Q4 2020 CSG Systems International Inc Earnings Call
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Good day and welcome to the C. S E T.
International fourth quarter 2020 earnings announcement.
All participants are in a listen only mode.
<unk> and answer session will follow today's presentation and instructions will be provided at that time.
Today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. John <unk> head of Investor Relations.
Please go ahead Sir.
Thank you operator, and thanks to everyone for joining us today's discussion will contain a number of forward looking statements. He's one cold but are not limited to statements regarding our projected financial results our ability to meet our clients' needs.
Our products services and performance our ability to successfully integrate and manage acquired businesses in order to achieve their expected strategic operating and financial goals. While these statements 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 almost a week.
So we'll file 10-K, 10-Q, which are all available in the Investor Relations section of our website.
So we will discuss certain financial information that is not prepared in accordance with yeah. 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 and our financial and operational decision making.
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 Shepherd, Chief Executive Officer, and Rollie, Johns Chief Financial Officer.
That I'd like to now turn the call over to Brian.
Thanks, John and thank you all for joining us today glad to be here to start the entire sales. She family hopes that all of you are staying healthy and safe.
Pandemic reminds us every day to put our people and our priorities first is also changed the way, we and the world do business and we couldnt be more grateful for everything our 4800 dedicated global employees due to put our customers first and propel our business sport as challenging as 2020 was team.
<unk> had a very strong Q4, 2020 finish which created momentum heading into 2021, we're fortunate to have a resilient SaaS based business model that generates strong recurring cash flows with high revenue and earnings visibility.
Couldn't be prouder to announce the Covid notwithstanding our 2020 financial performance finished at the high end of our guidance ranges.
These good results were underpinned by the strength of our customer relationships with leading global brands and many different industry verticals. Our clients know that they can trust <unk> to help them better acquire monetize engage and retain their customers.
Oh, I'm honored to lead to ESG and our committed employees into the next phase of our growth and our evolution, specifically by team and I look forward to building, a bigger better and more future ready C. S. G. We will accomplish this by having every one of our <unk> employees working towards our common goals and we will.
Accomplish desk, the CSU way, where our culture, our people and doing business the right way at the heart of everything we do with that in mind I wanted to take a moment to highlight three key strategic pillars that will underpin our shared vision for the future of C. S. G. First we will.
<unk> to invest and relentlessly defend our position as an innovative and industry, leading technology provider. The world is now digital cloud and edge computing are here to study data in real time insights will pave the way for extraordinary advancements and customer experiences in every industry all around the world.
And so yesterday innovation and technology advancements will lead the way for our customers as we've done for over three decades, our broad portfolio of cloud on premise and pre integrated solutions give our customers a competitive advantage by allowing them to more quickly deliver new digital services with an EBIT.
More personalized experience.
Second we will continue to link the strength in our relationships with our existing customers. While we also diversify our revenue base and a new higher growth industry verticals be our customer engagement and payment product offerings, a relentless focus on enabling an exceptional customer experience delivering on our.
Or commitments from being easier to do business with than our competitors will continue to set <unk> apart in the market everyday our employees, our market, leading product platforms and our world class operations help customers solve their toughest challenges and with respect to diversifying our revenue streams as we grow.
New industry verticals like retail healthcare and government. We will also continue to win big in our existing cable satellite telecom and media customer base and <unk>.
Third we will focus on unleashing the power of our employees to drive growth innovation and customer Centricity, we know that our corporate culture is one of our key competitive advantages and we will protect nurture and evolve our culture and our values with respect to diversity and inclusion while we still have much work to do we're committed to.
Reflecting the global communities, where we work and serve embracing seeking in elevating our people they represent our global diversity will make us a stronger more agile and more competitive C. S. G to help us accomplish our goals, we recently hired our new chief diversity, and social responsibility officer, whose main goals.
The partner with me and the C is true leadership team to embed diversity equity and inclusion into the core of who she is she is.
