CSG Systems International, Inc.

on our website, which will also be furnished to the SEC on Form 8K. 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. Welcome to today's call. On slide four, we wanted to begin with several exciting highlights that showcase how well Team CSG is executing across all areas of our business. First, the big news that has been on every investor's mind. We were super excited to announce on Monday that we signed a fantastic contract renewal with Comcast. This great win-win deal builds on our 35 year plus relationship with Comcast. And it gives both companies the opportunity to unlock much greater value in the future by continuing to do more business together. Comcast is undoubtedly one of the biggest and best connectivity and entertainment providers in the world. And we are honored and humbled to continue to serve this industry giant with mission critical technology solutions well into the next decade. We're also very pleased to raise both profitability and EPS guidance targets for the second consecutive quarter while reiterating all other full year 2024 guidance targets. We achieved very good profitability in Q3 reporting an 18.4% non-GAAP adjusted operating margin, and Team CSG believes it can continue to deliver enhanced profitability in Q4 and into 2025 and beyond. It was also great to see the strong profit performance convert into better free cash flow as we generated $37 million in free cash flow during the first nine months of 2024. a 25% increase year over year. And as Hai will share more detail on, our cash flow growth would have been even stronger if you normalize out the $18 million in one-time restructuring cost reduction hits to cash flow through Q3 year to date. And lastly, our sales wins and deal expansions through the first nine months of the year have been very strong across the board with good wins in digital monetization, data-driven CX, and payments. Slide five provides some additional color on the Comcast renewal. The contract term extends through December 31st, 2030, over six years from now. CSG will continue to provide broad mission critical support for Comcast triple play broadband subscribers and other areas of Comcast business. Given the good contractual commitments that CSG received, We agreed to no day one price increase and no price increase in 2025, but the parties did agree to annual price escalator starting in January 1st, 2026. We are truly honored to continue to serve one of the largest and most innovative leaders in the connectivity and entertainment industries well into the next decade. Moving to slide six, we wanted to remind investors of the three key value creation commitments that the CSG leadership team and board of directors will hold ourselves accountable to deliver in 2025 and 2026. First, even as we grow through a lower organic revenue growth period for the next several quarters, CSG aspires to consistently deliver 2% to 6% pure organic revenue growth and to diversify revenue from exciting new industry verticals to greater than 35% of total CSG revenue by 2026. As a reminder, since January 1st, 2021, CSG has added over $160 million of new organic revenue through Q3 2024. Second, we aspire to expand non-GAAP operating margin from our previous long-term range of 16% to 18% to our new long-term range of 18% to 20%, with free cash flow growing much faster than revenue growth. And we fully expect to achieve this higher operating profit without impeding our ability to get back to the mid single digit annual organic revenue growth that we achieved from 2021 through 2023 and to do this by 2026 or sooner. And we believe that our improved profitability will convert into significantly higher free cash flow in 2025 and 2026 with a pathway to deliver between $110 million and $150 million in free cash flow in those years. Third, we will continue to return significant capital to shareholders. On that front, we are committing to over $100 million in share repurchases and dividends in each of 2024 and 2025. As a reminder, we have delivered nearly $500 million to shareholders in the form of dividends and buybacks since 2020, And we are now in our 11th consecutive year of increasing our dividend, a key tenet of the CSG investment thesis. Turning to slide seven, since we have a number of new followers to our story, we wanted to connect the dots on how Team CSG is setting ourselves apart in the market as a leading provider of mission-critical enterprise SaaS solutions to global brands in a wide variety of industry verticals. With the record-setting revenue diversification results we keep reporting most quarters, many investors ask us how we determine which industry verticals to target. The answer is simple. CSG targets industry verticals that have highly recurring relationships