Business Wire | Nov 4, 2020 04:05PM EST

CSG Systems International Reports Third Quarter 2020 Results

Nov. 04, 2020

GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)--Nov. 04, 2020--CSG (NASDAQ: CSGS), the trusted partner to simplify the complexity of business transformation in the digital age, today reported results for the quarter ended September 30, 2020.

Financial Results:

* Third quarter 2020 financial results: Total revenue was $244.1 million and total non-GAAP adjusted revenue was $227.7 million. GAAP operating income was $28.9 million, or 11.9% of total revenue, and non-GAAP operating income was $39.1 million, or 17.2% of non-GAAP adjusted revenue. GAAP earnings per diluted share (EPS) was $0.42 and non-GAAP EPS was $0.76. Cash flows from operations were $65.2 million, with non-GAAP free cash flow of $55.3 million.

Shareholder Returns:

* CSG declared its quarterly cash dividend of $0.235 per share of common stock, or a total of approximately $8 million, to shareholders. * During the third quarter of 2020, CSG resumed its stock repurchase program, repurchasing approximately 139,000 shares of its common stock for approximately $6 million (weighted-average price of $39.93 per share).

"Our ability to help our clients solve their toughest problems resulted in us delivering another strong quarter in a very challenging environment," said Bret Griess, president and chief executive officer of CSG International. "The combination of our resilient business model, long-term relationships with service providers in an expanding set of verticals, and our broad portfolio of solutions focused on helping companies compete in a more digital world positions us well for the future."

Financial Overview (unaudited)

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

Quarter Ended Nine Months Ended September 30, September 30,

Percent Percent

2020 2019 Changed 2020 2019 Changed

GAAP Results:

Revenue $ 244,108 $ 251,414 (3 %) $ 730,046 $ 742,063 (2 %)

Operating 28,947 33,420 (13 %) 81,881 95,851 (15 %)Income

OperatingMargin 11.9 % 13.3 % 11.2 % 12.9 % Percentage

EPS $ 0.42 $ 0.66 (36 %) $ 1.41 $ 1.85 (24 %)

Non-GAAP Results:

Adjusted $ 227,695 $ 235,050 (3 %) $ 679,614 $ 690,789 (2 %)Revenue

Operating 39,113 42,704 (8 %) 111,900 124,162 (10 %)Income

AdjustedOperating 17.2 % 18.2 % 16.5 % 18.0 % MarginPercentage

EPS $ 0.76 $ 0.88 (14 %) $ 2.22 $ 2.55 (13 %)

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 2020 was $244.1 million, a 3% decrease when compared to revenue of $251.4 million for the third quarter of 2019, and a 2% increase when compared to revenue of $240.3 million for the second quarter of 2020. The year-over-year decrease in revenue can be mainly attributed to the pricing adjustments associated with the five-year Comcast extension effective January 1, 2020, as well as foreign currency headwinds. The sequential quarterly increase in revenue reflects the stabilization that CSG is beginning to experience with its sales and implementation cycles and rebound in processing volumes that were both negatively impacted during the second quarter of 2020 by the COVID-19 pandemic.

GAAP operating income for the third quarter of 2020 was $28.9 million, or 11.9% of total revenue, compared to $33.4 million, or 13.3% of total revenue, for the third quarter of 2019, and $19.8 million, or 8.2% of total revenue, for the second quarter of 2020. The year-over-year decrease in operating income is mainly due to the lower third quarter 2020 revenue, discussed above. Additionally, operating income for the second quarter of 2020 was negatively impacted by the write-off of approximately $10 million of deferred contract costs resulting from the discontinuance of a project implementation.

GAAP EPS for the third quarter of 2020 was $0.42, as compared to $0.66 for the third quarter of 2019, and $0.32 for the second quarter of 2020. The decrease in GAAP EPS year-over-year can be mainly attributed to the lower operating income discussed above and foreign currency losses included in other income. The sequential quarterly increase in GAAP EPS is due primarily to the impact of the write-off of deferred contract costs, discussed above, which had a negative impact on GAAP EPS for the second quarter of 2020 of $0.23.

Non-GAAP Results: Non-GAAP adjusted revenue for the third quarter of 2020 was $227.7 million, a 3% decrease when compared to non-GAAP adjusted revenue of $235.1 million for the third quarter of 2019, and a 1% increase when compared to $224.6 million for the second quarter of 2020.

