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1. Given that you're experiencing "lower revenue expectations in your core business" and expect organic revenue growth to be at the low end of your 2% to 6% range for 2024  **[CSGS_3406340_8]** , what specific strategies are you implementing to accelerate organic growth beyond 2024, especially in the face of "belt tightening" among your customers  **[CSGS_3406340_8]** ?

2. With the Comcast contract renewal featuring no price increase until 2026  **[CSGS_3406340_1]** , how do you anticipate this will impact your margins in the near term, and are you concerned that this delay in price escalation could affect your profitability goals?

3. You mentioned restructuring charges of approximately $18 million in the first nine months of 2024 as a "headwind to free cash flow"  **[CSGS_3406340_8]** ; can you elaborate on the nature of these restructuring activities, and how confident are you that they will lead to the anticipated "significantly higher free cash flow" in 2025 and beyond  **[CSGS_3406340_8]** ?

4. Despite strong sales wins, you acknowledge that these will "take time to onboard and convert into recognized revenue"  **[CSGS_3406340_4]** ; given this lag, how do you plan to manage the timing mismatch between sales growth and revenue recognition to ensure steady financial performance?

5. Your goal to reach $1.5 billion in revenue by year-end 2025 may be delayed due to the pace of M&A activity  **[CSGS_3406340_5]** ; given current market conditions, how confident are you in identifying and integrating value-creating acquisitions in the necessary timeframe, and what alternatives are you considering to achieve your revenue targets?

447aa32ae100a3288dcaa2b607ac333c6af4445097a3fb56fb1380c43200c698

CSG Systems International, Inc. (CSG) is a **SaaS platform company** that specializes in helping global businesses manage the complexities of the digital age. The company provides cloud-first solutions designed to enhance customer experiences for B2B, B2C, and B2B2X interactions. CSG's offerings enable companies to streamline processes such as product identification, purchase, provisioning, and payment, thereby improving customer satisfaction and business efficiency  **[0000950170-24-016286_csgs-20231231.htm:4]** .

1. **SaaS and Related Solutions** - Provides cloud-based platforms that facilitate customer interactions and streamline business processes across various industries, including telecom, media, and financial services  **[0000950170-24-122869_csgs-20240930.htm:26]** **[0000950170-24-122869_csgs-20240930.htm:8]** .
2. **Software and Services** - Offers software solutions and professional services that support business operations and enhance digital capabilities  **[0000950170-24-122869_csgs-20240930.htm:26]** **[0000950170-24-122869_csgs-20240930.htm:8]** .
3. **Maintenance** - Delivers ongoing support and maintenance services to ensure the optimal performance of software solutions  **[0000950170-24-122869_csgs-20240930.htm:26]** **[0000950170-24-122869_csgs-20240930.htm:8]** .

43ee2a67bcc5a8b2780965e50086be30025306913002c163be9dd861851cbeb1

Total Revenue

SaaS and Related Solutions Revenue

Software and Services Revenue

Maintenance Revenue

4ea8da8c15ddb8e890d38bb04205909809f9a7a2929be0f55e51c16f19955633

Americas (principally the U.S.) [USD Million]

Europe, Middle East, and Africa (EMEA) [USD Million]

Asia Pacific [USD Million]

Total Revenue [USD Million]

3e83a1c084a233f5b41f6db3b837e7b60aedc26573fdd7d5792db9bb1b1283ad

- **Strong confidence in organic growth and vertical diversification**: The company is highly confident in its ability to continue diversifying revenue into faster-growing verticals organically, with **strong double-digit revenue growth** in its AI-driven digital CX and North American payments businesses. The recent win of a large financial services provider as a customer demonstrates this growth.  **[CSGS_3372326_9]**
- **Positive impact of new AI products and innovation**: The company's investment in AI is yielding results, with new products like **Bill Explainer.AI** gaining traction. They have already won early deals in both cable and global telecom markets and see applicability in other subscription-based industries. They are also leveraging AI in their payments business to reduce fraud and enhance services.  **[CSGS_3372326_13]**
- **Resilience against market headwinds and strong financial performance**: Despite industry concerns, the company grew revenue by **7.3%** in 2023, including a **5% year-over-year growth** from their two largest customers. They have demonstrated the ability to grow through challenges and reported their best quarterly free cash flow performance on record in Q4.  **[CSGS_3372326_12]** **[CSGS_3372326_17]** **[CSGS_3372326_14]**

90c0a188e4480d98263cdf939da11b9b5df4a659c88602cf3da972f5fdaa441b

- The company's transition to a SaaS recurring revenue model is causing **headwinds to growth on the services side**, potentially leading to **short-term revenue declines** during the transition period.  **[CSGS_3406340_12]**
- **Over-reliance on large customers like Comcast and Charter**, whose long-term contracts may act as a **gating function on margin increases**, could limit the company's margin expansion.  **[CSGS_3406340_20]**
- Recent improvements in adjusted gross margin may be attributed partly to **non-recurring revenues** and **cost-cutting measures**, which may not be sustainable in the long term.  **[CSGS_3406340_14]**