with their end customers, powered by a complex subscription and consumption-based business models. This is why we have expanded so quickly beyond our traditional telecom and cable broadband customer base into exciting industry verticals like media, financial services, healthcare, pharmacy retail, technology, government, and more. We help great brands like Walgreens, JPMorgan Chase, NRC Health, and Formula One solve similar customer engagement and monetization business challenges, just like we help Comcast, Charter, MTN, Telstra in these same areas. While the industries are different, the customer pain points and business needs are surprisingly similar. This explains why we've been able to sell our industry-leading cloud native SaaS Ascendant platform to one of the largest banks in Australia, and why Formula One and other big content providers have selected CSG Ascendant to monetize their media and digital content businesses. And it's also why leading global wireless operators like Claro Brazil, M1 in Singapore, Telenor Denmark, and Lise in Norway have all selected CSG Ascendant in the telecom industry verticals. These common business needs across industry verticals also explain why we've been able to sell our data-driven CX and payment SaaS solutions to many big customers in faster-growing industry verticals. Second, many investors ask us about our value proposition and what business problems CSG solves for customers in different industry verticals. The answer to this question also explains why CSG has been able to grow organic revenue over 5% on a compound annual growth rate basis since 2021. Every large customer in all these bigger, faster-growing recurring revenue industry verticals have similar business challenges related to their post-purchase customer engagement. They all need to lower the cost and effort to activate, onboard, and educate new customers They all need to give their customers the power and flexibility to upgrade and downgrade their services more seamlessly through digital self-serve channels. They all need to harness their data to more proactively upsell, cross-sell, and retain their most valuable customers with real-time data-driven promotional offers. And they all need to make it easier to bill, collect, and resolve payment disputes on a timely basis. An important point that is often misunderstood by investors is that CSG is not just a billing company. Our comprehensive workflow engines are foundational to how our customers holistically serve their end customers and make money. Third, our investors routinely ask us why we win against bigger competitors. The answer is because we relentlessly focus and prioritize our R&D, sales and marketing, and disciplined inorganic M&As to constantly strengthen our industry-leading future-ready SAS portfolio so we can simultaneously grow organic revenue while expanding our operating margins and profitability. As a reminder, CSG is ranked in the leaders quadrant in Gartner's integrated revenue and customer management category, and CSG is also ranked in the leaders quadrant in Forrester's customer journey orchestration category ahead of almost all other competitors. And CSG routinely wins industry leadership awards in the payment space. Is doing all this easy? No, it's not. Being as mission critical as it gets for giant customers all around the world in a wide variety of industry verticals is never easy. And yet, being a critical provider to help our customers lower their cost, retain and upsell their most valuable customers, grow revenue faster, and make more money is precisely why our customer relationships are so sticky, often lasting three decades or longer. And it also explains why we have continued to grow organic revenue and close exciting new sales wins, even in tough economic conditions, because our SAS workflow solutions deliver faster ROI paybacks. On slide eight, you can see the success we've had in increasing our organic revenue growth since 2021 and the industry vertical revenue diversification success we've had since 2017. The truly exciting part for us is that even as we grow 2024 organic revenue in line with the lower end of our 2% to 6% organic growth range for the near-term quarters, CSG's profitability is expanding at its fastest clip in many years as a result of both our operating discipline and our product-centric business models. Turning to slide nine, we want to remind investors on the many exciting new logo sales wins and deal expansions we've delivered year-to-date in 2024. These wins are underpinned by our strong global sales teams that continue performing well and delivering meaningful wins like clockwork. We want a fantastic new telecom logo in Q3 at Telenor Denmark, the second largest mobile operator in Denmark. We will be deploying both our