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CSG Systems International Reports First Quarter 2021 Results

·25 min read
  • Reconfirming All 2021 Financial Guidance Targets

  • Q1 2021 Revenue Growth up 3.1% Year-Over-Year; Best Quarterly Organic Result since Q3 2019

  • Continued Commitment to Shareholder Remuneration with $15 Million Returned in Q1 2021

Denver, Colorado--(Newsfile Corp. - May 5, 2021) - CSG (NASDAQ: CSGS), the trusted partner to simplify the complexity of business transformation in the digital age, today reported results for the quarter ended March 31, 2021.

Financial Results:

First quarter 2021 financial results:

  • Total revenue was $253.1 million and total non-GAAP adjusted revenue was $236.7 million

  • GAAP operating income was $31.4 million, or 12.4% of total revenue, and non-GAAP operating income was $40.2 million, or 17.0% of non-GAAP adjusted revenue

  • GAAP earnings per diluted share (EPS) was $0.61 and non-GAAP EPS was $0.82

  • Cash flows used in operations were ($2.8) million, with a non-GAAP free cash flow deficit of ($11.0) million

Shareholder Returns:

  • In March 2021, CSG declared its quarterly cash dividend of $0.25 per share of common stock, or a total of approximately $8 million, to shareholders.

  • During the first quarter of 2021, CSG repurchased under its stock repurchase program, approximately 142,000 shares of its common stock for approximately $7 million.

"CSG got off to a very good start in Q1 with revenue and adjusted revenue up 3.1% and 4.1% year-over-year, respectively, representing our best quarterly organic revenue growth results since Q3 2019," said Brian Shepherd, President and Chief Executive Officer of CSG. "We believe these solid first quarter results show that we are building a strong CSG, one that puts customer success before our own ambitions. As a result, we are pleased to reconfirm our 2021 financial targets. Looking ahead, we remain well positioned to lengthen and strengthen our relationships with existing customers, accelerate our growth and diversify our revenue base."

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


 

Quarter Ended March 31,


 







Percent


 

2021


2020


Changed

GAAP Results:

 








   Revenue

 

$

253,119

 

$

245,617

 

3.1%

   Operating Income

 


31,377

 


33,159

 

(5.4%)

   Operating Margin Percentage

 


12.4

%


13.5

%

 

   EPS

 

$

0.61

 

$

0.66

 

(7.6%)

Non-GAAP Results:

 


 

 


 

 

 

   Adjusted Revenue

 

$

236,669

 

$

227,293

 

4.1%

   Operating Income

 


40,207

 


42,154

 

(4.6%)

   Adjusted Operating Margin Percentage

 


17.0

%


18.5

%

 

   EPS

 

$

0.82

 

$

0.87

 

(5.7%)

 
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 first quarter of 2021 was $253.1 million, a 3.1% increase when compared to revenue of $245.6 million for the first quarter of 2020, and a 2.8% decrease when compared to revenue of $260.5 million for the fourth quarter of 2020. The sequential quarterly decrease can be mainly attributed to the higher level of revenue CSG typically experiences in the fourth quarter of the year from strong software and professional services revenue. The year-over-year increase in revenue can be mainly attributed to the continued growth of our revenue management solutions along with a strong quarter of professional services revenue.

GAAP operating income for the first quarter of 2021 was $31.4 million, or 12.4% of total revenue, compared to $33.2 million, or 13.5% of total revenue, for the first quarter of 2020, and $23.7 million, or 9.1% of total revenue, for the fourth quarter of 2020. GAAP operating income for the first quarter of 2020 benefited from a mark-to-market reduction in a compensation liability, that resulted from the unexpected and steep decline in the stock market in that quarter, and fourth quarter of 2020 was negatively impacted by executive transition costs of $11.2 million.

GAAP EPS for the first quarter of 2021 was $0.61, as compared to $0.66 for the first quarter of 2020, and $0.41 for the fourth quarter of 2020, with the fourth quarter of 2020 GAAP EPS primarily due to lower operating income, discussed above.

Non-GAAP Results: Non-GAAP adjusted revenue for the first quarter of 2021 was $236.7 million, a 4.1% increase when compared to non-GAAP adjusted revenue of $227.3 million for the first quarter of 2020, and a 2.7% decrease when compared to $243.2 million for the fourth quarter of 2020. The fluctuations in non-GAAP adjusted revenue between periods are primarily due to the factors discussed above.

