CSG Systems International Reports Third Quarter 2024 Results

CSG (NASDAQ: CSGS) today reported results for the quarter ended September 30, 2024.

Announced Watershed Contract Renewal with Comcast through Year-End 2030

Raising 2024 Profitability and Non-GAAP EPS Guidance Targets for Second Consecutive Quarter

Commitment to Return $100+ Million to Shareholders via Dividends and Buybacks in 2024 and 2025

Financial Results:

Third quarter 2024 financial results:

Total revenue was $295.1 million.
GAAP operating income was $31.8 million, or an operating margin of 10.8%, and non-GAAP operating income was $50.1 million, or a non-GAAP adjusted operating margin of 18.4%.
GAAP earnings per diluted share (EPS) was $0.67 and non-GAAP EPS was $1.06.
Cash flows from operations were $39.5 million, with non-GAAP free cash flow of $32.0 million.

Shareholder Returns:

CSG declared its quarterly cash dividend of $0.30 per share of common stock, or a total of approximately $9 million, to shareholders.
During the third quarter of 2024, CSG repurchased under its stock repurchase program, approximately 313,000 shares of its common stock for approximately $15 million.

“We were excited to announce earlier this week a fantastic win-win contract expansion with Comcast that will extend our contract term through year-end 2030,” said Brian Shepherd, President and Chief Executive Officer of CSG. “Regarding Q3 earnings, team CSG posted good operating results in the first nine months of 2024 and we are pleased to raise our 2024 profitability and non-GAAP EPS guidance targets for a second consecutive quarter while reiterating all other guidance metrics. From a shareholder return perspective, we plan on returning $100+ million to shareholders via dividends and share repurchases in each of 2024 and 2025. Returning capital to shareholders remains a cornerstone commitment as we have returned nearly $500 million to shareholders since 2020.”

Financial Overview (unaudited)

(in thousands, except per share amounts and percentages):

Quarter Ended September 30,

Nine Months Ended September 30,

2024

2023

Percent Changed

2024

2023

Percent Changed

GAAP Results:

Revenue

295,143

286,868

2.9

880,596

871,934

1.0

Operating Income

31,822

32,731

(2.8

89,039

99,130

(10.2

Operating Margin Percentage

10.8

11.4

10.1

11.4

EPS

0.67

0.62

8.1

1.83

1.75

4.6

Non-GAAP Results:

Operating Income

50,076

45,203

10.8

141,085

141,664

(0.4

Adjusted Operating Margin Percentage

18.4

17.0

17.4

17.5

EPS

1.06

0.92

15.2

3.08

2.76

11.6

For additional information and reconciliations regarding CSG’s use of non-GAAP financial measures, please refer to the attached Exhibit 2 and the Investor Relations section of CSG’s website at csgi.com.

Results of Operations

GAAP Results: Total revenue for the third quarter of 2024 was $295.1 million, a 2.9% increase when compared to revenue of $286.9 million for the third quarter of 2023. The increase in revenue can be attributed to the continued growth of our SaaS and related solutions revenue, to include approximately $6 million of revenue generated from the businesses acquired in the second quarter of 2024, which more than offset lower software and services revenue for the quarter.

GAAP operating income for the third quarter of 2024 was $31.8 million, or 10.8% of total revenue, compared to $32.7 million, or 11.4% of total revenue, for the third quarter of 2023. The decrease in operating income is mainly attributed to the increase in acquisition-related expenses in the third quarter of 2024, to include earn-out compensation and amortization of acquired intangible assets.

GAAP EPS for the third quarter of 2024 was $0.67, compared to $0.62 for the third quarter of 2023, with the third quarter of 2024 benefiting from a lower effective income tax rate and a lower share count, partially offset by foreign currency movements.

Non-GAAP Results: Non-GAAP operating income for the third quarter of 2024 was $50.1 million, or a non-GAAP adjusted operating margin of 18.4%, compared to $45.2 million, or a non-GAAP adjusted operating margin of 17.0% for the third quarter of 2023. The increase in non-GAAP operating income and non-GAAP adjusted operating margin can be primarily attributed to the higher revenue discussed above.

Non-GAAP EPS for the third quarter of 2024 was $1.06 compared to $0.92 for the third quarter of 2023. The increase in non-GAAP EPS is mainly due to the higher non-GAAP operating income, discussed above, and the lower share count, partially offset by foreign currency movements.