cloud-native SaaS Ascendant and CSG Exponent solutions. This win highlights our ability to cross-sell our cutting-edge digital customer experience suite of solutions together with our cloud monetization offerings. It also highlights an important inflection point that we are seeing in the global telecom market as more leading wireless operators around the globe are willing to run their core billing and monetization engines in the cloud. a trend that bodes very well for our revenue growth with our AWS cloud-native Ascendant platform. We won a second fantastic CSG Ascendant and Exponent joint cross-sell new logo deal with Lise, a leading telecom and utility provider in Norway. Lise selected CSG for a full digital BSS transformation and will reap the benefits of becoming a digital operator as they too moved from their core monetization and customer engagement technology platforms to the cloud with CSG Ascendant. We won a third-grade cloud Ascendant wireless win at Claro Brazil, one of Brazil's largest telecom operators, serving more than 88 million mobile customers. To better serve the wireless market and monetize its mobile network, Claro Brazil chose CSG's highly scalable cloud-native Ascendant solution to set the foundation for its digital MVNO evolution. Another 2024 Ascendant sales highlight was the excellent multi-year contract extension with the iconic brand Formula One, the world's most prestigious motor racing series. Since 2018, our cloud native multi-channel cloud Ascendant solution has enabled Formula One to quickly launch new live and on-demand OTT subscription services for fans who want to connect with Formula One's content. We expanded our relationship with One New Zealand, formerly Vodafone New Zealand, with an exciting win with the CSG Quote and Order suite of catalog-driven solutions to provide a seamless experience between the quoting of new products and the monetization of their offers. Team CSG had a great digital BSS transformation win with Mastcom Botswana, a leading telecom operator in Africa, and we won more business with Zane Sudan, part of the Zane Group, and a leading wireless operator in the Middle East and North Africa. We previously announced a fantastic deal extension and expansion with Telstra, a 20-plus year customer of ours in the complex B2B segment. And on top of the big Comcast renewal, we were excited at the beginning of Q3 to win a meaningful new standalone billing deal at Comcast which we expect to add approximately 10 million in non-recurring revenue in 2024, split fairly equally between Q3 and Q4 of 2024. During the third quarter, we also announced an innovative new partnership with CelluSys to help mobile operators optimize their roaming workflows, improve customer satisfaction, and capitalize on emerging technologies like 5G and IoT. Moving to the year-to-date sales wins in banking and financial services, we announced a fantastic deal extension and expansion with JPMorgan Chase, where we are deploying our CSG Exponent suite of solutions to create an enhanced fraud alert notification experience for Chase cardholders. Also, Walgreens has been a CSG customer and partner for nearly 15 years through a third-party relationship. This last quarter, I'm pleased to report that we successfully executed a direct contract with Walgreens to provide CSG's smart communications platform with real-time messaging to the most important customer segment of Walgreens, their prescription customers. CSG is executing real-time prescription refill reminders and prescription status messaging to drive higher drug adherence, a critical KPI for Walgreens. We just met a new milestone this month and have executed over 5 billion IVR messages to prescription customers on behalf of Walgreens. We appreciate our partnership and look forward to further expansion. CSG expanded our relationship with NRC Health, one of the nation's largest healthcare experience management firms, supporting over half the healthcare systems in the U.S. We are partnering with NRC to execute a digital multi-channel customer engagement strategy in a streamlined, cost-effective, and scalable manner. And finally, I'll wrap up with a good sales win we had in the payments arena with a leading regional bank in the U.S. selecting CSG to power their payments needs. Specifically, CSG's payment solutions allow this bank to reduce transactional costs and modernize their online payments portal with our bill pay product. We believe there are many domestic banks that could benefit by similarly leveraging our solutions for their payments needs. While all these fantastic sales wins will take time to onboard and convert into recognized revenue, they're why we fully expect to grow organic revenue at the midpoint or higher of our 2% to 6% organic growth range over the medium