Non-GAAP operating income for the third quarter of 2020 was $39.1 million, or 17.2% of total non-GAAP adjusted revenue, compared to $42.7 million, or 18.2% of total non-GAAP adjusted revenue for the third quarter of 2019, and $30.6 million, or 13.6% of total non-GAAP adjusted revenue for the second quarter of 2020.

The changes in non-GAAP adjusted revenue and non-GAAP operating income between quarters are primarily due to the factors discussed above.

Non-GAAP EPS for the third quarter of 2020 was $0.76 compared to $0.88 for the third quarter of 2019, and $0.59 for the second quarter of 2020, with the year-over-year decrease reflective of the lower operating income.

Balance Sheet and Cash Flows

Cash, cash equivalents and short-term investments as of September 30, 2020 were $212.1 million compared to $171.2 million as of June 30, 2020 and $182.7 million as of December 31, 2019. CSG had net cash flows from operations for the third quarters ended September 30, 2020 and 2019 of $65.2 million and $79.1 million, respectively, and had non-GAAP free cash flow of $55.3 million and $69.3 million, respectively. For the nine months ended September 30, 2020 and 2019, CSG generated net cash flows from operations of $115.7 million and $107.5 million, respectively, and had non-GAAP free cash flow of $91.5 million and $79.8 million, respectively.

Summary of 2020 Financial Guidance

CSG's is updating its financial guidance for the full year 2020, as follows:

As of Previous November 4, 2020

GAAP Measures:

Revenue No change $960 - $1,000 million

Operating Margin Percentage 9.7% - 10.4% 11.1% - 11.7%

EPS $1.58 - $1.81 $1.99 - $2.22

Cash Flows from Operating $125 - $145 $110 - $135 millionActivities million

Non-GAAP Measures:

Adjusted Revenue No change $891 - $924 million

Adjusted Operating Margin No change 16.0% - 16.5%Percentage

EPS No change $2.87 - $3.10

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, November 4, 2020 at 5:00 p.m. EST, to discuss CSG's third quarter results for 2020. 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 866-248-8441 and ask the operator for the CSG Systems International conference call and Liz Bauer, chairperson.

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 approximately forty percent of its revenue from its two largest clients; * 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.

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except per share amounts)



September 30, December 31,

2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 174,489 $ 156,548

Short-term investments 37,605 26,109

Total cash, cash equivalents and short-term 212,094 182,657 investments

Settlement assets 117,452 169,327

Trade accounts receivable:

Billed, net of allowance of $3,730 and $3,735 225,117 244,058

Unbilled 36,977 33,450

Income taxes receivable 3,341 4,297

Other current assets 42,205 35,293

Total current assets 637,186 669,082

Non-current assets:

Property and equipment, net of depreciation of 83,199 84,429 $100,661 and $98,029

Operating lease right-of-use assets 115,726 94,847

Software, net of amortization of $135,644 and 28,769 32,526 $125,437

Goodwill 266,636 259,164

Acquired client contracts, net of amortization 50,225 55,105 of $100,864 and $93,767

Client contract costs, net of amortization of 45,038 50,746 $39,206 and $31,526

Deferred income taxes 9,641 9,392

Other assets 35,396 27,739

Total non-current assets 634,630 613,948

Total assets $ 1,271,816 $ 1,283,030

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt $ 13,125 $ 10,313

Operating lease liabilities 22,580 22,442

Client deposits 34,387 38,687

Trade accounts payable 36,617 32,704

Accrued employee compensation 59,534 77,527

Settlement liabilities 116,032 168,342

Deferred revenue 52,835 45,094

Income taxes payable 3,664 2,806

Other current liabilities 18,612 20,778

Total current liabilities 357,386 418,693

Non-current liabilities:

Long-term debt, net of unamortized discounts of 339,707 346,509 $6,543 and $10,053

Operating lease liabilities 101,262 78,936

Deferred revenue 18,884 18,552

Income taxes payable 2,734 2,543

Deferred income taxes 10,388 6,376

Other non-current liabilities 31,528 14,759

Total non-current liabilities 504,503 467,675

Total liabilities 861,889 886,368

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; 100,000shares authorized; 33,125 and 32,891 shares 701 696 outstanding

Additional paid-in capital 462,775 454,663

Treasury stock, at cost; 35,646 and 35,356 (880,162 ) (867,817 )shares

Accumulated other comprehensive income (loss):