Balance Sheet and Cash Flows

Cash and cash equivalents as of September 30, 2024 were $118.4 million compared to $110.4 million as of June 30, 2024 and $186.3 million as of December 31, 2023. CSG had net cash flows provided by operations for the third quarters ended September 30, 2024 and 2023 of $39.5 million and $24.6 million, respectively, and non-GAAP free cash flow of $32.0 million and $18.1 million, respectively.

Summary of Financial Guidance

CSG is revising its financial guidance for the full year 2024, as follows:

As of November 6, 2024

Previous

GAAP Measures:

Revenue

No change

$1,200 - $1,240 million

Non-GAAP Measures:

Adjusted Operating Margin Percentage

17.7% - 18.1%

17.3% - 17.7%

EPS

$4.25 - $4.55

$4.05 - $4.35

Adjusted EBITDA

$251 - $261 million

$247 - $257 million

Free Cash Flow

No change

$95 - $135 million

Conference Call

CSG will host a conference call on Wednesday, November 6, 2024 at 5:00 p.m. ET, to discuss CSG’s third quarter of 2024 earnings results. The call will be carried live and archived on the Internet. A link to the conference call is available at http://ir.csgi.com. In addition, to reach the conference by phone, call 1-888-412-4131 and use the passcode 2327393.

Additional Information

For information about CSG, please visit CSG’s web site at csgi.com. Additional information can be found in the Investor Relations section of the website.

About CSG

CSG empowers companies to build unforgettable experiences, making it easier for people and businesses to connect with, use and pay for the services they value most. Our customer experience, billing and payments solutions help companies of any size make money and make a difference. With our SaaS solutions, company leaders can take control of their future and tap into guidance along the way from our fiercely committed and forward-thinking CSGers around the world.

Want to be future-ready and a change-maker like the global brands that trust CSG? Visit csgi.com to learn more.

Forward-Looking Statements

This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. Some of these key factors include, but are not limited to the following items:

CSG derives a significant portion of its revenue from a limited number of customers, with approximately forty percent of its revenue from its two largest customers;
Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates;
CSG’s ability to maintain a reliable, secure computing environment;
Continued market acceptance of CSG’s products and services;
CSG’s ability to continuously develop and enhance products in a timely, cost-effective, technically advanced and competitive manner;
CSG’s ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations;
CSG’s dependency on the global telecommunications industry, and in particular, the North American telecommunications industry;
CSG’s ability to meet its financial expectations;
Increasing competition in CSG’s market from companies of greater size and with broader presence;
CSG’s ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals;
CSG’s ability to protect its intellectual property rights;
CSG’s ability to conduct business in the international marketplace;
CSG’s ability to comply with applicable U.S. and International laws and regulations; and
CSG’s business may be disrupted, and its results of operations and cash flows adversely affected by a global pandemic.

This list is not exhaustive, and readers are encouraged to review the additional risks and important factors described in CSG’s reports on Forms 10-K and 10-Q and other filings made with the SEC.

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands)

September 30, 2024

December 31, 2023

ASSETS

Current assets:

Cash and cash equivalents

118,444

186,264

Settlement and merchant reserve assets

240,755

274,699

Trade accounts receivable:

Billed, net of allowance of $4,810 and $5,432

279,930

267,680

Unbilled

82,585

82,163

Income taxes receivable

13,992

1,345

Other current assets

51,534

50,075

Total current assets

787,240

862,226

Non-current assets:

Property and equipment, net of depreciation of $136,641 and $121,816

58,353

65,545

Operating lease right-of-use assets

25,842

34,283

Software, net of amortization of $168,808 and $157,601

22,953

14,224

Goodwill

323,449

308,596

Acquired customer contracts, net of amortization of $134,742 and $126,469

42,786

35,879

Customer contract costs, net of amortization of $46,641 and $42,094

60,490

54,421

Deferred income taxes

57,831

57,855

Other assets

8,502

10,017

Total non-current assets

600,206

580,820

Total assets

1,387,446

1,443,046

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

7,500

Operating lease liabilities

14,002

15,946

Customer deposits

37,716

41,035

Trade accounts payable

51,907

46,406

Accrued employee compensation

57,704

84,380

Settlement and merchant reserve liabilities

238,783

273,817

Deferred revenue

62,797

54,199

Income taxes payable

937

4,104

Other current liabilities

28,163

33,449

Total current liabilities

499,509

560,836

Non-current liabilities:

