CSG Systems International, Inc. Q2 FY2024 earnings call

• CSG is raising profitability and non-GAAP EPS guidance targets for 2024.
• The company aims to diversify revenue from new industry verticals to over 35% of total revenue and expand non-GAAP operating margin to 18% - 20%.
• Board authorized a new $100 million share repurchase program.
• Notable new logo sales wins and deal expansions include Telenor Denmark, One New Zealand, Lyse, Mascom Botswana, Zain Sudan, and Telstra.
• Growth from top customers Charter and Comcast, with revenue from them growing over 1% sequentially and year-over-year.

In Q2 2024, CSG generated $290 million in revenue, compared to $286 million in the prior year. Non-GAAP operating income was $46 million, resulting in a non-GAAP adjusted operating margin of 17.3%, a year-over-year improvement of approximately 110 basis points. Non-GAAP adjusted EBITDA was $60 million, or 22.6% of revenue excluding transaction fees, up from $57 million or 21.4% in Q2 2023. Non-GAAP EPS grew almost 28% year-over-year to $1.02 in Q2 2024.

• Raising profitability and non-GAAP EPS guidance targets for 2024.
• Expect organic revenue growth to be at the lower end of the 2% - 6% range for 2024.
• Anticipate non-GAAP operating margin to be above 18% starting in 2025.
• Board authorized a new $100 million share repurchase program, demonstrating commitment to returning capital to shareholders.

• Near-term headwinds in the North American broadband market.
• Belt-tightening by current and prospective customers.
• Services-based revenue recognition timing issues with larger global telecommunication deployments.
• Higher cost of capital affecting M&A activity, creating a higher hurdle rate for deals.

Q: About near-term headwinds on top client accounts, have they gotten worse than expected? What's the impact to Q2 vs Q3/Q4 and how long will they persist?

A: Brian Shepherd said headwinds haven't gotten worse; Q3/Q4 expected to be midpoint or higher of 4%+ range.

Q: Regarding M&A, any changes in environment or plans?

A: Brian Shepherd said highly disciplined, evaluating opportunities, closed two small tuck-ins, being more disciplined with higher cost of capital.

Q: What's driving margin expansion?

A: Hai Tran said it's from restructuring charges, shifting mix to higher margin SaaS revenue, and operating leverage.

Q: EMEA revenue decline, what's going on?

A: Brian Shepherd said related to global telco implementation programs with more services revenue.

Q: Thoughts on verticals and channel partners?

A: Brian Shepherd said channel approach continues, pipelines expanding, part of growth acceleration.

Q: On buyback and SaaS margin?

A: Hai Tran said committed to returning value to shareholders; Brian Shepherd said SaaS has gross margins 70% - 80%, operating margin could approach mid-20s to low 30s at maturity.

Q: Selling process for Xponent?

A: Brian Shepherd said use case-driven, quick payback, deploy for one use case leads to more, flexible pricing.

Q: Comcast and Charter dynamics?

A: Brian Shepherd said high confidence in renewals, opportunities to expand in new areas of their businesses.