Unrealized gains on short-term investments, net 30 16 of tax

Cumulative foreign currency translation (44,265 ) (39,519 )adjustments

Accumulated earnings 870,848 848,623

Total stockholders' equity 409,927 396,662

Total liabilities and stockholders' equity $ 1,271,816 $ 1,283,030

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(in thousands, except per share amounts)

Quarter Ended

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Revenue

$

244,108

$

251,414

$

730,046

$

742,063

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

131,073

132,054

400,432

393,251

Other operating expenses:

Research and development

30,425

32,551

90,025

95,787

Selling, general and administrative

47,032

46,694

136,415

137,984

Depreciation

5,817

5,365

17,016

15,919

Restructuring and reorganization charges

814

1,330

4,277

3,271

Total operating expenses

215,161

217,994

648,165

646,212

Operating income

28,947

33,420

81,881

95,851

Other income (expense):

Interest expense

(3,641

)

(4,390

)

(11,894

)

(13,448

)

Amortization of original issue discount

(751

)

(709

)

(2,221

)

(2,099

)

Interest and investment income, net

254

392

1,086

1,328

Other, net

(2,067

)

108

(3,184

)

(123

)

Total other

(6,205

)

(4,599

)

(16,213

)

(14,342

)

Income before income taxes

22,742

28,821

65,668

81,509

Income tax provision

(9,176

)

(7,262

)

(20,222

)

(21,320

)

Net income

$

13,566

$

21,559

$

45,446

$

60,189

Weighted-average shares outstanding:

Basic

32,115

32,016

32,070

32,079

Diluted

32,273

32,518

32,296

32,472

Earnings per common share:

Basic

$

0.42

$

0.67

$

1.42

$

1.88

Diluted

0.42

0.66

1.41

1.85

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

(in thousands, except per share amounts)



Quarter Ended Nine Months Ended

September September September September 30, 30, 30, 30, 2020 2019 2020 2019

Revenue $ 244,108 $ 251,414 $ 730,046 $ 742,063



Cost of revenue(exclusive of 131,073 132,054 400,432 393,251 depreciation, shownseparately below)

Other operating expenses:

Research and 30,425 32,551 90,025 95,787 development

Selling, general and 47,032 46,694 136,415 137,984 administrative

Depreciation 5,817 5,365 17,016 15,919

Restructuring and 814 1,330 4,277 3,271 reorganization charges

Total operating 215,161 217,994 648,165 646,212 expenses

Operating income 28,947 33,420 81,881 95,851

Other income (expense):

Interest expense (3,641 ) (4,390 ) (11,894 ) (13,448 )

Amortization of (751 ) (709 ) (2,221 ) (2,099 )original issue discount

Interest and investment 254 392 1,086 1,328 income, net

Other, net (2,067 ) 108 (3,184 ) (123 )

Total other (6,205 ) (4,599 ) (16,213 ) (14,342 )

Income before income 22,742 28,821 65,668 81,509 taxes

Income tax provision (9,176 ) (7,262 ) (20,222 ) (21,320 )

Net income $ 13,566 $ 21,559 $ 45,446 $ 60,189



Weighted-average shares outstanding:

Basic 32,115 32,016 32,070 32,079

Diluted 32,273 32,518 32,296 32,472



Earnings per common share:

Basic $ 0.42 $ 0.67 $ 1.42 $ 1.88

Diluted 0.42 0.66 1.41 1.85

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)

Nine Months Ended

September 30, 2020

September 30, 2019

Cash flows from operating activities:

Net income

$

45,446

$

60,189

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

Depreciation

17,016

15,919

Amortization

32,998

34,579

Amortization of original issue discount

2,221

2,099

Asset impairment

10,438

365

Gain on short-term investments and other

(120

)

(285

)

Deferred income taxes

3,844

6,124

Stock-based compensation

14,088

13,295

Subtotal

125,931

132,285

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

Trade accounts receivable, net

13,322

(8,748

)

Other current and non-current assets and liabilities

(9,228

)

(15,312

)

Income taxes payable/receivable

1,542

3,468

Trade accounts payable and accrued liabilities

(24,618

)

(7,978

)

Deferred revenue

8,736

3,812

Net cash provided by operating activities

115,685

107,527

Cash flows from investing activities:

Purchases of software, property and equipment

(24,201

)

(27,706

)

Purchases of short-term investments

(49,100

)