Non-GAAP operating income for the first quarter of 2021 was $40.2 million, or 17.0% of total non-GAAP adjusted revenue, compared to $42.2 million, or 18.5% of total non-GAAP adjusted revenue for the first quarter of 2020, and $43.0 million, or 17.7% of total non-GAAP adjusted revenue for the fourth quarter of 2020.

Non-GAAP EPS for the first quarter of 2021 was $0.82 compared to $0.87 for the first quarter of 2020, and $0.90 for the fourth quarter of 2020.

Balance Sheet and Cash Flows

Cash, cash equivalents and short-term investments as of March 31, 2021 were $205.1 million compared to $240.3 million as of December 31, 2020. CSG had net cash flows used in operations for the first quarters ended March 31, 2021 and 2020 of ($2.8) million and ($7.2) million, respectively, and had non-GAAP free cash flow deficits of ($11.0) million and ($12.0) million, respectively. Cash flows for the first quarters of 2021 and 2020 were negatively impacted by the timing of key customer payments, totaling approximately $26 and $33 million, respectively, that were delayed and received shortly after quarter-end, and the payment of year-end accrued employee incentive compensation.

Summary of 2021 Financial Guidance

CSG is reaffirming its financial guidance for the full year 2021, as follows:

GAAP Measures:

 

 

   Revenue

 

$995 - $1,035 million

   Operating Margin Percentage

 

12.2% - 12.7%

   EPS

 

$2.30 - $2.53

   Cash Flows from Operating Activities

 

$135 - $155 million

Non-GAAP Measures:

 

 

   Adjusted Revenue

 

$922 - $954 million

   Adjusted Operating Margin Percentage

 

16.25% - 16.75%

   EPS

 

$3.02 - $3.24

   Adjusted EBITDA

 

$212 - $222 million

   Free Cash Flow

 

$110 - $120 million

 
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.

Conference Call

CSG will host a conference call on Wednesday, May 5, 2021 at 5:00 p.m. EDT, to discuss CSG's first quarter results for 2021. 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 1-833-508-4355 and ask the operator for the CSG Systems International conference call.

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

For more than 35 years, CSG has simplified the complexity of business, delivering innovative customer engagement solutions that help companies acquire, monetize, engage and retain customers. Operating across more than 120 countries worldwide, CSG manages billions of critical customer interactions annually, and its award-winning suite of software and services allow companies across dozens of industries to tackle their biggest business challenges and thrive in an ever-changing marketplace. CSG is the trusted partner for driving digital innovation for hundreds of leading global brands, including AT&T, Charter Communications, Comcast, DISH, Eastlink, Formula One, Maximus, MTN and Telstra. To learn more, visit our website at csgi.com and connect with us on LinkedIn, Twitter and Facebook.

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's business may be disrupted and its results of operations and cash flows adversely affected by the COVID-19 pandemic;

  • CSG derives over forty percent of its revenue from its two largest customers;

  • 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 maintain a reliable, secure computing environment;

  • 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

  • Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates.

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.

For more information, contact:
John Rea, Investor Relations
(210) 687-4409
E-mail: john.rea@csgi.com

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands, except per share amounts)



March 31,


December 31,




2021


2020


ASSETS








Current assets:








   Cash and cash equivalents


$

150,609


$

188,699


   Short-term investments



54,539



51,598


       Total cash, cash equivalents and short-term investments



205,148



240,297


   Settlement assets



108,578



149,785


   Trade accounts receivable:



 



 


       Billed, net of allowance of $3,718 and $3,628



247,025



226,623


       Unbilled



40,789



37,785


   Income taxes receivable



2,421



2,167


   Other current assets



39,047



41,688


       Total current assets



643,008



698,345


Non-current assets:



 



 


   Property and equipment, net of depreciation of $110,797 and $105,073



81,944



81,759


   Operating lease right-of-use assets



106,173



110,756


   Software, net of amortization of $143,662 and $139,836



25,585



26,453


   Goodwill



273,265



272,322


   Acquired customer contracts, net of amortization of $107,846 and  $105,778



46,273



48,012


   Customer contract costs, net of amortization of $42,802 and $39,893



47,334



47,238


   Deferred income taxes



9,892



10,205


   Other assets



41,007



36,910


       Total non-current assets



631,473



633,655


         Total assets


$

1,274,481


$

1,332,000


LIABILITIES AND STOCKHOLDERS' EQUITY



 



