CSG SYSTEMS INTERNATIONAL INC Q2 FY2024 earnings

CSG Systems International posted second quarter 2024 revenue of $290.3 million, up 1.4% from the prior-year quarter. GAAP operating income was $25.4 million, down 9.9%, and the GAAP operating margin was 8.8%, down 1.1 percentage points. GAAP net income was $13.8 million, down 0.9%, while diluted EPS was $0.48, up 6.7%. The company said the operating income decline was mainly due to higher restructuring and reorganization charges tied to a reduction in its global workforce. On a non-GAAP basis, operating income was $46.1 million and adjusted operating margin was 17.3%, both higher than the prior-year quarter. Non-GAAP EPS was $1.02. The spread between GAAP and non-GAAP results reflects the excluded costs, including restructuring, acquisition amortization, and stock-based compensation. For the six months ended June 30, 2024, revenue was flat at $585.5 million, while GAAP operating income fell 13.8% to $57.2 million and GAAP net income fell 4.5% to $33.3 million. Diluted EPS for the six months rose 1.8% to $1.16.

GAAP operating cash flow was $43.1 million in the second quarter, up 248.0% from the prior-year quarter. That rebound followed a weak first quarter. For the six months, operating cash flow was $13.8 million, down 50.5%. Capital expenditures were $4.3 million in the quarter, down 44.4%, and $9.1 million for the six months, down 44.8%. Non-GAAP free cash flow was $38.8 million in the quarter and $4.7 million for the six months. The current portion of deferred revenue was $56.1 million at June 30, 2024, down 0.6% from the prior-year quarter. Remaining performance obligations were $1.4 billion, down 12.5%. The company signed several customer wins and expanded deals during the quarter, including Telenor Denmark, Telstra, One New Zealand, and Lyse Norway. Management also highlighted industry diversification, saying 31% of revenue now comes from verticals outside communication service providers, compared with 7% in 2017. CSG closed two acquisitions in the quarter for a total combined purchase price of approximately $33 million. It repurchased about 219,000 shares for approximately $10 million, declared a quarterly dividend of $0.30 per share, or about $9 million, and in August increased its share repurchase authorization by an additional $100 million. Since 2020, CSG has returned $480 million to shareholders through dividends and repurchases.

CSG revised its full-year 2024 guidance. It raised its non-GAAP adjusted operating margin target to 17.3% to 17.7%, from 17.0% to 17.4%. It lifted non-GAAP EPS guidance to $4.05 to $4.35, from $3.85 to $4.15. Adjusted EBITDA guidance moved to $247 million to $257 million, from $245 million to $255 million. Free cash flow guidance was left unchanged at $95 million to $135 million, and revenue guidance was also unchanged. The company said the higher profit and non-GAAP EPS targets reflect new sales wins and operating leverage. Management reiterated its other guidance. The guidance is for the full fiscal year 2024.

The quarter showed mixed signals. GAAP profitability declined, and remaining performance obligations ended the quarter lower. Customer concentration remains a major risk. CSG derives a significant portion of revenue from a limited number of customers, with approximately 40% from its two largest customers. In the second quarter, Charter represented 21% of revenue and Comcast represented 19%. If a significant customer terminates or fails to renew its contract, reduces accounts or pricing, or faces financial or operating difficulties, CSG could see a material adverse effect. The company also noted a challenging macroeconomic environment in the first half of 2024. Other risks include foreign currency exchange rates, credit market conditions, competition from larger competitors, reliance on the global telecommunications industry, and the ability to integrate acquired businesses. The company's diversification efforts are intended to reduce that dependence, but the communication and cable verticals still made up the majority of revenue, with Broadband/Cable/Satellite at 53% and Telecommunications at 16% in the quarter. Cash flow volatility is another consideration. Operating cash flow swung sharply between quarters, and the six-month total was down 50.5%.