CSG Systems International, Inc.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSG Systems International Incorporated third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 again. I'd now like to turn the conference over to John Ray, head of investor relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us. Like last quarter, we will be working from a slide deck, which can be found on the investor relations section of our website. Please take a moment to locate these slides. Today's discussion will contain a number of forward-looking statements. These include, but are not limited to, statements regarding our projected financial results, our ability to meet our clients' needs through our products, services, and performance, and our ability to successfully integrate and manage acquired businesses in order to achieve their expected strategic, operating, and financial goals. While these risks reflect our best current judgment, they are subject to risks and uncertainties that could cause our actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release any revision to these forward-looking statements in light of new or future events. In addition to factors noted during this call, a more comprehensive discussion of our risk factors can be found in today's press release, as well as our most recently filed 10-K and 10-Q, which are all available in the investor relations section of our website. Also, we will discuss certain financial information that is not prepared in accordance with GAAP. We believe that these non-GAAP financial measures, when reviewed in conjunction with our GAAP financial measures, provide investors with greater transparency to the information used by our management team in our financial and operational decision-making. For more information regarding our use of non-GAAP financial measures, we refer you to today's earnings release and non-GAAP reconciliation tables on our website, which will also be furnished to the SEC on Form 8-K. With me today on the phone are Brian Shepherd, Chief Executive Officer, and Hai Tran, Chief Financial Officer. With that, I'd like to now turn the call over to Brian.

Thanks, John. Hi, everyone. We appreciate you joining the call today as we get started on slide four. We are extremely proud to share that Team CSG delivered excellent results in Q3. Revenue grew 3.8% year-over-year and 4.2% sequentially quarter-over-quarter coming from good organic revenue growth. Our success is fueled by exciting ongoing market demand for CSG's industry-leading fast products and our impressive sales results. We continue to win and wow big new customers in a wide variety of faster growth industry verticals. Annual contract value sales bookings grew more than 10% year-over-year in both Q3 and year-to-date. These sales wins bode well for CSG's continued revenue growth in Q4 and a strong start to 2023. Probably even more exciting for investors is the speed and operating discipline we demonstrated in Q2 and early Q3 to overcome some headwinds we faced earlier this year. The timely actions we took to prioritize every dollar towards revenue growth and customer commitments resulted in one of the most profitable quarters in recent memory with 18.3% non-GAAP adjusted operating margin, well above our revised guidance range of 16.2% to 16.7%. In fact, our non-GAAP adjusted operating margin for the first nine months of 2022 reached 16.6% year to date, which represents nearly the high end of our revised guidance range for profitability. If anyone doubted CSG's ability to survive and thrive in today's tough economic climate, we believe Q3 should put those doubts to rest. CSG is firing on all cylinders, and the best part of our story is that we are just getting started. We fully expect that our biggest and best top and bottom line growth is still to come as we continue the exciting transformation of CSG. With this business momentum as a backdrop, We are pleased to reiterate our 2022 revenue, profitability, and EPS guidance targets that we set at our last earnings call. In fact, as Hai will talk about in a few minutes, we expect full year 2022 financial results to meet or beat the top end on several key metrics. We expect fiscal year 2022 revenue to reach near the midpoint of our original guidance for the year, which would be very good results in today's tough economic environment. We expect to deliver at or above the top end of our revised guidance ranges on non-GAAP adjusted operating margin and non-GAAP EPS, driven by the decisive timely action we took to adjust our cost structure, combined with the ongoing size of our 2022 share repurchases. We expect strong CSG-like free cash flow in Q4 to range from $45 million to $60 million in the upcoming quarter, which should give all of us confidence that CSG will continue to be laser-focused on strong cash generation and healthy profitable revenue growth. I will cover more details of our 2022 cash flow shortly. I would like to thank every CSG-er for bringing more joy more inclusion, and more impact to what you do every day. Your energy and your efforts delivered fantastic Q3 results for our customers and for CSG. We will continue investing in our people, our products, and our customers to grow faster and to wow leading brands all around the world. And