Before we turn to our 2020 financial highlights I wanted to extend a huge thank you to every <unk> employee who did so much to move the business board and serve our customers. So well in 2020 to thank our employees. We recently gave every single <unk> employee a special one time 500 dollar.
Cash COVID-19. Thank you bonus in addition to our standard incentive programs.
And with that I'll highlight a few financial achievements from 2021st for the full year, even with the Covid headwinds C. S. G generated $923 billion of adjusted revenue up slightly year over year on a constant currency basis C. S. G also generated 173 billion.
Cash flow from operations and 144 million of free cash flow and finally, we made good on our promise of returning money to you our shareholders with 57 billion spent on dividends and share repurchases in 2020, Raleigh will go into more detail of our financial results momentary.
Really changing gears, let me share with you some highlights from the various parts of our business as we've highlighted in our last two earnings calls our CFT sales pipeline is significantly larger than it has ever been and you're seeing our previous optimism turning into one and closed deals as our global sales team continues to compete and win.
The market when we talk about growth being our number one priority consistently strong sales customer wins are still here.
Going exceptionally well and our customer commitments are keys to sustained growth and business momentum.
First in our North American cable and satellite business C. S. G is seeing ongoing strength, we continue to deepen and strengthen our relationship with charter as evidenced by our 10th consecutive quarter of sequential revenue growth with this great customer we've deployed solutions that help deliver a differentiated customer experience.
Clothing enhanced kiosk solutions expanded University on campus offerings to college students in a variety of customer marketing and communication programs as the World continues to go digital we look forward to expanding our relationship with this industry, leading broadband entertainment provider.
She is she also won two deals in the cable market, increasing our market share in this vertical. The first is with detailed media group a provider of TV high speed Internet is digital phone services to customers across 19 states deploy industry, leading customer engagement solutions.
The second is with hard Great Communications original day, Youre, providing advanced communication and entertainment services to customers in the south Eastern United States.
Ploy, our revenue management and field management solutions.
And in our global Telecom wireless and wireline business, we made significant sales progress there clearly positioned <unk> as the number one challenger brand in the wireless and telecom revenue management market space as illustrated by our Q4 wins C. S. G signed an exciting new deal with mobile Lee the second.
Largest wireless provider in Saudi Arabia, with nearly 14 million subscribers mobile it was looking for a partner to future proof their business accelerate their innovation, all while improving their customer experience demonstrating our strength as a technology leader in wireless CST was selected as the prime systems integrator to.
Deploy our full revenue management platform for this digital leading wireless service provider, we expect big growth to continue in our telecom business in South America, We completed telecom Argentinas, Paraguay implementation of our field management service solution. This was a nice win as it should.
Okay, just how our relationship with telecom, Argentina has grown beyond our initial deployment and ended their surrounding operating units across Latin America.
The last telecom when I want to highlight is with Airtel Africa, where C. S. G will provide managed services, including customer relationship management and convergent charging and revenue management solutions to support Airtel Africa is growth across its 14th country footprint. These solutions will help bring consistency.
And scalability across the from this operations, enabling Airtel Africa to bring new services to market quickly boost operational efficiency and reduce cost net.
Consistent with our goal is to diversify and grow our new industry vertical revenue I wanted to highlight some key wins from other industry verticals as companies around the world look for new ways to communicate and engage with their customers in Q4, we signed a contract with one of the nation's largest drugstore chains to provide.
Customer engagement messaging for the retail clinic operations in order to enhance their customers' experience. This solution is increasingly important with unprecedented inbound request to health care providers retail pharmacies and government agencies related to Covid vaccinations and appointments.
And finally, an update on our payments business, while we saw a moderate downturn and transaction volumes on our payment solutions during the middle of 2020 as small to midsized businesses experienced impacts from Covid, our payments business is weathering the storm extremely well as we've mentioned on previous calls we are not.
Experiencing the severe declines, but other global providers are due to the markets that we serve which includes government agencies early education services retail and small to medium businesses. Overall I'm pleased with the success, we've had and the progress that we're making in the payment space.
