CSG SYSTEMS INTERNATIONAL INC Q4 FY2023 earnings call

• 2023 was a record-setting year with 7.3% Y/Y revenue growth from organic sources. • Non-GAAP adjusted operating margin improved to 17.2%. • Strong free cash flow performance in 2023, especially in Q4. • Committed to ESG with carbon neutrality goal by 2035, and received high ESG ratings. • Repurchased $117 million of stock in 2023 and increased dividend by 7%. • Strategic objectives include organic revenue growth in the mid-single digits, reaching $1.5 billion in revenue by 2025, being the top SaaS provider for global CSPs, and diversifying revenue into faster growth verticals. • Operational highlights include winning customer conversions at Charter, long-term contracts with Charter and Comcast, and strong growth in payments and digital CX segments with new logo wins in various industries.

In 2023, CSG achieved a record $1.169 billion in revenue, representing 7.3% year-over-year growth, the best full-year result in nearly 20 years. The non-GAAP adjusted operating margin was 17.2%, an improvement from 16.6% in 2022. Free cash flow for the year was $104 million, with over $74 million generated in Q4. Revenue from new industry verticals grew to 28% of total revenue in 2023, up from 7% in 2017. The high recurring revenue SaaS business model and strong balance sheet are highlighted as attractive aspects.

• Organic revenue expected to be above the midpoint of the long-term 2%-6% range, with revenue in 2024 ranging from $1.2 billion to $1.24 billion. • Non-GAAP adjusted operating margin expected to be between 17% and 17.4%. • Non-GAAP EPS expected to range between $3.85 and $4.15. • Non-GAAP adjusted EBITDA expected to be between $245 million and $255 million. • Non-GAAP free cash flow expected to be between $95 million and $135 million with a midpoint of $115 million. • Capital expenditures expected to be between $25 million and $35 million.

• Risks that actual results may differ materially from forward-looking statements. • Uncertainties in integrating acquired businesses. • Economic uncertainties and geopolitical factors that could impact business performance. • Risks related to achieving expected synergies from M&A activities.

Q: What is your confidence in further diversifying revenue organically and the role of acquisitions?

A: Highly confident in organic diversification with strong double-digit growth in certain segments, and disciplined acquisitions will layer on additional growth.

Q: Talk about the margin range and quarterly mix?

A: Margin range is influenced by revenue mix; first half expected to be ~48%-49% of full year, second half ~51%-52%, with commitment to creating operating leverage.

Q: Quantify the impact of non-recurring licensing revenue in Q1 2023?

A: Last year Q1 had ~$10 million of non-recurring licensing revenue, excluding which effective margin would have been mid-16% range.

Q: Thoughts on competitive threats to cable operators' broadband businesses?

A: Combined revenue from big two grew 5% Y/Y, incremental subs have lower price points, and CSG has mission-critical presence and grows through challenges.

Q: Progress with new products like Bill Explainer.AI?

A: Bill Explainer.AI has good traction in cable, global telco, with early deals and applicability in other verticals; AI also leveraged in payments for fraud reduction and merchant onboarding.

Q: M&A progress?

A: Market improved, deals more attractive, working on deal flow in CX, payments, and monetization scale for various industries.

Q: Impact of free cash flow on 2024 guidance?

A: 2024 guidance remains strong with midpoint of $115 million free cash flow, and team focused on improving performance.

Q: Possibility of hitting $1.5 billion organic revenue?

A: Not planned to hit $1.5 billion organically; planning to use smart, disciplined acquisitions to layer on growth.

Q: Breaking out segments for higher growth?

A: Evaluate constantly, and may break out segments when they reach certain scale.

Q: Subscriber trends in broadband cable?

A: Combined revenue from big two grew 5% Y/Y, with additional services and land mass growth, and challenges not having outsized impact on CSG.

Q: Economic conditions and AI impact?

A: Economic trends have cycles, but companies focus on CX and revenue/cost savings from CSG solutions, with AI helping in digital CX and payments to drive growth