Long-term debt, net of unamortized discounts of $13,014 and $15,628

531,986

534,997

Operating lease liabilities

24,427

34,360

Deferred revenue

22,968

23,447

Income taxes payable

2,684

3,041

Deferred income taxes

120

123

Other non-current liabilities

17,341

12,916

Total non-current liabilities

599,526

608,884

Total liabilities

1,099,035

1,169,720

Stockholders' equity:

Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and

outstanding

Common stock, par value $.01 per share; 100,000 shares authorized; 29,292 and 29,541 shares

outstanding

717

713

Additional paid-in capital

509,294

490,947

Treasury stock, at cost; 41,115 and 40,398 shares

(1,170,118

)

(1,136,055

)

Accumulated other comprehensive income (loss):

Unrealized gain on short-term investments, net of tax

Cumulative foreign currency translation adjustments

(45,562

)

(50,414

)

Accumulated earnings

994,080

968,134

Total stockholders' equity

288,411

273,326

Total liabilities and stockholders' equity

1,387,446

1,443,046

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED

(in thousands, except per share amounts)

Quarter Ended

Nine Months Ended

September 30, 2024

September 30, 2023

September 30, 2024

September 30, 2023

Revenue

295,143

286,868

880,596

871,934

Cost of revenue (exclusive of depreciation, shown separately below)

149,487

152,734

460,266

458,897

Other operating expenses:

Research and development

41,665

35,292

116,171

107,401

Selling, general and administrative

63,913

59,097

186,794

180,930

Depreciation

5,313

5,862

16,286

17,155

Restructuring and reorganization charges

2,943

1,152

12,040

8,421

Total operating expenses

263,321

254,137

791,557

772,804

Operating income

31,822

32,731

89,039

99,130

Other income (expense):

Interest expense

(7,778

)

(8,036

)

(22,982

)

(23,092

)

Interest income

1,922

1,175

6,641

2,516

Other, net

(2,187

)

813

(1,455

)

(3,047

)

Total other

(8,043

)

(6,048

)

(17,796

)

(23,623

)

Income before income taxes

23,779

26,683

71,243

75,507

Income tax provision

(4,691

)

(7,989

)

(18,859

)

(21,931

)

Net income

19,088

18,694

52,384

53,576

Weighted-average shares outstanding:

Basic

28,362

30,097

28,475

30,381

Diluted

28,468

30,284

28,621

30,540

Earnings per common share:

Basic

0.67

0.62

1.84

1.76

Diluted

0.67

0.62

1.83

1.75

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

Nine Months Ended

September 30, 2024

September 30, 2023

Cash flows from operating activities:

Net income

52,384

53,576

Adjustments to reconcile net income to net cash provided by operating activities-

Depreciation

16,724

17,549

Amortization

37,467

34,543

Asset impairment

1,689

Gain on lease modifications

(4,349

)

Unrealized foreign currency transaction (gain) loss, net

225

(442

)

Deferred income taxes

(189

)

(12,504

)

Stock-based compensation

25,023

21,253

Subtotal

131,634

111,315

Changes in operating assets and liabilities, net of acquired amounts:

Trade accounts receivable, net

(7,873

)

(33,351

)

Other current and non-current assets and liabilities

(12,771

)

(11,449

)

Income taxes payable/receivable

(16,194

)

(4,650

)

Trade accounts payable and accrued liabilities

(48,658

)

(24,158

)

Deferred revenue

7,075

14,658

Net cash provided by operating activities

53,213

52,365

Cash flows from investing activities:

Purchases of software, property, and equipment

(16,528

)

(22,940

)

Proceeds from sale/maturity of short-term investments

Business combinations, net of cash and settlement assets acquired of $46,432 and zero

17,293

Net cash provided by (used in) investing activities

765

(22,869

)

Cash flows from financing activities:

Proceeds from issuance of common stock

2,416

2,541

Payment of cash dividends

(26,598

)

(26,231

)

Repurchase of common stock

(42,439

)

(116,418

)

Deferred acquisition payments

(2,488

)

(3,220

)

Proceeds from long-term debt

15,000

470,000

Payments on long-term debt

(20,625

)

(310,625

)

Purchase of capped call transactions related to convertible notes

(34,298

)

Payments of deferred financing costs

(13,518

)

Payments on financing obligations

(2,191

)