In closing we are extremely proud to see S. G is doing what it takes to navigate and to deliver in these difficult times. Thank you to our customers for your ongoing trust in us.
To our talented and dedicated employees across the globe, who are committed to helping our customers and C. S. G achieve our fullest potential and last but not least thank you to our shareholders for believing that we will deliver for you. We are as committed as ever to distribute capital to our shareholders, while we invest in new.
Initiatives and acquisitions to drive long term top and bottom line growth put simply 2020 results prove that <unk> business is as healthy resilient and strong as it has ever been and this management team is laser focused on accelerating our growth and diversifying our revenue.
With that I'll turn it over to Ralph to review the details of our financial performance and our 'twenty 'twenty one guidance.
Thanks, Brian.
Brian highlighted we have a resilient business that continues to generate strong cash flows and provides us with high visibility into both revenue and earnings even in the face of the Covid pandemic.
We believe our business model gives us the stability necessary to continue to deliver on our strategic growth initiatives and create shareholder value, both now and into the future.
We are pleased with our solid 2020 performance, finishing at the high end of our guidance metrics.
We are well positioned to deliver strong business results in 2021 and beyond.
So let's walk through our financial results for the fourth quarter and full year 2020, as well as our outlook for 2021.
We reported revenue of $260 million for the fourth quarter up 2% year over year and $991 million for the full year sales, 1% year over year.
The increase in our fourth quarter revenue can be mainly attributed to a strong quarter in managed services software and professional services revenue.
The decrease in our annual revenue is primarily due to the pricing adjustments associated with the five year Comcast contract extension that was effective January one 2020 as.
As well as foreign currency headwinds, partially offset by a strong fourth quarter revenue performance.
In addition, non-GAAP adjusted revenue, which excludes transaction fees was $243 million for the quarter and $943 million for the full year.
Presenting a year over year increase of three per cent and a decline of 1% respectively.
Our revenue sort of second half acceleration as customer sales and implementation activities that had slowed during the pandemic.
This trend was even more apparent when looking at our sequential performance for the third quarter to the fourth quarter of 2020 as revenue and non-GAAP adjusted revenue each increased 7% quarter over quarter.
Moving on our fourth quarter non-GAAP operating income was $43 million or $17 seven per cent of non-GAAP adjusted revenue.
Our full year 2020, non-GAAP operating income was $155 million or 16, 8% of adjusted revenue ex U.
Hitting the high end.
Our guidance range from benefited by significantly less employee related costs in areas, such as travel and entertainment.
Next our non-GAAP adjusted EBITDA was $57 million for the fourth quarter.
Or 23% of non-GAAP adjusted revenue.
With full year, adjusted EBITDA was $208 million or 23% of adjusted revenue, finishing right at the high end of our guidance range.
With respect to earnings per share our non-GAAP EPS for the current quarter was 90 cents and our full year non-GAAP EPS was $3.12.
Exceeding the high end of our 2020 guidance range.
Year over year, non-GAAP EPS for both the quarter and the year were down 9% and 12% respectively.
Primarily due to a low 2019 non-GAAP effective income tax rate with the full year 2020, 'twenty non-GAAP EPS also impacted by low or non-GAAP operating income.
So turning to the balance sheet and cash flow.
We ended the year with $240 million from cash and short term investments.
We generated $57 million of cash flow from operations and $52 million of free cash flow for the quarter.
For the full year, we generated cash flow from operations of $173 million and $144 million of free cash flow with both of these metrics exceeding our guidance expectations, driven mostly by favorable working capital movements.
For the full year 2020, we paid $31 million from dividends and repurchased $26 million of common stock under our stock repurchase program.
If you look over the past five years, we've returned $251 million to shareholders in the form of dividends and share repurchases, representing approximately 50% of our free cash flow of low that timing.
We remain committed to balancing our use of cash and return on invested capital focusing on inorganic growth opportunities internal investment and providing a return to our shareholders.