to longer term. Moving to slide 10, we would like to provide more color on our second value creation priority, our commitment to consistently expand CSG's profitability. One of the most meaningful highlights this year is the high confidence we have in CSG's ability to continue to significantly expand our profitability and operating leverage in the quarters and years ahead. We have shown continuous improvement in our non-GAAP adjusted operating margin as it grew from 16.6% in 2022 to 17.2% in 2023. Looking ahead, we absolutely believe there's a clear pathway for CSG to consistently achieve 18% to 20% non-GAAP adjusted operating income in 2025 and beyond. And it's important to note that this enhanced profitability is not coming at the expense of sales. Our continuously expanding profitability stems from our improved operating leverage at scale our smart investment in AI, our ongoing cost efficiencies unrelated to sales and marketing, and our ability to grow higher gross margin SAS revenue faster than the rest of CSG. And as we generate higher non-GAAP operating margins in the quarters and years ahead, this should absolutely result in free cash flow growing much faster than revenue growth. Turning to slide 11, we will summarize our third value creation priority. our commitment to shareholder returns, and our ability to execute a creative value-creating M&A. CSG is committed to returning over $100 million in shareholder remuneration via share buybacks and dividends in each of 2024 and 2025. Discipline capital allocation and a dedication to returning capital to our shareholders is a cornerstone of our shareholder return strategy. Regarding our $1.5 billion revenue ambitions by year-end 2025, it is possible that this goal may take us a little longer to achieve, depending on the size of good value-creating M&A deals that we find in the market over the next three to five quarters. We believe that CSG's stock price represents an excellent buy for both investors and for CSG, so we will stay balanced, disciplined, and focused on any strategic or financial move that the board of directors and management team believe will deliver the greatest value for our shareholders. On this front, we increased our share repurchase activity in Q3, buying back $15 million worth of CSG stock versus the 10 million we repurchased in Q2. When we set the $1.5 billion revenue goal in 2020, we knew about half of the revenue expansion would need to come from disciplined and accretive M&A. While we continue to assess qualified M&A opportunities, when our share price trades lower, the hurdle rate for good M&A deals gets that much higher. We are very pleased with the two smaller, highly accretive acquisitions that we've closed so far in 2024. We were able to acquire both companies at highly attractive multiples. Both small tuck-in deals add highly profitable revenue for CSG, and with respect to integration, both deals remain well on track to deliver the value we expected in our M&A business cases. And on an organic revenue growth side, we have delivered on our commitment of approximately 5% annual organic revenue growth from 2021 to 2023, with significantly expanding profitability at the corporate level. Given these exciting business results and momentum, we hope you see why we absolutely believe that CSG's best days and biggest breakthroughs are still ahead of us. We are so grateful to every CSG here for contributing to the transformation and growth of our company. As I wrap up my opening remarks, I want to be crystal clear on what we aspire to deliver to each one of our important shareholders. For CSG employees, we will continue to be a culture-first company centered on inclusion and impact, where every employee can be seen, heard, and valued, and where CSG becomes a platform for you to reach your fullest career potential. A giant thank you to all of you for the value you deliver every single day. For CSG customers, we will obsess over helping you solve your toughest business and technology challenges on the way to lowering your operating costs, wowing your end customers and helping you grow your revenue even faster. For CSG shareholders, While we realize we don't completely control our relative total shareholder returns, we absolutely believe you deserve to be rewarded with excellent across the board results, including faster revenue growth, higher operating margins, double digit free cash flow growth, and above market relative TSR performance. This board and management team will do everything in our power to try to make all this a reality sooner rather than later. and always with the operating discipline and high integrity you have come to expect from CSG no matter what. With that, I'll turn it over to Hai, who will share more details on our good financial results.

