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CSG SYSTEMS INTERNATIONAL INC (CSGS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered resilient top-line and strong profitability: revenue $303.6M (+2.9% YoY), GAAP operating margin 10.0%, and non-GAAP EPS $1.31; both revenue and EPS were above Wall Street consensus, marking a clean beat on the quarter .
  • Sequentially, revenue increased vs Q2 ($297.1M) and non-GAAP EPS rose to $1.31 from $1.16; non-GAAP adjusted operating margin was 19.5% vs 20.1% in Q2, reflecting sustained cost efficiency despite Q2’s one-time high-margin license revenue .
  • Cash generation was robust: cash from operations $47.9M and non-GAAP adjusted free cash flow $43.9M, with continued capital returns (dividend $0.32/share; $18M repurchases) .
  • Corporate event catalyst: NEC agreed to acquire CSG for $80.70 per share in cash (~$2.9B EV); CSG cancelled the Q3 earnings call and suspended future guidance, making deal progression the primary near-term driver for the stock .

What Went Well and What Went Wrong

What Went Well

  • Beat vs consensus: Q3 non-GAAP EPS $1.31 and revenue $303.6M were above Wall Street expectations, underpinned by SaaS growth and efficiency actions .
  • Margin discipline narrative intact: “We are committed to evolving into a more asset light SaaS business that consistently generates higher profit and cash flow from every dollar we invest,” CEO Brian Shepherd (Q2 prepared remarks) .
  • Free cash flow momentum: “We reported our best first half non-GAAP adjusted free cash flow in a decade,” reinforcing positive cash conversion into H2 (Q2 prepared) .

What Went Wrong

  • GAAP margin pressure YoY: GAAP operating margin declined to 10.0% from 10.8% YoY despite higher revenue; mix and restructuring costs weighed on GAAP metrics .
  • Visibility reduced: CSG cancelled the Q3 call and suspended annual guidance due to NEC deal announcement, limiting forward commentary and near-term transparency .
  • Macro caution and elongated sales cycles persisted through H1 and into H2: “On the margin, there’s still just a cautiousness… elongated sales cycles,” impacting top-line trajectory (Q2 Q&A) .

Financial Results

Quarterly performance vs prior periods

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$299.5 $297.1 $303.6
GAAP Operating Margin %9.8% 10.0% 10.0%
GAAP Diluted EPS ($)$0.57 $0.44 $0.73
Non-GAAP Adjusted Operating Margin %19.0% 20.1% 19.5%
Non-GAAP EPS ($)$1.14 $1.16 $1.31
Adjusted EBITDA ($MM)$64.3 $68.0 $69.0
Adjusted Free Cash Flow ($MM)$7.1 $39.6 $43.9
Cash from Operations ($MM)$11.5 $37.3 $47.9

Year-over-year comparison (Q3 2025 vs Q3 2024)

MetricQ3 2024Q3 2025
Revenue ($USD Millions)$295.1 $303.6
GAAP Operating Margin %10.8% 10.0%
GAAP Diluted EPS ($)$0.67 $0.73
Non-GAAP Adjusted Operating Margin %18.4% 19.5%
Non-GAAP EPS ($)$1.06 $1.31
Adjusted EBITDA ($MM)$63.9 $69.0
Adjusted Free Cash Flow ($MM)$32.0 $43.9

Consensus vs actual (Q3 2025)

MetricConsensusActual
Revenue ($USD)$277.6M*$303.6M
Primary EPS ($)$1.12*$1.31
# of Estimates (Revenue / EPS)4 / 6*—

Values retrieved from S&P Global.*

Segment and concentration

Revenue by vertical (% of total)

VerticalQ3 2024Q2 2025Q3 2025
Broadband/Cable/Satellite53% 51% 51%
Telecommunications18% 18% 18%
All other29% 31% 31%

Revenue by geography (% of total)

GeographyQ3 2024Q2 2025Q3 2025
Americas88% 85% 85%
EMEA9% 11% 10%
APAC3% 4% 5%

Significant customers (10%+ of revenue)

CustomerQ3 2024 ($MM / %)Q2 2025 ($MM / %)Q3 2025 ($MM / %)
Charter$59.1 / 20% $57.7 / 19% $58.9 / 19%
Comcast$58.7 / 20% $51.4 / 17% $53.2 / 18%

KPIs and balance sheet highlights (selected)

MetricQ2 2025Q3 2025
Cash & Equivalents ($MM)$145.9 $158.4
Diluted Shares (MM)28.13 27.97
Dividend per share (declared)$0.32 $0.32
Repurchases (shares / $MM)~289k / $18 ~275k / $18