I'd like to highlight that we will be increasing our quarterly dividend by approximately 6%, which will pay out of the rate from 25 cents per share per quarter or $1 per share on an annual basis.
We initiated our dividend in 2013, we have increased our annual pay out every year.
So moving on to our financial outlook for 2021.
After a year that brought us some initial uncertainty and unquestionably impacted our results in the way we do business.
Even in the face of this ongoing pandemic, we were optimistic about 2021.
Therefore, we are expecting revenue to come in in the range of $995 million to $1.035 billion and non-GAAP adjusted revenue excluding transaction fees in the range of $922 million to $954 million.
We also expect our non-GAAP adjusted operating margin percentage to range between $16 two five per cent and $16 75 per cent.
Well within our long term target range of 16% to 18%.
This range takes into consideration a number of items, including organic growth percentage in the low single digits consistent with pre pandemic periods.
Higher levels of employee related costs, such as travel and entertainment expenses that were awarded in 2020 due to the pandemic.
Pricing pressure associated with the potential for early execution.
With the charter and dish contracts that are up for renewal in December 2021.
We also anticipate our non-GAAP EPS to range between $3.02 from $3.24 based on a non-GAAP tax rate of approximately 27% and a share count of about 32 million shares for the year.
Additionally, we expect the range of our non-GAAP adjusted EBITDA to be between 212 $222 million.
And finally, we expect a range of free cash flow to be between 110 and $120 million based on expected operating cash flows of $135 million to $155 million with capex expected to come in between 25 and $35 million.
Well at least cash flow ranges are below our reported in 2020 results they take into consideration certain significant working capital movements impacting our 2021 expectations Inc.
Clearly our strong accounts receivable collections in 2020 that were well in excess of historical trends and not expected to repeat in 2021.
And costs incurred in 2020 debt will be paid in 2021.
Such as our special employee bonus that Brian mentioned earlier, the separation costs related to the departure of our former CEO.
In summary.
We are pleased with our 2020 operating results in this challenging environment.
Our continued strong cash flow demonstrate the resiliency of our business and that coupled with our strong balance sheet allow us to continue to execute on our long term business objectives, including strategic growth in 2021, and beyond and most importantly, returning value to our shareholders.
With that I'll turn it over to the operator to facilitate the question and answer session.
Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone.
Joining us today use a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
That is star one if you would like to ask questions Star.
Right.
Yeah.
Yeah.
And we'll take our first question from Tom Roderick with Stifel.
Hey, everybody happy new year. Thanks for thanks for taking my questions.
So.
Brian I want to start with you I mean this is gonna be a very high level question, but you guys kind of.
Really handled a very difficult year quite well and finishing on really solid footing. If you kind of go back to where things were back in the spring and how your day you know how your customers evolve their decisions over the year I'm.
Just tell me a little bit more about this concept of of CX, you know consumer experience and how that.
The changing nature of the world might be forcing their hand to to evolve a little faster than perhaps they wanted to you mentioned mobile a I think he mentioned charter had mentioned telecom, Argentina any common threads as far as accelerated decision, making and what you know what the pandemic might have done that the force some customers hands on that front.
No. Thanks for the question, Tom Happy New year, and congrats to you on your new role that you'll be taking so first a couple of key points around what we saw in the middle part of this year I think every business. We're trying to figure out with Covid was all about we saw a little bit of a slowdown, but as we talked about in Q3 and Q4.
We saw the sales returning with the strength of our sales pipeline and where we're going and we saw that turn into wins and I think a couple of things really drove that one is the.
The debt the transition to all digital is accelerating all around the world and so we see customers in every industry vertical coming to us with ideas and business problems to say how do they improve their customer experience how do we operate without going into consumers' homes, how do they basically make it easier for them to do.
Business with and B, all digital and so what that's done is that's accelerated our pipeline and some of the win rate. We've had both for our revenue management solutions, but also things like how do we help enable technicians to solve customers' problems at a home without having to physically go into home how do you do.