 


Current liabilities:



 



 


   Current portion of long-term debt, net of unamortized discounts of $3,119 and
   zero


$

241,881


$

14,063


   Operating lease liabilities



23,309



22,651


   Customer deposits



32,565



39,992


   Trade accounts payable



32,949



29,834


   Accrued employee compensation



71,120



86,289


   Settlement liabilities



107,023



148,819


   Deferred revenue



55,840



52,357


   Income taxes payable



5,797



6,627


   Other current liabilities



17,249



19,383


       Total current liabilities



587,733



420,015


Non-current liabilities:



 



 


   Long-term debt, net of unamortized discounts of $1,017 and $5,346



107,733



337,154


   Operating lease liabilities



91,028



95,926


   Deferred revenue



15,505



17,275


   Income taxes payable



2,467



2,436


   Deferred income taxes



11,569



5,109


   Other non-current liabilities



30,731



31,690


       Total non-current liabilities



259,033



489,590


       Total liabilities



846,766



909,605


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; 32,963
   and 32,713 shares outstanding



704



700


   Additional paid-in capital



471,364



470,557


   Treasury stock, at cost; 36,122 and 35,980 shares



(900,644)



(894,126)


   Accumulated other comprehensive income (loss):



 



 


       Unrealized gains on short-term investments, net of tax



7



13


       Cumulative foreign currency translation adjustments



(31,506)



(31,151)


   Accumulated earnings



887,790



876,402


       Total stockholders' equity



427,715



422,395


         Total liabilities and stockholders' equity


$

1,274,481


$

1,332,000


 

CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-UNAUDITED
(in thousands, except per share amounts)


Quarter Ended



March 31,
2021


March 31,
2020


Revenue

$

253,119


$

245,617




 



 


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


133,542



131,206


Other operating expenses:


 



 


   Research and development


32,212



30,337


   Selling, general and administrative


48,815



44,384


   Depreciation


6,113



5,565


   Restructuring and reorganization charges


1,060



966


       Total operating expenses


221,742



212,458


Operating income


31,377



33,159


Other income (expense):


 



 


   Interest expense


(3,592)



(4,213)


   Amortization of original issue discount


(772)



(730)


   Interest and investment income, net


124



529


   Other, net


(555)



(69)


       Total other


(4,795)



(4,483)


Income before income taxes


26,582



28,676


   Income tax provision


(6,951)



(7,162)


Net income

$

19,631


$

21,514




 



 


Weighted-average shares outstanding:


 



 


   Basic


31,844



31,994


   Diluted


32,146



32,358




 



 


Earnings per common share:


 



 


   Basic

$

0.62


$

0.67


   Diluted


0.61



0.66


 

CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(in thousands)


Quarter Ended



March 31,
2021

 

March 31,
2020


Cash flows from operating activities:



 




   Net income

$

19,631

 

$

21,514


   Adjustments to reconcile net income to net cash used in operating activities -



 




       Depreciation


6,113

 


5,565


       Amortization


10,737

 


10,788


       Amortization of original issue discount


772

 


730


       Asset impairment


102

 


259


       (Gain)/loss on short-term investments and other


15

 


(85)


       Deferred income taxes


6,508

 


9,310


       Stock-based compensation


5,395

 


4,857


           Subtotal


49,273

 


52,938


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



 


 


         Trade accounts receivable, net


(23,874)

 


(23,304)


         Other current and non-current assets and liabilities


(999)

 


(8,452)


         Income taxes payable/receivable


(1,022)

 


(3,092)


        Trade accounts payable and accrued liabilities


(28,101)

 


(32,455)


         Deferred revenue


1,914

 


7,152


           Net cash used in operating activities


(2,809)

 


(7,213)





 


 


Cash flows from investing activities:



 


 


   Purchases of software, property and equipment


(8,239)

 


(4,822)


   Purchases of short-term investments


(32,304)

 


(16,037)


   Proceeds from sale/maturity of short-term investments


29,340

 


18,670


   Acquisition of and investments in business, net of cash acquired


(648)

 


(9,991)


           Net cash used in investing activities


(11,851)

 


(12,180)





 


 


