CSG SYSTEMS INTERNATIONAL INC Q3 FY2023 earnings call

• Team CSG delivered 9% year-over-year revenue growth through the first nine-months of 2023 from organic growth, the best in nearly two decades. - In September, completed a successful $425 million convertible debt raise, lowering interest rate, freeing revolver for future M&A, and balancing capital structure. - Announced a $100 million share repurchase plan completed in Q3, repurchasing $107 million worth of stock. - Set strategic objectives including long-term organic revenue growth in 2%-6% range, aiming for midpoint or above; aiming to grow revenue to $1.5 billion by year-end 2025; being number one SaaS provider for global communication service providers; diversifying revenue into faster growth industry verticals. - Diversified revenue from 7% of total 2017 revenue to 27% of Q3 2023 revenue from new industry verticals. - Integrated AI into business, with examples like CSG’s billexplainer.ai and deployment of AI powered digital CX solution globally.

For the first nine-months of 2023, CSG generated $817 million of revenue, representing 9.0% year-over-year growth, all organic. Q3 saw 5.0% year-over-year organic revenue growth. Non-GAAP adjusted operating income for the first nine-months was $142 million with a margin of 17.5%, compared to $124 million or 16.6% in the prior year. Q3 non-GAAP adjusted operating margin was 17.0%. Non-GAAP adjusted EBITDA for the first nine-months of 2023 was $183 million, or 22.7% of revenue, excluding transaction fees. Year-to-date 2023 non-GAAP EPS was $2.76. Cash flow from operations for the first nine-months of 2023 was $52 million, with non-GAAP free cash flow of $29 million, compared to negative $22 million in the same period in 2022.

• Raising non-GAAP EPS guidance to $3.60 - $3.70. - Reiterating all other financial guidance targets. - Free cash flow guidance now expected to be towards the lower end of the original $80 million to $120 million target due to timing of certain working capital movement.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. A more comprehensive discussion of risk factors can be found in the press release, 10-K, and 10-Q available on the Investor Relations section of the website.

Q: Maggie Nolan asked about what drove revenue growth and factors for sustainable growth.

A: Brian Shepherd said diversification in new industry verticals, strong pipeline in AI-driven Digital CX and payments, growth in global telecom and American cable business contribute.

Q: Maggie Nolan asked if CSG Forte Engage offerings are additive to margin profile.

A: Brian Shepherd mentioned expecting double-digit organic growth in Digital CX and Payments and potentially disciplined value-creating acquisitions.

Q: Matthew Harrigan asked about M&A side targeting $1.5 billion top line.

A: Brian Shepherd said they look for strategic product capability additions, valuations are coming down making actionable deals possible, and they are disciplined in M&A.

Q: Timothy Horan asked about AI related details.

A: Brian Shepherd said majority data not theirs, some from customer data, and they have launched products like billexplainer.ai with more in works.

Q: Gregory Burns asked why margins projected to be down in Q4 and on margin upside.

A: Brian Shepherd said they expect to execute well in Q4, and they are operating in 16%-18% range and expect to expand operating leverage.

Q: Shlomo Rosenbaum asked about telecom revenue and cash flow.

A: Brian Shepherd talked about traction in global telecom business, and Hai Tran said free cash flow guidance lower end is due to timing of milestones in global telco projects.

Q: Brett Knoblauch asked about gross margin.

A: Hai Tran said mix of business drives gross margin, and SaaS ramp up and efficiencies will improve margin.

Q: Nehal Chokshi asked why not raise 2023 guidance.

A: Brian Shepherd said they wanted to have results be better than predictions and focus on overachieving in Q4.