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$1,210–$1,250M (reiterated in Q1 & Q2) Guidance suspended Suspended
Adjusted Operating Margin %FY 202518.4–18.8% (Q1) ; 18.6–19.0% (Q2) Guidance suspended Suspended (previously raised)
Non-GAAP EPSFY 2025$4.65–$4.90 (Q1 & Q2) Guidance suspended Suspended
Adjusted EBITDAFY 2025$258–$269M (Q1) ; $261–$272M (Q2) Guidance suspended Suspended (previously raised)
Adjusted Free Cash FlowFY 2025$110–$150M (Q1; unchanged) ; $120–$150M (Q2) Guidance suspended Suspended (previously raised)
Effective Tax Rate (GAAP / Non-GAAP)FY 2025~28% / ~28% (Q1) ~30% / ~27% (Q2) Revised in Q2, no current guidance
Dividend per share (quarterly)FY 2025$0.32 (declared) $0.32 (declared) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2025)Trend
AI/technology initiativesManagement becoming more bullish on AI’s impact on margins and product value; embedding AI across products; aiming for higher EBITDA margins over time Press release only; no call, but non-GAAP margins remained strong at 19.5% Improving operational impact; limited Q3 narrative
Macro/timingCaution and elongated sales cycles; expecting 2–3% 2025 growth; Q2 noted non-recurring $6M license revenue No incremental macro commentary; revenue grew 2.9% YoY Unchanged caution; execution solid
Revenue diversification & concentration“Top two” share declining over years; 36–37% in H1; diversification into payments/CX Q3: Charter 19% and Comcast 18% of revenue; continued “All other” at 31% Improving diversification
M&A/StrategicDisciplined M&A focus; potential larger vertical SaaS or scale plays NEC to acquire CSG for $80.70/share; guidance suspended Transformational event dominates
Payments/CX momentumMerchant base growth (135k Q1; 142k Q2); CX non-GAAP “rule of 30” combined growth Not specifically updated in Q3 release; margins consistent Positive but unelaborated this quarter
Guidance cadenceRaised profitability targets in Q1 and Q2 Guidance suspended due to NEC transaction Visibility reduced

Management Commentary

  • “We are committed to evolving into a more asset light SaaS business that consistently generates higher profit and cash flow from every dollar we invest.” — Brian Shepherd, CEO (Q2 prepared remarks) .
  • “We reported our best first half non-GAAP adjusted free cash flow in a decade.” — Brian Shepherd (Q2 prepared remarks) .
  • “Even as revenue comes in at the lower end of our revenue growth guidance, we continue to diversify our revenue… with our top two customers… now representing 36% of total CSG revenue.” — Brian Shepherd (Q2 prepared) .
  • “From a phasing perspective… benefited from a $6,000,000 nonrecurring high margin license revenue arrangement recognized in Q2.” — Hai Tran, CFO (Q2 prepared remarks) .

Q&A Highlights

  • Macro/timing: Customers remain cautious, with elongated sales cycles; management kept 2025 revenue growth view in the 2–3% range (Q2) .
  • Margin drivers: Q2 gross margin benefitted from one-time $6M license revenue; underlying services margin and mix shift also improved (Q2) .
  • Comcast renewal & concentration: Best-ever renewal through ~2030 with no price discount in 2025; Charter through ~2028; concentration has declined structurally (Q2) .
  • Contract termination: Digicel in LATAM terminated; ~$1.4M impact H1; immaterial to FY revenue (Q2) .
  • AI competitive landscape: Focus on use cases and payback; complexity of CSG’s mission-critical backbone limits direct AI-only competition (Q2) .

Estimates Context

  • Q3 2025 results exceeded S&P Global consensus on both revenue and EPS; the beat reflects sustained SaaS momentum and cost efficiency actions (see table above) .
  • With guidance suspended post-NEC announcement, near-term estimate revisions likely focus on run-rate profitability, cash generation, and deal timeline/closing risks rather than standalone 2026 outlook .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Strong operational quarter: Revenue and EPS both above consensus; non-GAAP margin at 19.5% despite lack of Q2-like license tailwind .
  • Cash engine intact: $47.9M operating cash flow; $43.9M adjusted FCF; ongoing capital returns via $0.32 dividend and buybacks .
  • Diversification continues: “All other” verticals sustained at 31%; top-two customers steady at 37% combined (Q3) .
  • Near-term driver is M&A: NEC’s $80.70/share cash offer reframes risk/reward around deal approval and timeline; CSG suspended guidance and calls until close .
  • Tactical: With limited forward commentary, focus on deal spread dynamics and regulatory milestones; fundamental performance offers downside support if the transaction is delayed .
  • Medium-term thesis (if standalone outcome emerges): Management playbook of SaaS mix-shift, operating discipline, and AI-enabled efficiency has been yielding sustained margin expansion and stronger FCF conversion (Q1/Q2 narrative) .