CSG Systems International, Inc.

My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to CSG's Q4 and full year 2023 earnings 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, press star one again. In the interest of time, we kindly ask that you limit yourself to one question only. Thanks in advance. I would now like to turn the call over to John Ray, Treasurer and Head of Investor Relations. John, 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 Shepard, 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 as we begin on slide four. Team CSG finished a record-setting 2023 with a strong fourth quarter. We posted 7.3% year-over-year revenue growth in 2023, all coming from organic growth. Our performance this year was the best annual result in nearly two decades. Our full year non-GAAP adjusted operating margin was 17.2%, which is a significant improvement over the 16.6% we reported in 2022, proving our ability and our commitment to consistently expand CSG's operating leverage with disciplined execution. Another highlight of the year was our strong 2023 free cash flow performance, especially during Q4. For the year, we generated $104 million in free cash flow, including over $74 million in Q4, our best quarterly free cash flow performance on record. At the end of the day, our faster revenue growth is fueled by strong ongoing market demand for CSG's industry-leading SaaS products and good sales performance, across all areas of our business. CSG's sales pipeline is large and healthy as we win and wow big new customers in a wide variety of faster growth industry verticals. Another important topic I want to touch on is our belief that diverse companies who care about sustainability perform better and consistently deliver better results. At CSG, we believe that good people and high integrity companies can and should finish first. In December, we announced our official carbon commitment as we strive to be carbon neutral in both scope one and scope two emissions by 2035. In 2023, we issued our inaugural impact report, which showcases our initiatives around ESG, diversity, inclusion, and global community impact. In our increased disclosures, especially with our annual SASB and TCFD reports, are moving the needle from an ESG rating agency perspective. In April, we received our second consecutive prime rating from ISS, which means that CSG is in the top 20% of its software peers when it comes to quality ESG disclosure. Additionally, we received a AA rating from MSCI, a step up from the BBB rating we received two years ago. And we recently ranked the top 10% of our software peers, according to Sustain Analytics, and top 25% of all publicly rated companies, according to S&P's CSA ESG framework. As we look ahead, we will continue to focus on our corporate responsibility commitments, as we believe our culture-first, people-first approach is a key differentiator for us. A talented and inspired CSG workforce in turn then makes CSG more value-adding and easier to do business with than our competitors as we solve our customers' toughest business challenges with our mission-critical enterprise SaaS products. We look forward to sharing our continued progress in the quarters and years ahead on this important journey. With regards to share buybacks, we repurchased $117 million of stock during 2023. Looking forward, we will continue to opportunistically repurchase shares through the end of 2024 with the expectation that at a minimum, we will buy back enough shares to offset employee stock compensation with the opportunity to buy back more than this when we believe it will create greater shareholder value. On dividends, we are pleased to announce that we will be increasing our dividend by 7% to $1.20 per year paid in quarterly increments. This marks our 11th consecutive annual increase and underpins our dedication to a friendly shareholder return policy. And our 2024 guidance should prove that we see CSG's strong business momentum continuing into the new year. We expect organic revenue growth to be above the midpoint of our long-term 2% to 6% range, with revenue of $1.2 billion to $1.24 billion this year. Further, we perceive profitability as measured by our adjusted operating margin percentage remaining strong with a range of 17% to 17.4%. This highlights Team CSG's dual commitment to both accelerate organic revenue growth in the mid-single-digit range while continuously expanding our profitability and free cash flow generation. I will go into more details in our full-year 2024 guidance outlook, but investors can be confident The CSG leadership team is laser focused on turning good revenue growth into strong profitability and then converting that good profitability into constantly improving free cash flow. Turning to slide five, I will reiterate the four strategic objectives that will help CSG create greater shareholder value and allow followers of our story to track our progress. As I just shared, 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. The midpoint of our 2024 revenue guidance implies a 4.3% year-over-year organic growth rate with any disciplined M&A deals that we close, then accelerating our revenue growth even more. We aim to add operating scale and expand our operating leverage by growing revenue to $1.5 billion by year-end 2025, with bottom line growing as fast or faster than top line growth. This scale will come from a combination of good organic revenue and sales growth combined with disciplined inorganic moves. Our third strategic imperative is to be the number one SaaS provider of choice for global communication service providers by providing the most value-adding technology platforms and by helping our customers make more money in the digital world. And finally, we plan to diversify revenue even more, as we win big and faster growth industry verticals like retail, government, financial services, healthcare, technology, and more. Moving to slide six, you can see that we delivered against all four objectives with our excellent results in 2023. On strategic revenue growth, we reported a record-setting $1.169 billion of revenue in 2023, resulting in 7.3% year-over-year growth. our best full-year result in nearly 20 years. 