34b2d7c19e14a24df55fad6a39acb4dc2d900c10e3a84cb03cad707e88f7bafc

1. **Comcast Contract Renewal**  
   **Q:** What are the key details of the Comcast contract renewal?  
   **A:** CSG Systems has renewed its contract with Comcast for six years with no day 1 price increase but with price escalators in future years. This is a win-win deal with no hidden step-downs or degradation of services. They will continue serving Comcast across all triple play services and beyond.  **[CSGS_3406340_9]** **[CSGS_3406340_11]** 

2. **Margin Expansion Outlook**  
   **Q:** How will margins expand going forward?  
   **A:** CSG Systems raised its adjusted operating margin guidance to **18% to 20%** and expects to progress through this range over the next few years. This is driven by efficiency actions, a shift to higher-margin SaaS business, and operating leverage from growth. They don't see customers like Comcast and Charter as a drag on margin expansion.  **[CSGS_3406340_14]** **[CSGS_3406340_20]** **[CSGS_3406340_22]** 

3. **Revenue Growth Expectations**  
   **Q:** When do you expect growth to reaccelerate?  
   **A:** Despite a slight near-term slowdown due to customers tightening costs, CSG Systems expects to return to the **midpoint or higher** of its **2% to 6%** growth range in the mid to second part of **2025**, maybe sooner, based on a strong sales pipeline and high win rates.  **[CSGS_3406340_10]** **[CSGS_3406340_21]** 

4. **International SaaS Transition**  
   **Q:** What are the trends in international business?  
   **A:** CSG Systems is at an inflection point with an increase in cloud-native deals on its Ascendon platform. They are transitioning to more SaaS recurring revenue with higher margins and less reliance on traditional services, leading to better revenue visibility and quality.  **[CSGS_3406340_12]** **[CSGS_3406340_15]** 

5. **CX and Payments Business Growth**  
   **Q:** How are the CX and payments businesses performing?  
   **A:** The CX business continues to see **strong double-digit growth** and is considered a Rule of 40 business. The payments business saw a slowdown to high single-digit growth but is expected to return to **double-digit organic growth** next year. Non-cable, non-telco revenue represents **29%** of sales in Q3, progressing towards **35%** by 2025-2026.  **[CSGS_3406340_17]** 

6. **Impact of Restructuring on Free Cash Flow**  
   **Q:** Why is free cash flow guidance unchanged despite higher EBITDA?  
   **A:** The company took difficult decisions to drive efficiencies, resulting in restructuring charges that are cash in nature. These charges are a near-term headwind to free cash flow but will be a tailwind in the long term.  **[CSGS_3406340_21]** 

7. **M&A Revenue Contribution**  
   **Q:** What is the M&A contribution from recent acquisitions?  
   **A:** Recent acquisitions contributed approximately **$6 million** in revenue for the quarter, expected to amount to high single digits for the full year 2024.  **[CSGS_3406340_18]** **[CSGS_3406340_19]** 

8. **Opportunities with Comcast**  
   **Q:** How can you expand within the Comcast relationship?  
   **A:** CSG Systems aims to support Comcast in areas like wireless services, where they currently do not. They also look to do more in content and digital brand spaces. As long as they bring value, they anticipate further opportunities.  **[CSGS_3406340_16]** 

9. **Gross Margin Increase**  
   **Q:** What drove the gross margin increase this quarter?  
   **A:** The increase was due to efficiency actions, revenue mix shifting towards higher-margin SaaS business, and operating leverage as the company grows.  **[CSGS_3406340_14]** 

10. **Revenue Step-up in Q4**  
    **Q:** What is contributing to the revenue increase in Q4?  
    **A:** The sequential revenue increase is due to seasonality in the payments business, compounded by a recent acquisition on the payments side, and timing of revenue recognition around global telco deployments.  **[CSGS_3406340_13]** 

11. **Cost Composition and Margins**  
    **Q:** Are long-term contracts with Comcast and Charter limiting margin increases?  
    **A:** The company believes it can expand operating margins despite these contracts, expecting **20 to 40 basis points** improvement consistently. Investments and innovation bring value to customers and contribute positively to margins.  **[CSGS_3406340_20]** 

12. **Diversifying Revenue Base**  
    **Q:** How are you tailoring solutions to expand in other verticals?  
    **A:** By focusing on post-purchase digital customer engagement and building industry-specific domain expertise, CSG Systems is expanding into verticals like financial services, insurance, and big tech, offering cost-effective entry points with quick payback.  **[CSGS_3406340_22]** **[CSGS_3406340_23]** 