Thanks, Brian. Let's walk through our Q3 2024 financial results, and then I'll wrap up with some key conclusions. Starting on slide 13, we generated $295 million of revenue in Q3 versus $287 million in the same prior year period. The increase in revenue can be attributed to the growth of our SaaS and related solutions revenue, in addition to the approximately $6 million of revenue generated from the acquired businesses, which offset lower software and services revenue for the quarter. Also, as it relates to our top two customers, Comcast and Charter, we reported a 4% year-over-year increase in Q3 revenue. Please note that approximately $5 million of Q3 revenue was driven by non-recurring project implementations at Comcast. We do not expect this revenue to recur next year in Q3 2025 or subsequent periods. Our Q3 2024 non-GAAP operating income was $50 million, or a non-GAAP adjusted operating margin of 18.4%, as compared to $45 million, or 17.0%. in Q3 2023. We are extremely proud of Team CSG's operating discipline that led to this 11% double-digit year-over-year growth in adjusted operating profits. Similarly, our non-GAAP adjusted EBITDA was $64 million for Q3 2024, or 23.4% of revenue excluding transaction fees, as compared to $60 million, or 22.3% in Q3 2023. Looking ahead, we expect our profitability metrics to further improve as we took significant cost efficiency actions in the first nine months of 2024 to optimize our capacity and better align CSU's resources to areas of our business that would deliver faster growth and higher operating profits in the quarters and years ahead. Lastly, our Q3 2024 non-GAAP EPS grew 15% year-over-year to $1.06, as compared to $0.92 in Q3 2023. This significant increase in non-GAAP EPS is mainly due to higher non-GAAP operating income and the lower share count, partially offset by foreign currency movements. Turning to slide 14, I will go through the balance sheet. our cash flow performance, and shareholder returns. We had non-GAAP-free cash flow of $32 million in Q3 2024 as compared to $18 million of non-GAAP-free cash flow in Q3 2023. From a year-to-date perspective, we generated $37 million in non-GAAP-free cash flow in 2024 versus $29 million in 2023. a 25% year-over-year improvement. Going forward, we believe we have a significant opportunity to deliver between $110 million and $150 million of free cash flow in 2025 and 2026. Moving on, we ended the third quarter of 2024 with $118 million of cash and cash equivalents. That, along with our outstanding debt at September 30, 2024, results in $434 million of net debt. And our net debt leverage ratio remains at 1.8 times the adjusted EBITDA. Further, we have $566 million in liquidity as of the end of the quarter. And on the bottom right-hand side of the slide, you can see we have returned $70 million in dividends and share repurchases to shareholders through the first nine months of 2024. Specifically, In Q3, we increased our share repurchase activity by buying $15 million worth of stock in the quarter versus $10 million in Q2. Turning the page, I'll revisit our 2024 guidance targets. As Brian highlighted, for the second consecutive quarter, we are pleased to be increasing certain 2024 guidance targets, including our non-GAAP adjusted operating margin percentage, non-GAAP adjusted EBITDA, and non-GAAP EPS. We're also reiterating all other guidance targets for the full year 2024. We continue to take disciplined cost reduction actions that will optimize and streamline our business while still investing in higher growth activities. We believe these cost efficiency moves will elevate CSG's profitability for years to come. With that said, the cost reduction steps we have taken and continue to take will result in some short-term impacts to our cash flow in 2024 due to restructuring expenses related to these initiatives. At this point, the cash impact from our restructuring activities in the first nine months of 2024 has been approximately $18 million, which means that our good cash flow performance through Q3 year-to-date would have been even better if we had not had this $18 million of restructuring hit our cash flow. As it relates to our 1.2 to 1.24 billion revenue guidance range, we will likely end up around the low end of the range, as the amount of revenue we expect to generate from our acquired assets in 2024 is anticipated to be more than offset by low revenue expectations in our core business, when compared to our original guidance expectations in February. Some of the main drivers of this include, one, We are seeing a little belt tightening with our current and prospective customers. Two, we are experiencing smaller headwinds in the North American broadband markets. And three, there are some services-based revenue recognition timing-related headwinds surrounding a couple of the larger global telecommunications deployments as we continue to implement these important projects. Because of this, we expect our 2024 organic revenue growth to be around the low end of our 2% to 6% range, even as we expect to deliver very strong profitability and free cash flow in 2024 and beyond. Wrapping up, we love what we see in our business and the results being reported by our operating discipline, R&D innovation, and ongoing salesmen. CSG will continue to relentlessly prioritize every investment we make and stay very disciplined in the allocation of resources and the use of capital. Innovation, including how we leverage the transformative power of AI across CSG and an adherence to a risk-reward framework with continuous learning are key cornerstones of how we have and will continue to grow top and bottom line results even faster. CHE is well-positioned with a strong sales pipeline and a high-quality recurring revenue customer base. We remain committed to accelerating and diversifying our revenue growth, which may include closing and integrating discipline, value-adding acquisitions. We believe this approach, combined with our consistent capital distribution, will serve our shareholders well. With that, I will turn it over to the operator to facilitate the question and answer session.