Yahoo Finance CSG Systems International Inc (CSGS) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Revenue: Q1 2024 revenue was $295 million, a decrease from $299 million in Q1 2023.
Non-GAAP Adjusted Operating Margin: 16.6% for Q1 2024.
Non-GAAP EPS: Reported at $1.1 for Q1 2024.
Dividends: $9 million returned to shareholders in March.
Stock Repurchases: $10 million worth of stock repurchased during the quarter.
Free Cash Flow: Non-GAAP free cash flow was $34 million in Q1 2024.
Net Debt: $435 million as of the end of Q1 2024.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
CSG Systems International Inc achieved 30% of its revenue from industry verticals outside the communication service provider space, marking a significant milestone in revenue diversification.
The company continues to reward shareholders through dividends and buybacks, with a 7% annual increase in dividends and $10 million in stock repurchases during the quarter.
CSG Systems International Inc reported a strong sales pipeline and robust market demand for its SaaS products, contributing to confidence in meeting full-year 2024 guidance.
The company successfully closed an acquisition expanding its customer base in the insurance sector, which is a high-priority vertical.
CSG Systems International Inc is making significant progress in corporate responsibility, achieving a nearly 40% reduction in Scope 1 and 2 emissions since 2019, with a goal of reaching carbon neutrality by 2035.
Negative Points
Q1 2024 revenue was slightly impacted negatively due to the absence of $10 million in high-margin one-time license revenue that was present in Q1 2023.
Free cash flow for Q1 was softer than anticipated due to timing-related items, although these are not expected to affect the full-year free cash flow guidance.
The company faces headwinds from subscriber losses at North American cable broadband customers, which could continue into the next quarters.
The non-GAAP EPS decreased from $1.4 in Q1 2023 to $1.1 in Q1 2024, mainly due to lower operating income.
There are ongoing challenges in the M&A landscape, with high asset pricing in previous years, although this is beginning to normalize.
Q & A Highlights
Q: Can you elaborate more on the acquisition last month, the size of the business, and expand on what you're targeting with respect to closing several more deals in 2024? A: (Brian Shepherd - President Chief Executive Officer) The acquisition is in the customer engagement space, serving multiple verticals, with insurance being the largest. It's a company we've known for years, and this acquisition adds to our expertise in insurance, a high target vertical for us. We purchased this business at a very low EBITDA multiple, which we believe will create significant shareholder value. We have an active pipeline for inorganic moves and anticipate potentially closing more deals in 2024.
Q: Regarding the Other segment, if it continues to grow as a percentage of revenue, are there variations in margin across different verticals? Do you have the structure in place to support this growth? A: (Hai Tran - Chief Financial Officer, Executive Vice President) The margin differences are more about the solutions we market rather than the industry verticals. SaaS-like solutions have very high margins, around 70-80%. We have the scale in digital CX and payments to expand organically and handle growth through acquisitions. We've invested in a channel-driven approach to accelerate growth in these multi-industry verticals.
Q: Can you provide more detail on the headwinds you're seeing at your North American cable operators? A: (Brian Shepherd - President Chief Executive Officer) We are experiencing some headwinds as anticipated, with tens of thousands of subscribers lost, which we expect to continue into Q2 and Q3. However, we anticipate a competitive response from our customers and do not see these headwinds as a long-term issue.
Q: Did the CX and payments business grow at least double digits for the March quarter? A: (Brian Shepherd - President Chief Executive Officer) Yes, the combined CX and payments business saw strong double-digit growth in Q1, continuing the trend from last year. This growth is exclusive of the $10 million nonrecurring software licenses from the previous year.
Q: On the international front, what are the keys to driving CSG's wide reach and success in disparate geographic areas? A: (Brian Shepherd - President Chief Executive Officer) Our global footprint and direct sales model, along with our focus on simplifying business processes and tech stacks for telecom operators, have been crucial. Our product-based approach, often SaaS, helps operators become more digital and reduce costs, which is increasingly relevant globally.
Q: Regarding AI, can you talk more about the pipeline build for AI-infused products introduced last year? A: (Brian Shepherd - President Chief Executive Officer) We are seeing good adoption of AI in our offerings, particularly in digital CX and payments. Our approach leverages hyperscaler infrastructure and capabilities, focusing on enhancing our platforms and allowing customers to leverage their own AI models. This strategy is still in its early days but shows promising potential for significant impact.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