Cash flows from financing activities:



 


 


   Proceeds from issuance of common stock


619

 


564


   Payment of cash dividends


(8,635)

 


(8,277)


   Repurchase of common stock


(11,738)

 


(13,876)


   Payments on long-term debt


(2,813)

 


(1,875)


           Net cash used in financing activities


(22,567)

 


(23,464)


   Effect of exchange rate fluctuations on cash


(863)

 


(5,947)





 


 


Net decrease in cash and cash equivalents


(38,090)

 


(48,804)





 


 


Cash and cash equivalents, beginning of period


188,699

 


156,548


Cash and cash equivalents, end of period

$

150,609

 

$

107,744





 


 


Supplemental disclosures of cash flow information:



 


 


   Cash paid during the period for-



 


 


      Interest

$

5,661

 

$

6,194


      Income taxes


1,468

 


857


 

EXHIBIT 1
CSG SYSTEMS INTERNATIONAL, INC.
SUPPLEMENTAL REVENUE ANALYSIS

Revenue by Significant Customers: 10% or more of Revenue

 


Quarter Ended



Quarter Ended




Quarter Ended


 


March 31, 2021



December 31, 2020




March 31, 2020


 


Amount



% of Revenue



Amount


% of Revenue




Amount


% of Revenue


Comcast


$

53,454



21

%


$

54,845


21

%



$

52,679


21

%

Charter



53,382



21

%



54,121


21

%




50,712


21

%

 

Revenue by Vertical


Quarter Ended



Quarter Ended



Quarter Ended



March 31,



December 31,



March 31,



2021



2020



2020


Broadband/Cable/Satellite

57

%


  56

%


58

%

Telecommunications

18

%


22

%


17

%

All other

25

%


22

%


25

%

Total revenue

100

%


100

%


100

%

 

Revenue by Geography


Quarter Ended



Quarter Ended



Quarter Ended



March 31,



December 31,



March 31,



2021



2020



2020


Americas

86

%


84

%


88

%

Europe, Middle East and Africa

10

%


12

%


9

%

Asia Pacific

4

%


4

%


3

%

Total revenue

100

%


100

%


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 adjusted revenue, 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 n on-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


Adjusted Revenue


Operating Income


Adjusted
Operating Margin Percentage


EPS


   Transaction fees


X


-


X


-


   Restructuring and reorganization
    charge


-


X


X


X


   Executive transition costs


-


X


X


X


   Acquisition-related expenses:


-


X


X


X


       Amortization of acquired intangible  
      assets


-


X


X


X


       Earn-out compensation


-


X


X


X


       Transaction-related costs


-


X


X


X


   Stock-based compensation


-


X


X


X


   Amortization of original issue discount ("OID")           


-


-


-


X


   Gain (loss) on extinguishment of
   debt


-


-


-


X


   Unusual income tax matters


-


-


-


X


 

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 interchange and other payment-related fees paid, in conjunction with the delivery of service to customers under CSG's payment services contracts, to third-party payment processors and financial institutions by CSG. Because CSG controls the integrated service provided under its payment services customer contracts, these transaction fees are presented gross, and not netted against revenue; however, other payments companies who do not provide and/or control an integrated service present their revenue net of transaction fees. The exclusion of these fees in calculating CSG's non-GAAP adjusted revenue provides management and investors an additional means to use to compare CSG's current revenue with historical and future periods, as well as with other payments companies.

  • 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 the departure of CSG's former CEO under the terms of his separation agreement. These costs were primarily recognized during the third and fourth quarters of 2020 (the CEO's remaining term) and were 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.

  • The convertible notes OID is the result of allocating a portion of the principal balance of the debt at issuance to the equity component of the instrument, as required under current accounting rules. This OID is then amortized to interest expense over the life of the respective convertible debt instrument. The interest expense related to the amortization of the OID is a non-cash expense, and therefore, the exclusion of this item allows investors to further evaluate the cash interest costs of CSG's convertible notes for cash flow, liquidity, and debt service purposes.

