CSG Systems International Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Dan Bergstrom - RBC capital markets - Analyst : Yeah, thanks for taking my question. Maybe I'll just start where you ended there. You mentioned a strong pipeline at the end of your remarks. Could you talk about the pipeline you see here to start calendar year '25? And then is there a way that you could maybe compare it to what you saw maybe a year ago at this time?

Question: Dan Bergstrom - RBC capital markets - Analyst : That's great. And then maybe just on the dynamics of the quarter, anything to call out as far as linearity or any deals moving into the quarter or out of the quarter? Did you see anything around a year-end budget flush? Is that something you typically see? Just anything on the dynamics of the quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 10:00PM, CSGS.OQ - Q4 2024 CSG Systems International Inc Earnings Call

Question: Maggie Nolan - William Blair - Analyst : Hi. Thank you. Your operating margin expansion that you expect in 2025, there's still expansion, but it's sort of modest in the context of what you said for 2026, which is maybe aiming for the 19% range. So can you help us bridge the gap to 2026? Are there additional investments or cost adjustments you need to make over the course of 2025 to set yourself up for that?

Question: Maggie Nolan - William Blair - Analyst : And the 35% revenue diversification that you cited, the other vertical is becoming fairly substantial. Can you help us understand the composition of that vertical buckets and what the drivers are to get you up to that greater than 35% you're calling for and maybe the time frame there.

Question: Matthew Harrigan - The Benchmark Co. LLC - Analyst : I think when you look at AI with respect to some of the forecasts with consultancies and academic institutions on economic growth, you can argue people are really starting to look more for where the pony is. I mean you can argue there's so much debt in the system, the economic growth numbers would be worse if it wasn't for AI. You had a number of interesting white papers, particularly early last year, I know relating more to enterprise AI and orchestrate the customer journey and that. But what have you really seen just over the last two or so quarters that makes you more or less confident in terms of the benefits for CSG and more broadly for the economy? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 10:00PM, CSGS.OQ - Q4 2024 CSG Systems International Inc Earnings Call

Question: Matthew Harrigan - The Benchmark Co. LLC - Analyst : And actually, secondly, quickly, do you have any concerns relating to DOGE as far as your governmental business and also the heightened FX volatility we're seeing given that you're not in frontier markets, but you're in some interesting international markets nonetheless?

Question: Nehal Chokshi - Northland capital markets - Analyst : Congrats on those great results. Hai, can you give a little more color as far as how much is increasing SaaS mix driving the gross margin increase on the Q-over-Q and year-over-year basis? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 10:00PM, CSGS.OQ - Q4 2024 CSG Systems International Inc Earnings Call

Question: Nehal Chokshi - Northland capital markets - Analyst : It sounds like mix is less than a 50% contributor to the increases in gross margin you've been seeing, though, on a year-over-year basis at least. Would that be fair?

Question: Nehal Chokshi - Northland capital markets - Analyst : Okay. And then, Brian, you mentioned big wins, definitely big ones from my perspective of Claro Brazil, Telenor Denmark and Lyse. Could you give us some detail as far as who are the incumbents here? And a follow-on to that would be, are you seeing any difference in frequency of success against NetCracker and Amdocs over the past year?

Question: Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc. - Analyst : Brian, can you just talk a little bit about market conditions and how they've been trending? Have they been getting better, staying the same, getting worse? I guess what I'm hearing is I'm hearing you more enthusiastic over the last few quarters. It doesn't sound like the market is getting better. It feels like you are, I'm not sure if there's like more manufactured wins just from you guys maybe grinding it out better, having hitting the right places better. I'm just trying to put this all together. And then in the context of kind of the 2% to 4% revenue growth, given the enthusiasm that you have, does it seem likely that we could see that growth moving up over the course of the year?

Question: Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc. - Analyst : Okay. Great. And then this one is for Hai. The free cash flow was very good in the quarter, and we saw the receivables go down. And I'm just wondering, particularly in the unbilled, like were there milestones that were hit for payments? Has that been more of a focus for your team in general? Just checking into that, in particular, in the context of the company expecting a lot better free cash flow going forward for the next few years.

Question: Tim Horan - Oppenheimer - Analyst : I know you don't disclose it exactly, but do you think your cloud SaaS revenues are in line with your industry peers or enterprise migration to the cloud? Would it be kind of above or below those trends? And can you give us a sense of where you think that ultimately ends up as a percentage of revenue? And I guess related to this, what's the gross margin for this business versus legacy?

Question: Tim Horan - Oppenheimer - Analyst : But Hai, can you give us a sense of the revenues? I mean, some metric, is it above or below 10% or above and below 20%? Not looking for exact numbers, but it's obviously a major driver of the business, and we're kind of flying blind here.

Question: Tim Horan - Oppenheimer - Analyst : Great. And Brian, how are you thinking about industry consolidation? Do you think you can create more value by buying smaller companies over time and accelerating your growth rate there? Or do you think it would make more sense for you to roll up into a larger company where they can do something similar in terms of synergies over time? How do you think about how the industry evolves?

Question: Tim Horan - Oppenheimer - Analyst : Sorry, last question, sorry to monopolize. Palantir had a quote on their call 2 days ago that they won a very large pharmaceutical contract, $67 million contract value. They're automatically load balancing prescription fulfillment and orchestrating patient outreach. Are you partnering with them or competing with Palantir on their AI? And obviously, they're talking about 80%, 90% kind of productivity improvements with using their AI. Do you see them at all, and I guess, are you partnering or competing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 10:00PM, CSGS.OQ - Q4 2024 CSG Systems International Inc Earnings Call

Question: Brett Knoblauch - Cantor Fitzgerald - Analyst : This is Thomas Shinske on for Brett Knoblauch. Just one for me. I wanted to ask about the solid revenue growth outside of Comcast and Charter, which grew around 8.5% year-over-year. Referring to comments made on the call about inorganic and organic growth. Does it sound accurate that approximately $4.5 million of that growth came from inorganic contributions, leaving about 6% as organic growth in the business outside of Comcast and Charter? And then could you maybe also provide additional insights into what drove the remaining growth, excluding the inorganic contributions?

Question: Michael Berg - Wells Fargo Securities LLC - Analyst : This is [ Bronin ] on for Michael. Just a quick question on the other vertical segment. You said that number, it's like hovering around 30%. Could you talk about like the dynamics of your diversification journey and when we should expect that number to start accelerating? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 10:00PM, CSGS.OQ - Q4 2024 CSG Systems International Inc Earnings Call