as we do this, we will also demand a higher and more disciplined return on every dollar we invest. This combination is what will enable CSG to expand our operating leverage and accelerate our profitable revenue growth. During the quarter, we had several exciting customer wins. As expected, at the end of Q3, we have migrated approximately 75% of the charter subscribers off a competitor's billing system, with the remaining migrations planned to be completed over the next six months. In South Africa, we expanded our footprint by winning a very good digital transformation initiative with a leading telecom operator where we are displacing an incumbent competitor. And in the new industry verticals, we won significantly more business with one of the US's top three pharmacy retailers to help improve their digital customer engagement. Turning to slide five, I will reiterate four strategic objectives that will help CSG create more shareholder value and allow followers of our story to track our progress. CSG aspires to deliver long-term organic revenue growth in the 2% to 6% range, striving to consistently be at or above the midpoint of this range, combined with highly disciplined, accretive, and strategic inorganic growth. We aim to add operating scale and expand our operating leverage by growing top and bottom line by more than 50% to $1.5 billion in revenue by the year end 2025. We strive to be the number one SaaS provider of choice for global communication service providers by providing the most value-adding technology platforms and by being easier to do business with than our competitors. And finally, we plan to diversify revenue even more as we expand in big, faster growth industry verticals with more direct sales, and channel partner success in retail, government, financial services, healthcare, technology, and more. Moving to slide six, you can see that we have performed well in the first nine months against all four objectives. On strategic revenue growth, we reported $800 million in total year-to-date revenue through the first nine months of the year, resulting in 4.2% quarter-over-quarter growth. On the right-hand side of slide six, we believe that CSG's high recurring revenue SaaS business model and our strong, healthy balance sheet make us a safe, attractive harbor in the midst of macroeconomic uncertainty. By 2025, we aspire to gain scale in the markets where we compete and generate over $1.5 billion in annual revenue, which implies that CSG will add over $500 million in profitable recurring revenue by 2025. We aspire to expand CSG's operating leverage and use our strong balance sheet to deliver non-GAAP EPS growth that meets or exceeds revenue growth exactly as we did in Q3 and for full year-to-date 2022, even with the margin pressure we faced in the first half of the year. On this last point, I will continually reinforce a key principle for the CSG Board of Directors and Management Team. Investors can be assured that Team CSG is laser-focused on creating shareholder value and growing profitable revenue, not building empires nor adding empty calories. We will maintain a disciplined and high return on invested capital mindset as we explore a wide range of strategic moves to create more value. Turning to slide seven, we had good successes in Q3 on our goal to be the number one technology provider of choice for communications service providers globally, and our continued success with both North American and global CSPs proved that we are executing well against this strategic priority. It is great to see that CSG grew revenue 5% sequentially, quarter over quarter, combined at our two largest North American cable broadband customers in Q3, a result boosted by continued subscriber migrations and additional spend on ancillary services. And we also won more business in the global telecom market. At the beginning of Q3, we signed a giant win with a leading telecom operator in Latin America and the Caribbean. This deal highlights the power of our holistic offering for global CSPs, This deal includes our leading revenue management solution, CSG Encompass product catalog, and our CSG Exponent customer engagement offering. It is a powerful example of how we're truly helping the world's largest global telecom operators solve both their back-end revenue management needs and their front-end customer engagement needs to deliver fantastic digital experiences. In South Africa, we expanded our business by winning a meaningful new digital transformation deal with a leading wireless operator, which will include displacing an incumbent competitor to become this operator's wholesale, charging, and monetization provider of choice. During the quarter, we launched CSG Exponent Ignite, which brings over 100 prepackaged customer experience journey templates, connectors, and reports that will turbocharge unforgettable outcomes for communication service providers, financial services, retail, healthcare, and life sciences. This leading SaaS platform leads to quantifiably better business results with improved customer conversion, engagement, and loyalty across the brand's digital channels. What does this mean for brands in a wide range of industry verticals? Low entry price points. rapid launch in 90 days or less, turning customer data into