(25,446

)

Proceeds from sale/maturity of short-term investments

37,743

38,029

Acquisition of and investments in business, net of cash acquired

(11,491

)

(17,194

)

Net cash used in investing activities

(47,049

)

(32,317

)

Cash flows from financing activities:

Proceeds from issuance of common stock

1,838

1,630

Payment of cash dividends

(23,441

)

(21,980

)

Repurchase of common stock

(19,926

)

(25,683

)

Payments on long-term debt

(7,500

)

(5,625

)

Net cash used in financing activities

(49,029

)

(51,658

)

Effect of exchange rate fluctuations on cash

(1,666

)

(2,199

)

Net increase in cash and cash equivalents

17,941

21,353

Cash and cash equivalents, beginning of period

156,548

139,277

Cash and cash equivalents, end of period

$

174,489

$

160,630

Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest

$

12,941

$

14,521

Income taxes

14,756

11,779

EXHIBIT 1CSG SYSTEMS INTERNATIONAL, INC.SUPPLEMENTAL REVENUE ANALYSIS

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

(in thousands)



Nine Months Ended

September September 30, 30, 2020 2019

Cash flows from operating activities:

Net income $ 45,446 $ 60,189

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

Depreciation 17,016 15,919

Amortization 32,998 34,579

Amortization of original issue discount 2,221 2,099

Asset impairment 10,438 365

Gain on short-term investments and other (120 ) (285 )

Deferred income taxes 3,844 6,124

Stock-based compensation 14,088 13,295

Subtotal 125,931 132,285

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

Trade accounts receivable, net 13,322 (8,748 )

Other current and non-current assets and (9,228 ) (15,312 )liabilities

Income taxes payable/receivable 1,542 3,468

Trade accounts payable and accrued liabilities (24,618 ) (7,978 )

Deferred revenue 8,736 3,812

Net cash provided by operating activities 115,685 107,527



Cash flows from investing activities:

Purchases of software, property and equipment (24,201 ) (27,706 )

Purchases of short-term investments (49,100 ) (25,446 )

Proceeds from sale/maturity of short-term 37,743 38,029 investments

Acquisition of and investments in business, net of (11,491 ) (17,194 )cash acquired

Net cash used in investing activities (47,049 ) (32,317 )



Cash flows from financing activities:

Proceeds from issuance of common stock 1,838 1,630

Payment of cash dividends (23,441 ) (21,980 )

Repurchase of common stock (19,926 ) (25,683 )

Payments on long-term debt (7,500 ) (5,625 )

Net cash used in financing activities (49,029 ) (51,658 )

Effect of exchange rate fluctuations on cash (1,666 ) (2,199 )



Net increase in cash and cash equivalents 17,941 21,353



Cash and cash equivalents, beginning of period 156,548 139,277

Cash and cash equivalents, end of period $ 174,489 $ 160,630



Supplemental disclosures of cash flow information:

Cash paid during the period for-

Interest $ 12,941 $ 14,521

Income taxes 14,756 11,779

EXHIBIT 1CSG SYSTEMS INTERNATIONAL, INC.SUPPLEMENTAL REVENUE ANALYSIS

Revenue by Significant Customers: 10% or more of Revenue

Quarter Ended Quarter Ended Quarter Ended

September 30, 2020 June 30, 2020 September 30, 2019

Amount % of Amount % of Amount % of Revenue Revenue Revenue

Comcast $ 52,483 22 % $ 53,282 22 % $ 58,446 23 %

Charter 53,202 22 % 51,364 21 % 49,575 20 %

Revenue by Vertical

Quarter Ended

Quarter Ended

Quarter Ended

September 30,

June 30,

September 30,

2020

2020

2019

Broadband/Cable/Satellite

59

%

60

%

59

%

Telecommunications

18

%

18

%

20

%

All other

23

%

22

%

21

%

Total revenue

100

%

100

%

100

%

Revenue by Vertical

Quarter Ended Quarter Ended Quarter Ended

September 30, June 30, September 30,

2020 2020 2019

Broadband/Cable/Satellite 59 % 60 % 59 %

Telecommunications 18 % 18 % 20 %

All other 23 % 22 % 21 %

Total revenue 100 % 100 % 100 %

Revenue by Geography

Quarter Ended

Quarter Ended

Quarter Ended

September 30,

June 30,

September 30,

2020

2020

2019

Americas

86

%

87

%

87

%

Europe, Middle East and Africa

10

%

9

%

9

%

Asia Pacific

4

%

4

%

4

%

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 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:

