CSG Systems International, Inc. Q1 FY2025 earnings call

• Q1 2025 was an excellent start with 19.0% non-GAAP operating margin, a 240 basis point improvement from Q1 2024. - Diversified revenue with 33% of Q1 revenue from big faster-growing industry verticals outside cable and telecom, up from 30% in Q1 2024. - Best first quarter non-GAAP adjusted free cash flow since 2018, generating $7 million. - Announced 7% annual dividend increase for 12th consecutive year and repurchased $22 million of shares in Q1. - Long-term value creation commitments include 2%-6% pure organic revenue growth, 18%-20% non-GAAP adjusted operating margin, and returning over $100 million in share repurchases and dividends combined in 2025. - Exciting revenue growth from big new verticals with integrated workflow solutions, high revenue visibility, and many new sales wins. - Focus on being an asset-light SaaS company, optimizing capacity, and aligning resources for faster growth.

In Q1 2025, CSG generated $299 million of revenue, which is the highest first quarter revenue in the company's history, up from $295 million in the prior year. The non-GAAP operating margin was 19% in Q1 2025, a 240 basis point improvement from 16.6% in Q1 2024. Non-GAAP adjusted EBITDA was $64 million for Q1 2025, or 23.7% of revenue. 33% of Q1 revenue came from big faster-growing industry verticals outside of cable and telecom, a new quarterly record, up from 30% in Q1 2024.

• Expect 2025 revenue growth between 2% and 3%. - Raising profitability and non-GAAP EPS targets. - Still expect approximately 48% of revenue in first half and 52% in second half of 2025. - Committed to 2%-6% long-term annual revenue growth range, midpoint or higher in most years. - Expect non-GAAP adjusted EBITDA to exceed 25% in coming years. - Committed to return over $100 million in share repurchases and dividends combined in 2025, with $32 million returned in Q1.

• Macroscopic uncertainty causing belt tightening in industry verticals. - Timing of revenue recognition as a challenge despite strong demand. - Market volatility affecting decision-making in larger transformation deals.

Q: Any thoughts on what's heard from customers around end of quarter and tone of business in first month of new quarter?

A: Global macroeconomic uncertainty continues with belt tightening, but deals with short ROI payback still move forward, and bigger strategic transformation deals are still seen but with more thoughtfulness.

Q: Talk on margin side and philosophy around constantly optimizing costs?

A: CSG focuses on operating discipline, looking at everything to eliminate non-value-added activities, using AI and operational improvement, with investment in innovation and redirecting spend to value-added uses, and focus on converting profitability to free cash flow.

Q: Revenue trends at Charter and Comcast?

A: Compound annual growth rate of ~2.6% from 2017 to now, quarterly fluctuation due to new deals and renewal terms, with a new Comcast deal and six-year renewal with no price increase in 2025 affecting comps.

Q: M&A side, what are you looking for?

A: Looking for companies with end-to-end integrated domain-specific solutions, SaaS technologies, good gross margins, double-digit organic growth, and high attach rate for cross-sell, with focus on buying better companies and scale/portfolio expansion deals.

Q: Strong pipeline, what does it mean?

A: Pipeline size is bigger than last year, shape is healthy with good win rates and progressions, with strength across various verticals including telecom, media, financial services, and payments.

Q: Cash from operations being stronger than expected, is Q1 the low point?

A: Q1 is expected to be the low point of the year, and free cash flow is expected to grow as we progress through the next three quarters.