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 an attractive investment. By 2025, we aspire to gain scales in the markets where we compete and generate $1.5 billion in annual revenue, which implies that CSG will have added over $500 million in profitable recurring revenue from 2020 to 2025. Over the medium to long term, 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. On this last point, I want to reinforce a key principle for the CSG Board of Directors and management team. Team CSG will add strategic scale with disciplined M&A that puts a premium on accelerating our organic growth, expanding our operating margins and cash generation, and creating greater shareholder value by paying the right price and extracting the expected M&A synergies inherent in the investment thesis for each acquisition that we close. Turning to slide seven, we had good success in our goal to be the number one technology provider of choice for communication service providers globally. In the first half of 2023, we completed our conversion of 14 million customers from a competitor's platform at Charter. We have long-term contracts with both Charter and Comcast that run through Q1 2028 and year-end 2025, respectively. And as a reminder, CSG's relationship with Comcast and Charter is on a per-customer basis. This may seem like a minor nuance, but it's a very big distinction for us. We know there have been headlines over the last several weeks related to subscriber losses at several of our existing cable broadband customers. It's worth reiterating that we serve over 64 million combined subscribers at Comcast and Charter and nearly 80 million subscribers across all of North American cable broadband customers. So small changes in subscriber counts do not have a meaningful impact in our business results and growth. It should also be noted that CSG grew our combined revenue 5% year over year at our two largest customers in 2023. And even as our revenue grew nicely this year at these industry-leading customers, the revenue concentration from Comcast and Charter dropped less than 40% of our total revenue for the first time in the last two decades. CSG's improving revenue diversification and faster revenue growth is a testament to our success in winning many big new logo sales deals in other parts of our business, continued expansion of our business with existing customers all around the world and our success in diversifying into big, exciting, and faster growth industry verticals. On the new wins front, Team CSG was selected to digitally transform an existing cable broadband customer's BSS stack to simplify their business processes with our agile and cutting-edge solutions. As part of this win, we extended and expanded our 10-plus year relationship with this important customer. During 2023, we also announced a great new deal with ATN International, a leading provider of digital infrastructure and communication services. Team CSG will modernize their networks with our mediation and roaming settlement products. This will enable ATN to automate mediation and wholesale settlement workflows and access real-time performance data to better align resources and to more quickly react to changing business needs. Outside of North America, we continued to win more business in the wireless telecom market. In fact, over the last three years, our strategy of extending our cable, telecom, and wireless business globally is paying off big time. Over that period, we have added 16 exciting new logo sales wins and expanded our business with an additional 35 existing customers. Specifically, in 2023, we expanded our engagement with one of the top telecom operators, in Saudi Arabia. Team CSG was trusted to consolidate this customer's fragmented legacy BSS solution into a modern, unified platform. Our solution will reduce this customer's BSS complexity, improve time to market with new product offers, and enhance the efficiency of their business operations. During the first quarter, we also expanded our relationship with a leading telecom operator in Latin America and the Caribbean. We are now helping this business with their digital customer engagement needs. Our solution will help this customer reduce costs and standardize their digital experience across the dozens of countries in which it operates. And in Q2 2023, we announced a fantastic new deal with PLDT, the Philippines' largest fully integrated wireless operator. PLDT is expanding its two decade partnership with CSG as it embraces the power of the cloud to bring its wireless business into the future and transform its customer experience, particularly for its enterprise unit. Plus, this is the latest example of us serving customers in an environment of their choice, this one in Amazon Web Services' cloud-based environment. Also in July, we announced the completion of our digital BSS transformation project with Airtel Africa, a leading telecommunications and mobile money service provider with close to 140 million wireless subscribers across 14 countries in Africa. With CSG's unified revenue management solution, Airtel Africa is primed to streamline processes across its business, minimize costs, and shorten time to market while delivering digital experiences that drive customer