Revenue by Geography

Quarter Ended Quarter Ended Quarter Ended

September 30, June 30, September 30,

2020 2020 2019

Americas 86 % 87 % 87 %

Europe, Middle East and Africa 10 % 9 % 9 %

Asia Pacific 4 % 4 % 4 %

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 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:

AdjustedNon-GAAP Exclusions Adjusted Operating Operating EPS Revenue Income Margin Percentage

Transaction fees X - X -

Restructuring and reorganization - X X Xcharges

Executive transition costs - X X X

Acquisition-related expenses: - X X X

Amortization of acquired intangible - X X Xassets

Earn-out compensation - X X X

Transaction-related costs - X X X

Stock-based compensation - X X X

Amortization of original issue - - - Xdiscount ("OID")

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 clients 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 client 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 CEO under the terms of his separation agreement. These costs, recognized beginning this quarter and through the end of 2020 (the CEO's remaining term), 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. * 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 Nine Months Ended September 30, September 30,

2020 2019 2020 2019

GAAP revenue $ 244,108 $ 251,414 $ 730,046 $ 742,063

Less: Transaction fees (16,413 ) (16,364 ) (50,432 ) (51,274 )

Non-GAAP adjusted $ 227,695 $ 235,050 $ 679,614 $ 690,789 revenue

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 Nine Months Ended September 30, September 30,

2020 2019 2020 2019

GAAP operating income $ 28,947 $ 33,420 $ 81,881 $ 95,851

Restructuring andreorganization charges 814 1,330 4,277 3,271 (1)

Executive transition 1,786 - 1,786 - costs (1)

Acquisition-related expenses:

Amortization of acquired 3,051 3,153 9,135 9,508 intangible assets

Earn-out compensation - - - 1,260

Transaction-related 15 - 141 - costs

Stock-based compensation 4,500 4,801 14,680 14,272 (1)

Non-GAAP operating $ 39,113 $ 42,704 $ 111,900 $ 124,162 income



Non-GAAP adjusted $ 227,695 $ 235,050 $ 679,614 $ 690,789 revenue

Non-GAAP adjustedoperating margin 17.2 % 18.2 % 16.5 % 18.0 %percentage

(1)

Stock-based compensation included in the tables above and following excludes amounts that have been recorded in restructuring and reorganization charges and executive transition costs.

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):

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

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

September 30, 2020 September 30, 2019

Amounts EPS Amounts EPS (3) (3)

GAAP net income $ 13,566 $ 0.42 $ 21,559 $ 0.66

GAAP income tax provision (2) 9,176 7,262

GAAP income before income taxes 22,742 28,821

Restructuring and reorganization 814 1,330 charges (1)

Executive transition costs (1) 1,786 -

Acquisition-related costs:

Amortization of acquired intangible 3,051 3,153 assets

Transaction-related costs 15 -

Stock-based compensation (1) 4,500 4,801

Amortization of OID 751 709

Non-GAAP income before income taxes 33,659 38,814

Non-GAAP income tax provision (2) (9,088 ) (10,092 )

Non-GAAP net income $ 24,571 $ 0.76 $ 28,722 $ 0.88

Nine Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

Amounts

EPS (3)

Amounts

EPS (3)

GAAP net income

$

45,446

$

1.41

$

60,189

$

1.85

GAAP income tax provision (2)

20,222

21,320

GAAP income before income taxes

65,668

81,509

Restructuring and reorganization charges (1)

4,277

3,271

Executive transition costs (1)

1,786

-

Acquisition-related expenses:

Amortization of acquired intangible assets

9,135

9,508

Earn-out compensation

-

1,260

Transaction-related costs

141

-

Stock-based compensation (1)

14,680

14,272

Amortization of OID

2,221

2,099

Non-GAAP income before income taxes

97,908

111,919

Non-GAAP income tax provision (2)

(26,114

)

(29,099

)

Non-GAAP net income

$

71,794

$

2.22

$

82,820

$

2.55

Nine Months Ended Nine Months Ended

September 30, 2020 September 30, 2019

Amounts EPS Amounts EPS (3) (3)

GAAP net income $ 45,446 $ 1.41 $ 60,189 $ 1.85

GAAP income tax provision (2) 20,222 21,320

GAAP income before income taxes 65,668 81,509

Restructuring and reorganization 4,277 3,271 charges (1)