Settlement and merchant reserve activity

(79,606

)

(46,196

)

Net cash used in financing activities

(156,531

)

(77,965

)

Effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash

(337

)

(448

)

Net decrease in cash, cash equivalents, and restricted cash

(102,890

)

(48,917

)

Cash, cash equivalents, and restricted cash, beginning of period

463,876

389,018

Cash, cash equivalents, and restricted cash, end of period

360,986

340,101

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

24,592

21,772

Income taxes

35,292

39,136

Non-cash investing and financing activities-

Software, property, and equipment included in current and noncurrent liabilities

9,830

Reconciliation of cash, cash equivalents, and restricted cash:

Cash and cash equivalents

118,444

146,730

Settlement and merchant reserve assets

240,755

193,371

Restricted cash included in current and non-current assets

1,787

Total cash, cash equivalents, and restricted cash

360,986

340,101

EXHIBIT 1 CSG SYSTEMS INTERNATIONAL, INC. SUPPLEMENTAL REVENUE ANALYSIS

Revenue by Significant Customers: 10% or more of Revenue

Quarter Ended

September 30, 2024

June 30, 2024

September 30, 2023

Amount

% of Revenue

Amount

% of Revenue

Amount

% of Revenue

Charter

59,070

60,629

59,432

Comcast

58,688

54,576

53,653

Revenue by Vertical

Quarter Ended

September 30, 2024

June 30, 2024

September 30, 2023

Broadband/Cable/Satellite

Telecommunications

All other

Total revenue

100

Revenue by Geography

Quarter Ended

September 30, 2024

June 30, 2024

September 30, 2023

Americas

Europe, Middle East and Africa

Asia Pacific

Total revenue

100

EXHIBIT 2 CSG SYSTEMS INTERNATIONAL, INC. DISCLOSURES FOR NON-GAAP FINANCIAL MEASURES

Use of Non-GAAP Financial Measures and Limitations

To supplement its condensed consolidated financial statements presented in accordance with generally accepted accounting principles (GAAP), CSG uses non-GAAP operating income, non-GAAP adjusted operating margin percentage, non-GAAP EPS, non-GAAP adjusted EBITDA, and non-GAAP free cash flow. CSG believes that these non-GAAP financial measures, when reviewed in conjunction with its GAAP financial measures, provide investors with greater transparency to the information used by CSG’s management in its financial and operational decision making. CSG uses these non-GAAP financial measures for the following purposes:

Certain internal financial planning, reporting, and analysis;
Forecasting and budgeting;
Certain management compensation incentives; and
Communications with CSG’s Board of Directors, stockholders, financial analysts, and investors.

These non-GAAP financial measures are provided with the intent of providing investors with the following information:

A more complete understanding of CSG’s underlying operational results, trends, and cash generating capabilities;
Consistency and comparability with CSG’s historical financial results; and
Comparability to similar companies, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures are not measures of performance under GAAP, and therefore should not be considered in isolation or as a substitute for GAAP financial information. Limitations with the use of non-GAAP financial measures include the following items:

Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles;
The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures;
Non-GAAP financial measures do not include all items of income and expense that affect CSG’s operations and that are required by GAAP to be included in financial statements;
Certain adjustments to CSG’s non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSG’s financial statements in future periods; and
Certain charges excluded from CSG’s non-GAAP financial measures are cash expenses, and therefore do impact CSG’s cash position.

CSG compensates for these limitations by relying primarily on its GAAP results and using non-GAAP financial measures as a supplement only. Additionally, CSG provides specific information regarding the treatment of GAAP amounts considered in preparing the non-GAAP financial measures and reconciles each non-GAAP financial measure to the most directly comparable GAAP measure.

Non-GAAP Financial Measures: Basis of Presentation

The table below outlines the exclusions from CSG’s non-GAAP financial measures:

Non-GAAP Exclusions

Operating Income

Adjusted Operating Margin Percentage

EPS

Transaction fees

—

Restructuring and reorganization charges

Executive transition costs

Acquisition-related expenses:

Amortization of acquired intangible assets

Earn-out compensation

Transaction-related costs

Stock-based compensation

Gain (loss) on debt extinguishment/conversion

—

Gain (loss) on acquisitions or dispositions

—

Unusual income tax matters

—

CSG believes that excluding certain items in calculating its non-GAAP financial measures provides meaningful supplemental information regarding CSG’s performance and these items are excluded for the following reasons:

Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG’s Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors.
Restructuring and reorganization charges are expenses that result from cost reduction initiatives and/or significant changes to CSG’s business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. These charges are not considered reflective of CSG’s recurring business operating results. The exclusion of these items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.
Executive transition costs include expenses incurred related to a departure of a CSG executive officer under the terms of the related separation agreement. These types of costs are not considered reflective of CSG’s recurring business operating results. The exclusion of these costs in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.
Acquisition-related expenses include amortization of acquired intangible assets, earn-out compensation, and transaction-related costs. Transaction-related costs, which typically include expenses related to legal, accounting, and other professional services, are direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSG’s recurring business operating results. The total amount of acquisition-related expenses can vary significantly between periods based on the number and size of acquisition activities, previously acquired intangible assets becoming fully amortized, and ultimate realization of earn-out compensation. In addition, the timing of these expenses may not directly correlate with underlying performance of the CSG’s operations. Therefore, the exclusion of acquisition-related expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods.
Stock-based compensation results from CSG’s issuance of equity awards to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG. The exclusion of these expenses in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSG’s results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSG’s business.
Gains and losses related to the extinguishment/conversion of debt can be as a result of the refinancing of CSG’s credit agreement and/or repurchase, conversion, or settlement of CSG’s convertible notes. These activities, to include any derivative activity related to debt conversions, are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods.
Gains or losses related to the acquisition or disposition of certain of CSG’s business activities are not considered reflective of CSG’s recurring business operating results. Any resulting gain or loss is generally non-cash income or expense, and therefore, the exclusion of these items allows investors to further evaluate the cash impact of these activities for cash flow and liquidity purposes. In addition, the exclusion of these gains and losses in calculating CSG’s non-GAAP EPS allows management and investors an additional means to compare CSG’s current operating results with historical and future periods.
Unusual items within CSG’s quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSG’s non-GAAP financial measures allows management and investors an additional means to compare CSG’s current financial results with historical and future periods

CSG also reports non-GAAP adjusted EBITDA and non-GAAP free cash flow. Management believes non-GAAP adjusted EBITDA is a useful measure to investors in evaluating CSG’s operating performance, debt servicing capabilities, and enterprise valuation. CSG defines non-GAAP adjusted EBITDA as income before interest, income taxes, depreciation, amortization, stock-based compensation, foreign currency transaction adjustments, acquisition-related expenses, and unusual items, such as restructuring and reorganization charges, executive transition costs, gains and losses related to the extinguishment of debt, and gains and losses on acquisitions or dispositions, as discussed above. Additionally, management uses non-GAAP free cash flow, among other measures, to assess its financial performance and cash generating capabilities, and believes that it is useful to investors because it shows CSG’s cash available to service debt, make strategic acquisitions and investments, repurchase its common stock, pay cash dividends, and fund ongoing operations. CSG defines non-GAAP free cash flow as net cash flows from operating activities less the purchases of software, property and equipment.

Non-GAAP Financial Measures

Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage:

The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of CSG’s non-GAAP adjusted operating margin percentage, for the indicated periods are as follows (in thousands, except percentages):

Quarter Ended September 30,

Nine Months Ended September 30,

2024

2023

2024

2023

Non-GAAP Operating Income

GAAP operating income

31,822

32,731

89,039

99,130

Restructuring and reorganization charges (1)

2,943

1,152

12,040

8,421

Executive transition costs

1,148

352

1,148

Acquisition-related expenses:

Amortization of acquired intangible assets

3,929

2,996

10,174

9,203

Earn-out compensation

2,591

3,416

(14

)

Transaction-related costs

(40

)

243

2,136

Stock-based compensation (1)

8,759

7,216

25,821

21,640

Non-GAAP operating income

50,076

45,203

141,085

141,664

Non-GAAP Adjusted Operating Margin Percentage

Revenue

295,143

286,868

880,596

871,934

Less: Transaction fees (2)

(22,524

)

(20,314

)

(71,793

)

(63,463

)

Revenue less transaction fees

272,619

266,554

808,803

808,471

Non-GAAP adjusted operating margin percentage

18.4

17.0

17.4

17.5

(1)

Restructuring and reorganization charges include stock-based compensation, which is not included in the stock-based compensation line in the tables above and following, and depreciation, which has not been recorded to the depreciation line item on CSG’s Income Statement.

