Summary
CSG Systems International posted FY2023 third quarter revenue of $286.9 million, up 5.0% from the prior-year quarter. Year-to-date revenue reached $871.9 million, up 9.0%. Management called the first nine months the strongest first nine-month results in nearly two decades. The top line benefited from continued growth in revenue management solutions, conversions of customer accounts onto CSG solutions, other ancillary services, and higher payments volumes. The customer base remains concentrated. Charter represented 21% of revenue and Comcast 19%, and the company derives approximately forty percent of revenue from its two largest customers. Contract extensions reduce near-term renewal risk: Charter's agreement now runs through March 31, 2028, and Comcast extended its processing agreement through December 31, 2025. Revenue mix was 86% Americas, 9% Europe, Middle East and Africa, and 5% Asia Pacific. Broadband, cable, and satellite customers accounted for 53% of revenue, telecommunications 20%, and all other verticals 27%.
Profitability improved on a GAAP basis. Operating income was $32.7 million, up 63.8%, and operating margin was 11.4%, up 4.1 percentage points. Year-to-date operating income was $99.1 million, up 127.0%, with year-to-date operating margin of 11.4%, up 5.9 percentage points. The increase was mainly due to a $13.0 million decrease in restructuring and reorganization charges. Net income was $18.7 million, up 49.8%, and diluted EPS was $0.62, up 55.0%. Year-to-date net income was $53.6 million, up 124.1%, and year-to-date diluted EPS was $1.75, up 130.3%. The GAAP picture diverges from non-GAAP trends. Non-GAAP operating income was $45.2 million, with an adjusted operating margin of 17.0%, and non-GAAP EPS was $0.92, down 13.2%. Higher interest expense and foreign currency movements weighed on non-GAAP results.
Cash generation was solid but capital intensity fell. Operating cash flow was $24.6 million, up 7.6%, while capital expenditures were $6.5 million, down 45.4%. Non-GAAP free cash flow was $18.1 million. On a year-to-date basis, operating cash flow was $52.4 million, up 447.0%, capital expenditures were $22.9 million, down 27.3%, and non-GAAP free cash flow was $29.4 million. Cash, cash equivalents, and short-term investments were $146.7 million at September 30, 2023, compared with $146.2 million at June 30, 2023 and $150.4 million at December 31, 2022. Current deferred revenue was $61.4 million, up 30.5%. Remaining performance obligations were $1.50 billion, down 16.7%. Unbilled trade receivables increased $30.8 million to $83.6 million from December 31, 2022, mostly because large implementation projects had not reached milestone or contractual billing dates.
Capital returns and financing activity were aggressive. CSG declared a quarterly dividend of $0.28 per share, about $9 million, and repurchased approximately 1,991,000 shares for approximately $107 million in the third quarter, the most quarterly share repurchases since Q3 2007. The company completed a previously announced $100 million stock repurchase program. In September 2023, it issued $425.0 million of convertible notes due in 2028 at a 3.875% rate, lowering exposure to floating rate debt. Proceeds were used to repay $275.0 million under the 2021 revolver, repurchase 1.7 million shares for $90.1 million, and pay $34.3 million for capped call transactions. The revolver had $435.0 million available after quarter-end.
Guidance for full-year 2023 leaves revenue guidance unchanged and raises non-GAAP EPS to $3.50 to $3.70 from $3.42 to $3.58. Full-year non-GAAP adjusted operating margin is guided at 16.75% to 17.1%, adjusted EBITDA at $238 million to $245 million, and free cash flow at $80 million to $120 million. Risks include customer concentration, fluctuations in credit markets, global economic and political conditions, foreign currency exchange rates, dependence on the global telecommunications industry, security of the computing environment, competition, and integration of acquisitions. Interest expense remains a headwind after the debt raise, though the fixed-rate convertible notes reduce floating-rate exposure.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $286.9M | $286.3M | +0.2% | $273.3M | +5.0% |
| Gross profit | $134.1M | $135.2M | -0.8% | $134.8M | -0.5% |
| Gross margin | 46.8% | 47.2% | -0.5 pp | 49.3% | -2.6 pp |
| Research & development | $35.3M | $36.6M | -3.7% | $35.8M | -1.3% |
| Sales & marketing | $59.1M | $62.7M | -5.7% | $59.0M | +0.1% |
| Total operating expenses | $254.1M | $258.1M | -1.5% | $253.3M | +0.3% |
| Operating income (loss) | $32.7M | $28.2M | +16.0% | $20.0M | +63.8% |
| Operating margin | 11.4% | 9.8% | +1.6 pp | 7.3% | +4.1 pp |
| Net income (loss) | $18.7M | $14.0M | +34.0% | $12.5M | +49.8% |
| Net margin | 6.5% | 4.9% | +1.6 pp | 4.6% | +1.9 pp |
| Diluted EPS | $0.62 | $0.45 | +$0.17 | $0.40 | +$0.22 |
Risks
Charter Communications accounted for 21% and Comcast 19% of revenue in the third quarter of 2023, and net billed receivables from the largest customers were heavily concentrated as well. Termination, non-renewal, or reduced processing volume at either customer would materially affect financial condition and results of operations.
Interest expense rose to $8.0 million in the third quarter of 2023, up $3.7 million versus the third quarter of 2022, and year to date rose to $23.1 million, up $12.8 million, driven by rising interest rates and a higher average debt balance. The company issued $425.0 million of 3.875% convertible notes due 2028 in September 2023, adding roughly $16.5 million of annual interest outlay and refinancing risk at maturity.
Remaining performance obligations declined 16.7% to $1.50 billion at September 30, 2023 from $1.80 billion a year earlier, indicating a shrinking contracted backlog. This raises visibility risk for future SaaS revenue growth even as third quarter 2023 revenue rose 5.0%.
Unbilled trade accounts receivable increased $30.8 million to $83.6 million as of September 30, 2023 from $52.8 million as of December 31, 2022, due primarily to large implementation projects where milestone and contractual billing dates were not yet reached or were delayed. Days billings outstanding were 68 in the first quarter of 2023 versus 66 in the third quarter of 2022, and the company flags adverse DBO impacts if customer payment delays occur.
The company continues to restructure, with $1.2 million of restructuring and reorganization charges in the third quarter of 2023 and $8.4 million year to date, including the exit of a Forte Payment Systems reseller agreement that cost $3.6 million. In October 2023 it exited a second reseller agreement with total payments of $6.3 million through 2026, adding further restructuring and execution risk.
SaaS KPIs
All quarters →Non-GAAP Adjusted Operating Margin
Non-GAAP free cash flow
Non-GAAP Adjusted EBITDA
Non-GAAP Operating Income
Non-GAAP Adjusted EBITDA Margin
Summary, forecast, risks and KPIs are extracted from CSG SYSTEMS INTERNATIONAL INC's SEC filings for Q3 FY2023 (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 2, 2026.