  • Gains and losses related to the extinguishment of debt are a result of the refinancing of CSG's credit agreement and/or repurchase of CSG's convertible notes. These 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 this item allows investors to further evaluate the cash impact of these repurchases 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, and gains and losses related to the extinguishment of debt, 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 Adjusted Revenue:

The reconciliations of GAAP revenue to non-GAAP adjusted revenue for the indicated periods are as follows (in thousands):


Quarter Ended
March 31,


2021


2020

GAAP revenue

$

253,119


$

245,617

Less: Transaction fees


(16,450)



(18,324)

Non-GAAP adjusted revenue

$

236,669


$

227,293

 

Non-GAAP Operating Income:

The reconciliations of GAAP operating income to non-GAAP operating income for the indicated periods are as follows (in thousands, except percentages):


Quarter Ended
March 31,



2021



2020


GAAP operating income

$

31,377



$

33,159


Restructuring and reorganization charges (1)


1,060




966


Executive transition costs


55




-


Acquisition-related expenses:


 




 


   Amortization of acquired intangible assets


2,241




3,051


   Transaction-related costs


79




53


Stock-based compensation (1)


5,395




4,925


Non-GAAP operating income

$

40,207



$

42,154




 




 


Non-GAAP adjusted revenue

$

236,669



$

227,293


Non-GAAP adjusted operating margin percentage


17.0

%



18.5

%

(1) Stock-based compensation included in the tables above and following excludes amounts that have been recorded in restructuring and reorganization charges.

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


Quarter Ended


March 31, 2021


March 31, 2020


Amounts


EPS (3)


Amounts


EPS (3)

GAAP net income

$

19,631


$

0.61


$

21,514


$

0.66

GAAP income tax provision (2)


6,951



 



7,162



 

GAAP income before income taxes


26,582



 



28,676



 

Restructuring and reorganization charges (1)


1,060



 



966



 

Executive transition costs


55



 



-



 

Acquisition-related costs:


 



 



 



 

Amortization of acquired intangible assets


2,241



 



3,051



 

Transaction-related costs


79



 



53



 

Stock-based compensation (1)


5,395



 



4,925



 

Amortization of OID


772



 



730



 

Non-GAAP income before income taxes


36,184



 



38,401



 

Non-GAAP income tax provision (2)


(9,770)



 



(10,176)



 

Non-GAAP net income

$

26,414


$

0.82


$

28,225


$

0.87

(2) For the quarters ended March 31, 2021 and 2020 the GAAP effective income tax rates were approximately 26% and 25%, respectively, and the non-GAAP effective income tax rate was approximately 27% for both periods.

(3) The outstanding diluted shares for the quarters ended March 31, 2021 and 2020 were 32.1 million and 32.4 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



March 31,



2021



2020


GAAP net income

$

19,631



$

21,514


  GAAP income tax provision


6,951




7,162


   Interest expense (4)


3,592




4,213


   Amortization of OID


772




730


   Interest and investment income and other, net


431




(460)


GAAP operating income


31,377




33,159


   Restructuring and reorganization charges (1)


1,060




966


   Executive transition costs


55




-


   Acquisition-related expenses:


 




 


      Amortization of acquired intangible assets (5)


2,241




3,051


      Transaction-related costs


79




53


   Stock-based compensation (1)


5,395




4,925


   Amortization of other intangible assets (5)


3,336




3,285


   Amortization of customer contract costs (5)


4,722




4,026


Depreciation


6,113




5,565


Non-GAAP adjusted EBITDA

$

54,378



$

55,030


Non-GAAP adjusted EBITDA as a percentage of non-GAAP adjusted revenue


23

%



24

%

 
(4) Interest expense includes amortization of deferred financing costs as provided in Note 5 below.

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


Quarter Ended


March 31,


2021


2020

Amortization of acquired intangible assets

$

2,241


$

3,051

Amortization of other intangible assets


3,336



3,285

Amortization of customer contract costs


4,722



4,026

Amortization of deferred financing costs


438



426

   Total amortization

$

10,737


$

10,788

 
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


March 31,


2021


 

2020

Net cash used in operating activities

$

(2,809)


 

$

(7,213)

Purchases of software, property and equipment


(8,239)


 


(4,822)

Non-GAAP free cash flow

$

(11,048)


 

$

(12,035)


Non-GAAP Financial Measures - 2021 Financial Guidance

Refer to the "Non-GAAP Financial Measures - 2021 Financial Guidance" in Exhibit 2 to CSG's earnings release dated February 3, 2021, which can be found on the Investor Relations page of CSG's website at csgi.com for the reconciliation of our 2021 financial guidance.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/83006