Executive transition costs (1) 1,786 -

Acquisition-related expenses:

Amortization of acquired intangible 9,135 9,508 assets

Earn-out compensation - 1,260

Transaction-related costs 141 -

Stock-based compensation (1) 14,680 14,272

Amortization of OID 2,221 2,099

Non-GAAP income before income taxes 97,908 111,919

Non-GAAP income tax provision (2) (26,114 ) (29,099 )

Non-GAAP net income $ 71,794 $ 2.22 $ 82,820 $ 2.55

(2)

For the third quarter and nine months ended September 30, 2020 the GAAP effective income tax rates were approximately 40% and 31%, respectively, and the non-GAAP effective income tax rates were approximately 27% for both periods. The difference between the GAAP and non-GAAP effective income tax rates is due primarily to the unfavorable GAAP basis tax impact related to the separation agreement entered into during the third quarter with CSG's CEO. For the third quarter and nine months ended September 30, 2019 the GAAP effective income tax rates were approximately 25% and 26%, respectively, and the non-GAAP effective income tax rates were approximately 26% for both periods.

(3)

The outstanding diluted shares for the third quarter and nine months ended September 30, 2020 were 32.3 million for both periods, and for the third quarter and nine months ended September 30, 2019 were 32.5 million for both periods.

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):

For the third quarter and nine months ended September 30, 2020 the GAAP effective income tax rates were approximately 40% and 31%, respectively, and the non-GAAP effective income tax rates were approximately 27% for both periods. The difference between the GAAP and non-GAAP effective(2) income tax rates is due primarily to the unfavorable GAAP basis tax impact related to the separation agreement entered into during the third quarter with CSG's CEO. For the third quarter and nine months ended September 30, 2019 the GAAP effective income tax rates were approximately 25% and 26%, respectively, and the non-GAAP effective income tax rates were approximately 26% for both periods.

The outstanding diluted shares for the third quarter and nine months ended(3) September 30, 2020 were 32.3 million for both periods, and for the third quarter and nine months ended September 30, 2019 were 32.5 million for both periods.

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, September 30,

2020 2019 2020 2019

GAAP net income $ 13,566 $ 21,559 $ 45,446 $ 60,189

GAAP income tax provision 9,176 7,262 20,222 21,320

Interest expense (4) 3,641 4,390 11,894 13,448

Amortization of OID 751 709 2,221 2,099

Interest and investment 1,813 (500 ) 2,098 (1,205 )income and other, net

GAAP operating income 28,947 33,420 81,881 95,851

Restructuring and 814 1,330 4,277 3,271 reorganization charges (1)

Executive transition costs 1,786 - 1,786 - (1)

Acquisition-related expenses:

Amortization of acquired 3,051 3,153 9,135 9,508 intangible assets (5)

Earn-out compensation - - - 1,260

Transaction-related costs 15 - 141 -

Stock-based compensation 4,500 4,801 14,680 14,272 (1)

Amortization of other 3,282 2,704 9,816 7,744 intangible assets (5)

Amortization of client 4,190 3,676 12,758 16,074 contract costs (5)

Depreciation 5,817 5,365 17,016 15,919

Non-GAAP adjusted EBITDA $ 52,402 $ 54,449 $ 151,490 $ 163,899

Non-GAAP adjusted EBITDAas a percentage of 23 % 23 % 22 % 24 %non-GAAP adjusted revenue

(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):

(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

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Amortization of acquired intangible assets

$

3,051

$

3,153

$

9,135

$

9,508

Amortization of other intangible assets

3,282

2,704

9,816

7,744

Amortization of client contract costs

4,190

3,676

12,758

16,074

Amortization of deferred financing costs

432

421

1,289

1,253

Total amortization

$

10,955

$

9,954

$

32,998

$

34,579

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, September 30,

2020 2019 2020 2019

Amortization of acquired intangible $ 3,051 $ 3,153 $ 9,135 $ 9,508assets

Amortization of other intangible assets 3,282 2,704 9,816 7,744

Amortization of client contract costs 4,190 3,676 12,758 16,074

Amortization of deferred financing 432 421 1,289 1,253costs

Total amortization $ 10,955 $ 9,954 $ 32,998 $ 34,579

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, September 30,

2020 2019 2020 2019

Cash flows from operating $ 65,208 $ 79,098 $ 115,685 $ 107,527 activities

Purchases of software, (9,867 ) (9,848 ) (24,201 ) (27,706 )property and equipment