loyalty and sustainable business growth. In the fall, we won a great new logo with M1, one of the leading mobile carriers in Singapore. CSG was selected to modernize their B2B BSS stack. And importantly, this deal highlights the strength of CSG's solutions as we are replacing our main competitor. And we have strong sales pipeline in the global telecom market that will position CSG well to announce more exciting new logo sales wins in 2024. Turning to slide eight, since 2017, we have diversified our revenue coming from exciting new industry verticals from 7% of total 2017 revenue to 28% of our 2023 revenue. A fantastic accomplishment in a relatively short period of time. We're the partner of choice for big brands and higher growth industry verticals where we help our customers digitize and monetize their customer experience and provide them with cutting edge integrated payment solutions. And during 2023, both solutions delivered good double-digit organic revenue growth and continued to be game changers for both CSG and our customers. During the year, we won a good contract expansion with Safe Harbor Marinas, which is the largest marina management company in the United States. Specifically, Team CSG is supporting Safe Harbor Marinas with their digital operations, including new go-to-market offerings. This is another example of how our digital customer experience suite of products is finding use cases across multiple industry verticals. Another nice win was with NRC Health, one of the nation's largest healthcare performance improvement firms, supporting more than 7,000 organizations. We are enabling NRC to execute digital multi-channel communication strategy in a streamlined, effective, and scalable manner. We also want a good contract with a bundled utility service provider for municipal and private utilities to support various customer engagement initiatives. This deal expands our footprint in the utility industry. Further during the year, we significantly expanded our customer experience business with one of the world's leading technology firms. We're deploying our AI-powered digital CX solutions to provide their customers self-service capabilities in the voice channel in every country where this company operates. This is an excellent example of how CSG's AI-driven digital CX SaaS platform helps big, exciting brands improve customer experience and save operating costs. And finally, in the fourth quarter, we won a fantastic new Ascended deal with one of the largest banks in APAC with business operations across multiple countries. This customer provides a variety of financial services, including retail, business, and institutional banking, funds management, insurance, and brokerage services. What is truly phenomenal about this deal is it marks the first time we've sold our Ascendant SaaS monetization product to a large financial institution. Specifically, we will be transforming their fragmented billing and pricing systems into a unified solution powered by CSG's Ascendant product. CSG Ascendant will help minimize billing errors, mitigate revenue leakage, improve the customer and employee experience, and significantly decrease their time to market with new products and services as we digitally transform their BSS platform. In the payments market, we closed 2023 with record organic revenue growth in this part of our business with strong double-digit revenue growth which is a testament to our industry-leading SAS integrated payments platform. We now provide award-winning payment solutions to 114,000 active merchants and ISV partners, which represents a 16,000 increase or a 16% year-over-year growth from the 98,000 active merchants we served at the end of 2022. Our solutions are critical to customers who need ACH, credit card, payment gateway, and payment processing capabilities, serving a wide range of recurring revenue industry verticals. We continue to see a big runway for growth for this business, and we believe we have a good chance to accelerate organic revenue growth even faster in 2024 and beyond. I will wrap up on slide nine before turning it over to Hai. Simply put, CSG delivered record-setting results in 2023. We continue to win fantastic new customer logos quarter in, quarter out. We continue to innovate with industry-leading AI-driven SaaS solutions that big brands all around the world are buying to solve some of our most pressing business challenges. We continue to diversify our business with 28% of revenue coming from big, faster-growing industry verticals like healthcare, financial services, retail, tech, and government. And we continue to demonstrate our commitment to run our business more efficiently as we consistently improve non-GAAP adjusted operating margins and free cash flow generation. So our message to our three key stakeholders are clear. To employees, CSG's best days and biggest breakthroughs are still ahead of us. We will keep dreaming big and demanding even more from our collective global talent as we do whatever it takes to turn our giant dreams into reality. To customers, CSG is here for you. We are dedicated to being easier to do business with than any of our competitors while solving your toughest business and technology-related challenges. We thank you for your continued trust in us. To shareholders, CSG's transformation is just getting started. Faster recurring revenue growth, improved operating leverage, more free cash flow generation, and exciting industry vertical diversification are what this management team and our board of directors will hold ourselves accountable to. And we will do it with a high integrity, focused execution, and good governance that you've always expected from CSG. With that, I will turn it over to Hai.