powerful insights and faster return on investment. The investment we have made in this innovative digital customer engagement SaaS platform continues to translate into very good sales wins in a wide variety of industries. We closed a key win for our exponent suite of products and a leading pay TV company. In today's world, we're streaming as gaining market share CSG is delivering new approaches to engage, retain, and grow customers. Specifically, our customer journey orchestration tool will help this customer improve their already award-winning customer satisfaction across many use cases, including their consumer's promotion roll-off experience. Turning to slide eight, since 2017, CSG has grown revenue from exciting new industry verticals from 7% of total 2017 CSG revenue to 25% in Q3 2022. Being a partner of choice for big brands in higher growth industry verticals where we help them digitize and modernize their customer engagement and integrated payments continues to be a big game changer for CSG and for our customers. Last year, we won and later expanded deals with two of the largest drugstore chains in the U.S. and one of the largest retailers in the world, who all selected CSG software to power the retail and clinic customer engagements. Our solution is increasingly important to all three of these large customers, given the unprecedented number of inbound requests that healthcare providers, retail pharmacies, and government agencies are getting related to vaccinations appointments, and prescriptions. I'm pleased to report that during Q3, we won and signed a large new expansion to our relationship with one of the top three US drugstore chains. Specifically, our CSG Exponent suite of solutions will power critical engagement programs for this brand, including their storefronts and with their loyalty rewards program. Additionally, our solution will layer on customer engagement intelligence, enabling this retailer to gain critical insights into individual consumer experiences. Two other great digital customer engagement wins from this quarter came in the healthcare space. Exact Sciences, a medical company that specializes in the detection of early stage cancers, engaged us to help digitize their customer experience and implement our customer journey orchestration tool, which allows them to offer a more personalized patient experience. We also had a great win at eClinical Works, a cloud-based healthcare software company that focuses on improving healthcare outcomes. eClinical Works is now using our solutions to increase patient engagement while digitizing and creating new customer journeys. In the payments market, our growth is a testament to our industry-leading SaaS integrated payments platforms. CSG Forte provides award-winning payment platforms to nearly 95,000 active merchants and ISV partners who need ACH, credit, payment gateway, and payment processing capabilities, serving a wide range of recurring revenue industry verticals. As a leader in ACH processing, we continue to add scale by signing ISV partners in fast-growing industry verticals like property management. Looking ahead, we've built an exciting sales pipeline in our payments business that we believe will continue good double-digit organic revenue growth. Before wrapping up, let me provide some color on our aspirations for 2023 prior to us sharing detailed 2023 financial guidance on our February earnings call. With the excellent sales bookings and customer retention results, We expect organic revenue growth next year to be better than our 2022 performance and be at the midpoint of our 2% to 6% organic revenue growth ambitions. We expect our non-GAAP adjusted operating margin performance to continue into next year. And we expect to deliver good cash flow that builds off our Q4 cash flow results. Specifically, we also plan to reduce our CapEx spend in 2023 by over $10 million from the approximate $35 million we plan to spend this year to help ensure CSG's cash flow remains strong and healthy. To wrap up on slide nine, I hope you see why Team CSG is so excited by our outlook. We will do whatever it takes to turn today's challenges into tomorrow's breakthrough business results. We are attracting, retaining, and developing the best and most diverse talent in the industry. We are dreaming bigger every day. We are helping transform the industries we serve. Our good sales win rate proves that the market wants more of what CSG has to offer. Our optimism is not based on wishful thinking. It is backed by a relentless, sweat every detail passion to consistently outperform. And when any part of our business underperforms our lofty expectations, then you see CSG's accountability Resiliency, agility, and operating intensity kick into high gear, just like we did in Q3 to significantly improve our non-GAAP adjusted operating margin to 18.3% and non-GAAP EPS growth of 20.5% year over year. And yes, as excited as we are by these great results, we also believe that our employees, our customers, and our investors have just begun to be rewarded for the value that we will create in the quarters and years ahead. So please, stay tuned to CSG because you haven't seen anything yet. And with that, I'll turn it over to Hyde to provide more detail on Q3 and year-to-date 2022 results.