cites inflationary and supply-chain pressures, wage inflation, increased staffing for recently closed large deals and future projects, and increased travel expenses as contributors to higher operating expenses and margin pressure.
SaaS KPIs
All quarters →Non-GAAP Adjusted Operating Margin
Non-GAAP free cash flow
Non-GAAP Adjusted EBITDA Margin
Total customers
Summary, forecast, risks and KPIs are extracted from CSG SYSTEMS INTERNATIONAL INC's SEC filings for Q2 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.