CSG Systems International, Inc. Q4 FY2024 earnings call

• Revenue: Q4 organic revenue grew 5% year-over-year with total revenue growth of 7%, setting a new quarterly revenue record of $317 million. • Profitability: Non-GAAP adjusted Q4 results were strong, with operating income up 32%, adjusted EBITDA up 21%, and EPS up 79%. • Dividend: CSG will increase the dividend by approximately 7% to $1.28 per year, marking 12 consecutive annual increases. • Value Creation Commitments: Aspires to 2%-6% pure organic revenue growth and diversify revenue to >35% from new verticals by 2026; expand non-GAAP operating margin to 18%-20%; and return over $100 million to shareholders in 2025. • New Logo Wins: Highlights include wins with Gamma, MTN South Africa, Mobily, M1, Comcast, the Oklahoma Turnpike Authority, and others across various verticals. • Innovation: Focus on leveraging AI across CSG and operating discipline to drive growth.

In Q4, CSG grew year-over-year organic revenue by 5% with total revenue growth of 7%, reaching a quarterly revenue record of $317 million. Non-GAAP adjusted Q4 results were strong: operating income grew 32% year-over-year to 20.1% of revenue, adjusted EBITDA grew 21% to a margin of close to 24.8%, and EPS grew 79% to a new record of $1.65. CSG aims to diversify revenue from bigger, faster-growing new industry verticals to over 35% of total revenue by 2026, with organic revenue growth targeted at 2%-6% and non-GAAP operating margin to expand to 18%-20%.

• Top line: Organic revenue before acquisitions expected to range from $1.21 billion to $1.25 billion in 2025, with transaction fees from $106 million to $111 million. • Non-GAAP adjusted operating margin: Expected to range between 18.1% to 18.5%. • EPS: Anticipated to range between $4.55 to $4.80. • Adjusted EBITDA: Expected to range between $256 million to $267 million. • Adjusted free cash flow: Guidance range of $110 million to $150 million, with a midpoint of $130 million. • Quarterly Trends: Q1 expected to be the lowest quarter for most metrics in 2025, with growth continuing in subsequent quarters.

• Uncertainties in achieving projected financial results due to risks and uncertainties that could cause actual results to differ materially. • Integration risks of acquired businesses not meeting expected strategic, operating, and financial goals. • Market risks affecting revenue growth and profitability in various industry verticals.

Q: Could you talk about the pipeline you see to start calendar year '25 and compare it to a year ago?

A: Hai mentioned the pipeline is as healthy as ever, with customers focused on returns and win potential in payments and customer experience businesses. Brian added backlog is higher than at the start of 2024, but competition remains tough.

Q: How does the operating margin expansion to 2026 bridge the gap from 2025?

A: Hai said it involves gross margin expansion from SaaS-like businesses growing faster, further efficiencies, and operating leverage as scaling continues. Brian added focus on SaaS, cloud, and data-driven solutions while driving margin expansion.

Q: What's the composition of revenue diversification and drivers to reach >35% by 2026?

A: Brian said CSG is focused on helping brands simplify customer engagement across various verticals like financial services, healthcare, pharmacy retail, etc., with low-price point solutions leading to upsell and cross-sell opportunities driving growth.

Q: How is AI benefiting CSG?

A: Brian discussed use cases like Bill Explainer.ai to prevent bill shock and improve customer engagement, with AI helping in proactive engagement and reducing call center costs. Hai mentioned leveraging partners for AI and expecting it to accelerate profit margins and cash flow.

Q: Can you talk about cloud SaaS revenues and their comparison to peers?

A: Brian said SaaS solutions expect net retention above 100%, gross margins above 70%, with expectations to reach 75%-80% gross margin. Hai added it's about true cloud-native platforms vs. services-based cloud offers, with CSG's Ascendon and CX solutions leading in cloud-native economics.