Non-GAAP free cash flow $ 55,341 $ 69,250 $ 91,484 $ 79,821

Non-GAAP Financial Measures - 2020 Financial Guidance

Non-GAAP Adjusted Revenue:

The reconciliation of GAAP revenue to non-GAAP adjusted revenue, as included in CSG's 2020 full year financial guidance, is as follows:

2020 Guidance Range

Low Range High Range

GAAP revenues $ 960,000 $ 1,000,000

Less: Transaction fees (69,000 ) (76,000 )

Non-GAAP adjusted revenues $ 891,000 $ 924,000

Non-GAAP Operating Income:

The reconciliation of GAAP operating income to non-GAAP operating income, as included in CSG's 2020 full year financial guidance, is as follows (in thousands, except percentages):

2020 Guidance Range

Low Range High Range

Operating Income

GAAP operating income $ 93,500 $ 103,700

Restructuring and reorganization charges 4,300 4,300

Executive transition costs 13,800 13,800

Acquisition-related expenses:

Amortization of acquired intangible assets 11,700 11,700

Transaction-related costs 100 100

Stock-based compensation 19,200 19,200

Non-GAAP operating income $ 142,600 $ 152,800



Operating Margin Percentage

GAAP revenue $ 960,000 $ 1,000,000

GAAP operating margin percentage 9.7 % 10.4 %



Non-GAAP adjusted revenue $ 891,000 $ 924,000

Non-GAAP adjusted operating margin percentage 16.0 % 16.5 %

Non-GAAP EPS:

The reconciliation of GAAP EPS to non-GAAP EPS as included in CSG's 2020 full year financial guidance is as follows (in thousands, except per share amounts):

2020 Guidance Range

Low Range High Range

Amounts EPS Amounts EPS (7) (7)

GAAP net income $ 51,100 $ 1.58 $ 58,500 $ 1.81

GAAP income tax provision (6) 22,400 25,200

GAAP income before income taxes 73,500 83,700

Restructuring and reorganization 4,300 4,300 charges

Executive transition costs 13,800 13,800

Acquisition-related expenses:

Amortization of acquired intangible 11,700 11,700 assets

Transaction-related costs 100 100

Stock-based compensation 19,200 19,200

Amortization of OID 3,000 3,000

Non-GAAP income before income taxes 125,600 135,800

Non-GAAP income tax provision (6) (33,100 ) (35,800 )

Non-GAAP net income $ 92,500 $ 2.87 $ 100,000 $ 3.10

(6)

For 2020, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 30% and 27%, respectively.

(7)

The weighted-average diluted shares outstanding are expected to be approximately 32 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 2020 full year financial guidance (in thousands, except percentages):

(6) For 2020, the estimated effective income tax rate for GAAP and non-GAAP purposes is expected to be approximately 30% and 27%, respectively.

(7) The weighted-average diluted shares outstanding are expected to be approximately 32 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 2020 full year financial guidance (in thousands, except percentages):

2020 Guidance Range

Low Range High Range

GAAP net income $ 51,100 $ 58,500

GAAP income tax provision (6) 22,400 25,200

Interest expense 15,500 15,500

Amortization of OID 3,000 3,000

Interest and investment income and other, net 1,500 1,500

GAAP operating income 93,500 103,700

Restructuring and reorganization charges 4,300 4,300

Executive transition costs 13,800 13,800

Acquisition-related expenses:

Amortization of acquired intangible assets 11,700 11,700

Transaction-related costs 100 100

Stock-based compensation 19,200 19,200

Amortization of other intangible assets 13,100 13,100

Amortization of client contract costs 17,500 17,500

Depreciation 24,300 24,300

Non-GAAP adjusted EBITDA $ 197,500 $ 207,700

Non-GAAP adjusted EBITDA as a percentage of non-GAAP 22 % 22 %adjusted revenues

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 the indicated period (in thousands):

2020 Guidance Range

Low Range High Range

Cash flows from operating activities $ 125,000 $ 145,000

Purchases of software, property and equipment (25,000 ) (35,000 )

Non-GAAP free cash flow $ 100,000 $ 110,000

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CONTACT: Liz Bauer, Investor Relations (303) 804-4065 E-mail: liz.bauer@csgi.com