• Quarterly Revenue: $317 million, a 7% year-over-year growth.
• Organic Revenue Growth: 5% year-over-year.
• Operating Income: Increased 32% year-over-year, reaching 20.1% of revenue.
• Adjusted EBITDA: Grew 21% year-over-year, with a margin of 24.8%.
• Non-GAAP EPS: $1.65, a 79% year-over-year increase.
• Free Cash Flow: $113 million, a 9% year-over-year growth.
• Dividend Increase: Approximately 7% to $1.28 per year.
• Net Debt: $389 million with a leverage ratio of 1.5 times adjusted.
• 2025 Revenue Guidance: $1.21 billion to $1.25 billion.
• 2025 Non-GAAP EPS Guidance: $4.55 to $4.80.
• 2025 Free Cash Flow Guidance: $110 million to $150 million.
• Capital Expenditures Guidance: $20 million to $30 million.

• Warning! GuruFocus has detected 5 Warning Sign with CSGS.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CSG Systems International Inc (NASDAQ:CSGS) achieved record-setting results in 2024, with a 7% total revenue growth and a new quarterly revenue record of $317 million.
• The company reported a significant increase in profitability, with operating income growing 32% year-over-year in Q4 and adjusted EBITDA reaching a high margin of 24.8%.
• CSG Systems International Inc (NASDAQ:CSGS) announced a 7% increase in its dividend, marking the 12th consecutive annual increase, demonstrating a commitment to shareholder returns.
• The company secured several significant new contracts and renewals, including a six-year contract renewal with Comcast and new deals with MTN South Africa and Mobiley.
• CSG Systems International Inc (NASDAQ:CSGS) is diversifying its revenue streams, targeting new industry verticals such as media, financial services, healthcare, and retail, aiming for these to constitute over 35% of total revenue by 2026.

Negative Points

• Despite strong Q4 results, CSG Systems International Inc (NASDAQ:CSGS) experienced sub-2% organic growth for the full year 2024, indicating challenges in maintaining consistent growth.
• The company faces a competitive market environment, which is reflected in its conservative guidance of 2% to 4% organic growth for 2025.
• CSG Systems International Inc (NASDAQ:CSGS) is still in the early stages of its SaaS and cloud transition, with no specific revenue breakdown provided, leaving some uncertainty about the scale and impact of these initiatives.
• The company anticipates modest operating margin expansion in 2025, with a more significant increase expected by 2026, suggesting that cost adjustments and investments are still needed.
• CSG Systems International Inc (NASDAQ:CSGS) acknowledges the tough market conditions and competitive intensity, particularly in the telecom sector, which could impact future growth and profitability.

Q & A Highlights

Q: Can you discuss the pipeline you see at the start of 2025 and compare it to a year ago? A: Brian Shepherd, CEO, noted that the pipeline remains healthy and robust, driven by customer needs for revenue enhancement and operational efficiency. The pipeline is more evenly distributed, indicating a job well done by the go-to-market team. Hai Tran, CFO, added that the pipeline has grown and is healthier, with no large opportunities skewing it.

Q: What are the dynamics behind the modest operating margin expansion expected in 2025, and how do you plan to reach the 19% range by 2026? A: Hai Tran, CFO, explained that the expansion is due to a mix of business growth and cost efficiency actions. The company expects continued gross margin improvement and operating leverage as they scale. Brian Shepherd, CEO, added that investments in SaaS and cloud solutions will continue, but they expect to drive margin expansion alongside innovation.

Q: Can you elaborate on the 35% revenue diversification target and the composition of the vertical bucket? A: Brian Shepherd, CEO, stated that CSG is focused on simplifying complex customer engagements across various verticals, including financial services, insurance, healthcare, and retail. The company is seeing growth in these areas due to their ability to solve targeted business problems with quick ROI, leading to faster growth compared to traditional telecom and broadband sectors.

Q: How is AI impacting CSG's business, and what are the recent developments in this area? A: Brian Shepherd, CEO, emphasized that CSG focuses on practical AI applications, such as Bill Explainer AI, to address specific customer issues like promo roll-off and bill shock. The company integrates AI into its products to enhance customer engagement and reduce costs. Hai Tran, CFO, added that CSG leverages partner solutions for AI, aiming to drive automation and improve profit margins.

Q: What are the expectations for cloud and SaaS revenue growth, and how does it compare to industry peers? A: Brian Shepherd, CEO, mentioned that CSG's cloud solutions, like Ascendon and Exponent, are expected to deliver high net retention and gross margins above 70%. The company sees significant growth potential in cloud-native platforms, which offer better economics compared to traditional managed services. Hai Tran, CFO, noted that while they don't break out specific revenue figures, the SaaS business is in the early stages with a long runway for growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.