(2)

Transaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under CSG’s payment services contracts. Transaction fees are included in revenue in CSG's Income Statement (and not netted against revenue) because CSG maintains control and acts as principal over the integrated service provided under its payment services customer contracts. However, CSG excludes expense associated with transaction fees from the numerator and denominator in calculating its non-GAAP adjusted operating margin percentage in order to provide comparability with historical and future periods and with its peer group and competitors.

Non-GAAP EPS:

The reconciliations of GAAP EPS to non-GAAP EPS for the indicated periods are as follows (in thousands, except per share amounts):

Quarter Ended

September 30, 2024

September 30, 2023

Amounts

EPS (4)

Amounts

EPS (4)

GAAP net income

19,088

0.67

18,694

0.62

GAAP income tax provision (3)

4,691

7,989

GAAP income before income taxes

23,779

26,683

Restructuring and reorganization charges (1)

2,943

1,152

Executive transition costs

1,148

Acquisition-related costs:

Amortization of acquired intangible assets

3,929

2,996

Earn-out compensation

2,591

Transaction-related costs

(40

)

Stock-based compensation (1)

8,759

7,216

Non-GAAP income before income taxes

42,033

39,155

Non-GAAP income tax provision (3)

(11,979

)

(11,159

)

Non-GAAP net income

30,054

1.06

27,996

0.92

Nine Months Ended

September 30, 2024

September 30, 2023

Amounts

EPS (4)

Amounts

EPS (4)

GAAP net income

52,384

1.83

53,576

1.75

GAAP income tax provision (3)

18,859

21,931

GAAP income before income taxes

71,243

75,507

Restructuring and reorganization charges (1)

12,040

8,421

Executive transition costs

352

1,148

Acquisition-related expenses:

Amortization of acquired intangible assets

10,174

9,203

Earn-out compensation

3,416

(14

)

Transaction-related costs

243

2,136

Stock-based compensation (1)

25,821

21,640

Non-GAAP income before income taxes

123,289

118,041

Non-GAAP income tax provision (3)

(35,137

)

(33,642

)

Non-GAAP net income

88,152

3.08

84,399

2.76

(3)

The GAAP effective income tax rates for the third quarters of 2024 and 2023 were approximately 20% and 30%, respectively, and for the nine months ended September 30, 2024 and 2023 were approximately 26% and 29%, respectively. The year-over-year decreases in the GAAP effective income tax rates is due primarily to the revaluation of deferred taxes in the third quarter of 2024.

The non-GAAP effective income tax rates for the third quarters of 2024 and 2023 were 28.5% for both periods, and for the nine months ended September 30, 2024 and 2023 were 28.5% for both periods.

(4)

The outstanding diluted shares for the third quarter and nine months ended September 30, 2024 were 28.5 million and 28.6 million, respectively, and for the third quarter and nine months ended September 30, 2023 were 30.3 and 30.5 million, respectively.

Non-GAAP Adjusted EBITDA:

CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for the indicated periods (in thousands, except percentages):

Quarter Ended

Nine Months Ended

September 30,

2024

2023

2024

2023

GAAP net income

19,088

18,694

52,384

53,576

GAAP income tax provision

4,691

7,989

18,859

21,931

Interest expense (5)

7,778

8,036

22,982

23,092

Interest and investment income and other, net

265

(1,988

)

(5,186

)

531

GAAP operating income

31,822

32,731

89,039

99,130

Restructuring and reorganization charges (1)

2,943

1,152

12,040

8,421

Executive transition costs

1,148

352

1,148

Acquisition-related expenses:

Amortization of acquired intangible assets (6)

3,929

2,996

10,174

9,203

Earn-out compensation

2,591

3,416

(14

)

Transaction-related costs

(40

)

243

2,136

Stock-based compensation (1)

8,759

7,216

25,821

21,640

Amortization of other intangible assets (6)

3,139

3,438

8,584

10,274

Amortization of customer contract costs (6)

5,373

4,997

16,095

14,390

Depreciation (1)

5,313

5,862

16,286

17,155

Non-GAAP adjusted EBITDA

63,901

59,500

182,050

183,483

Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2)

23.4

22.3

22.5

22.7

(5)

Interest expense includes amortization of deferred financing costs as provided in Note 6 below.