2be1cd627b5cbdff5b0abd939eddf33f182189b17cdea8b215c4ed5c62a89b42

- **CSG Systems expects to achieve approximately 4% organic revenue growth in fiscal year 2024, with potential additional growth from acquisitions.**  **[CSGS_3382015_22]** ,  **[CSGS_3382015_10]**
- **The company's digital customer experience (CX) and payments businesses are experiencing strong double-digit growth, with high-margin SaaS solutions, and they have the scale to expand these businesses organically and drive operating leverage.**  **[CSGS_3382015_8]** ,  **[CSGS_3382015_10]**
- **CSG is successfully expanding internationally, leveraging their SaaS solutions to win business with global telecom operators seeking cost-effective digital transformation, thus broadening their global reach and customer base.**  **[CSGS_3382015_12]**

587fa8fa3a8bf9830b868991dbe6b96bbe7ce512a7ea3af011b961c6d2454fc9

- **CSG anticipates its 2024 organic revenue growth to be towards the low end of its 2% to 6% range** due to belt-tightening among current and prospective customers, small headwinds in the North American broadband market, and services-based revenue recognition timing-related headwinds in large global telecommunications deployments.  **[CSGS_3397287_8]**
- **The company expects to end up towards the low end of its original $1.2 billion to $1.24 billion revenue guidance range for 2024**, as lower revenue expectations in its core business more than offset the revenue expected from acquired assets.  **[CSGS_3397287_7]**
- **CSG's $1.5 billion revenue ambitions by year-end 2025 may take longer to achieve**, depending on the size of value-creating M&A deals, and the company is being more disciplined with M&A due to higher cost of capital and lower stock price, potentially delaying growth through acquisitions.  **[CSGS_3397287_5]** ,  **[CSGS_3397287_11]**

b72a537e0028928722ed12c93d04c0489e2649186cd3872728b0d7697c6d7cb2

- **Margin expansion driven by shift to higher-margin SaaS products:** CSG is expanding its non-GAAP adjusted operating margin faster than planned, aiming for **18% to 20%** in the near term, with potential for further expansion as they shift revenue mix towards higher-margin SaaS products.  **[CSGS_3397287_12]** **[CSGS_3397287_16]**
- **Strong growth in new industry verticals and investments in growth opportunities:** New industry verticals represent **31% of revenue**, up from 30% last quarter, with an aspiration to reach **35%** in the next two years. The **customer experience (CX) and payments businesses are growing strong double-digit rates organically**, and investments in channel partnerships are expected to accelerate growth in the coming quarters.  **[CSGS_3397287_14]** **[CSGS_3397287_15]**
- **Commitment to returning capital to shareholders:** CSG has authorized an additional **$100 million** share buyback, on top of the approximately **$76 million** remaining from the previous authorization, demonstrating a strong commitment to returning capital to shareholders. Since 2020, they have returned **$480 million** through dividends and buybacks.  **[CSGS_3397287_17]** **[CSGS_3397287_11]**

87f298d79112449011ba2473a6883580107bd2f6f02d1125aac488bd75e6b842

- **Dependence on major customers with flat or declining subscriber growth**: Revenue from Comcast and Charter, which combined represent less than 40% of total revenue but are still significant, may be impacted due to their flat or declining subscriber counts. As noted, "Comcast is kind of flattish, give or take. Charter up a little bit."  **[CSGS_3372326_17]**
- **Non-recurring revenue items affecting future comparisons**: The strong performance in Q1 2023 was boosted by non-recurring licensing deals totaling approximately **$10 million**. These deals "are nonrecurring in nature... we do not expect this revenue to recur in Q1 of 2024," potentially leading to challenging year-over-year comparisons.  **[CSGS_3372326_11]**
- **Limited transparency into high-growth segments**: When asked about providing more details on higher-growth segments, management indicated they're "not quite there yet," which may hinder investors' ability to assess the company's growth prospects accurately.  **[CSGS_3372326_16]**

6564640d6ae0f92237b1d642988118951f2da75fbc97acf12615e91b8e892c0b

- **CSGS is facing headwinds from subscriber losses among its North American cable operator customers, with "tens of thousands of subscribers" lost on the broadband side, expected to continue into Q2 and Q3.**  **[CSGS_3382015_10]**
- **The company's growth targets depend heavily on significant acquisitions, requiring roughly $250 million in revenue acquisitions, which may necessitate substantial spending and pose execution risks.**  **[CSGS_3382015_18]**
- **CSGS's payments business is seasonal, with Q2 and Q3 being weaker quarters, potentially leading to decreased revenue in upcoming periods.**  **[CSGS_3382015_21]**

42cd210cdabb2d6f6544397f6ff8b2c0fa20c6c0fdffd59e355131d49dd3f08d

CSG Systems International Inc (CSGS)

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