(6)

Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands):

Quarter Ended

Nine Months Ended

September 30,

2024

2023

2024

2023

Amortization of acquired intangible assets

3,929

2,996

10,174

9,203

Amortization of other intangible assets

3,139

3,438

8,584

10,274

Amortization of customer contract costs

5,373

4,997

16,095

14,390

Amortization of deferred financing costs

879

304

2,614

676

Total amortization

13,320

11,735

37,467

34,543

Non-GAAP Free Cash Flow:

CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities are provided below for the indicated periods (in thousands):

Quarter Ended

Nine Months Ended

September 30,

2024

2023

2024

2023

Cash flows from operating activities

39,459

24,582

53,213

52,365

Purchases of software, property and equipment

(7,455

)

(6,512

)

(16,528

)

(22,940

)

Non-GAAP free cash flow

32,004

18,070

36,685

29,425

Non-GAAP Financial Measures – 2024 Financial Guidance

Non-GAAP Operating Income and Non-GAAP Adjusted Operating Margin Percentage:

The reconciliation of GAAP operating income to non-GAAP operating income, and calculation of non-GAAP adjusted operating margin percentage, as included in CSG’s 2024 full year financial guidance, is as follows (in thousands, except percentages):

2024 Guidance Range

Low Range

High Range

Non-GAAP Operating Income

GAAP operating income

129,300

139,300

Restructuring and reorganization charges

12,000

Executive transition costs

400

Acquisition-related expenses:

Amortization of acquired intangible assets

14,000

Earn-out compensation

5,600

Transaction-related costs

400

Stock-based compensation

33,600

Non-GAAP operating income

195,300

205,300

Non-GAAP Operating Margin Percentage

Revenue

1,200,000

1,240,000

Less: Transaction fees

(98,000

)

(103,000

)

Revenue less transaction fees

1,102,000

1,137,000

Non-GAAP adjusted operating margin percentage

17.7

18.1

Non-GAAP EPS:

The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG’s 2024 full year financial guidance is as follows (in thousands, except per share amounts):

2024 Guidance Range

Low Range

High Range

Amounts

EPS (8)

Amounts

EPS (8)

GAAP net income

76,500

2.64

83,700

2.91

GAAP income tax provision (7)

30,400

33,200

GAAP income before income taxes

106,900

116,900

Restructuring and reorganization charges

12,000

Executive transition costs

400

Acquisition-related expenses:

Amortization of acquired intangible assets

14,000

Earn-out compensation

5,600

Transaction-related costs

400

Stock-based compensation

33,600

Non-GAAP income before income taxes

172,900

182,900

Non-GAAP income tax provision (7)

(49,300

)

(52,200

)

Non-GAAP net income

123,600

4.25

130,700

4.55

(7)

For 2024, the estimated effective income tax rates for GAAP and non-GAAP purposes are expected to be approximately 28% and 29%, respectively.

(8)

The weighted-average diluted shares outstanding are expected to be approximately 29 million.

Non-GAAP Adjusted EBITDA:

CSG’s calculation of non-GAAP adjusted EBITDA and the reconciliation of CSG’s non-GAAP adjusted EBITDA measure to GAAP net income is provided below for CSG’s 2024 full year financial guidance (in thousands, except percentages):

2024 Guidance Range

Low Range

High Range

GAAP net income

76,500

83,700

GAAP income tax provision (7)

30,400

33,200

Interest expense

30,700

Interest and investment income

(8,300

)

(8,300

)

GAAP operating income

129,300

139,300

Restructuring and reorganization charges

12,000

Executive transition costs

400

Acquisition-related expenses:

Amortization of acquired intangible assets

14,000

Earn-out compensation

5,600

Transaction-related costs

400

Stock-based compensation

33,600

Amortization of other intangible assets

11,400

Amortization of client contract costs

22,000

Depreciation

22,300

Non-GAAP adjusted EBITDA

251,000

261,000

Non-GAAP adjusted EBITDA as a percentage of revenue less transaction fees (2)

22.8

23.0

Non-GAAP Free Cash Flow:

CSG’s calculation of non-GAAP free cash flow and the reconciliation of CSG’s non-GAAP free cash flow measure to cash flows from operating activities is provided below for CSG’s 2024 full year financial guidance (in thousands):

2024 Guidance Range

Low Range

High Range

Cash flows from operating activities

120,000

170,000

Purchases of software, property and equipment

(25,000

)

(35,000

)

Non-GAAP free cash flow