Customer care and support in an environment, where you can do that online and make it easier and an improved experience and enable them to continue with the business. We also saw that in payments, where merchants still need to complete transactions, they're just going to do it more online. So we've seen this.
Acceleration of the digital adoption, it's actually helping our business and driving some of the momentum we talked about in the earnings script.
Yeah, I'm glad you mentioned payments that is the second thing I wanted to ask you about just in terms of how how we should think about the payments business and a cyclical recovery.
Well it might be worthwhile, telling you as part of this question, but can you guys kind of bring it all home and give us a sense as to you know how much of a headwind to growth payments might have been to the overall growth level. This year and you know as you can as you issue your guidance for next year should we be thinking about a little bit of a recovery in that business flattish.
Just directionally relative to what you saw this year.
Yeah.
Okay.
Brian do you want to touch on you want me to.
Yeah, Let me, maybe I'll give that the high level and you can get the specifics specifically in payments.
We saw we didnt see nearly the downturn and reduction in volume, we did see kind of single digit reduction in transaction volume. So as a result, we actually fared pretty well year over year from 19 to 20, Tom but it it wasn't a good growth year for us.
We still are in the middle of Covid is as we all know and so I think we're cautiously optimistic as we watch the first couple of months come in in 'twenty and 'twenty, one, but we have good expectations and high hopes that our payments business will get back to year over year growth and as we talked about before the pandemic hit.
We expect our payments business to be a strong double digit revenue growth business for us and that's our focus on getting back to that levels notwithstanding any headwinds we feel in the first part of this year Raleigh or any other color you want to add to that.
Yeah, I would just say you know we didn't lose significant ground this year in the payments business.
Essentially a flat year over year, which we're thankful for all to all considering and and to your point you know, we look forward to getting that business back to a double digit growth in line with our expectations.
Fantastic one.
One last quick one from me if he has a mind you rally you'd get a nice job I appreciate it on debt on the guidance sort of outlining.
The margin potential of the margin outlook in the context of the potential for a repricing.
I'm, an early renewal basis per se charter and dish I know, it's impossible to go into exactly what component of the guidance that is but just historically if we were to think about an early renewal on a tier one customer what would that mean you know if that happened a year in advance of expectation what might that mean for the.
The margins just so that we can help us frame up you know how your guidance might might encapsulate. Some of our you know some of the wiggle room on that potentially are getting solved early.
Yeah.
When you look at us historically from.
From a repricing standpoint on our on our large contracts.
I'd put it in the range of.
Five to 10 to 15 per cent, obviously, we are we'd like to shoot to the low end of that range.
But if you think about it in terms of that obviously, we disclose.
Our revenue base.
<unk>.
With those well dish now no longer significant but with Comcast and charter, but specific to true charter and dish.
That's kind of the range I'd I'd look to.
It's hard to ballpark timing obviously.
We would like to get a deal done sooner rather than later.
And and anticipate.
Uh huh.
Renewal that's fair for both sides, Brian I don't know if you want to provide any any additional color on that.
Now we will just continue to serve both customers extremely well and we've got a good track record we're focused on.
Moving the business forward.
Fantastic well nicely done on a on a great finish to a to a and otherwise tricky here and I'll jump back in the queue, but thank you guys.
Thanks, Tom.
Hey, Scott.
Once again, if you would like to sit in on with questions. Please press star one and you touched on the telephone.
Star One and our next question will come from Greg Burns with Sidoti Company.
And then.
Yeah.
When looking at the renewal with charter is.
The remaining subscribers theyre not on your platform debt.
Part of sushi items.
As part of that renewal.
Yeah, Hey, great. Thanks for the thanks for the question during the call today, we can't talk specifically about that but we can highlight is.
Theres about 14 million subs that we do not serve today, what we try to do every day with our with charter as we've done over the past many years at just served them well bring more future ready ideas to solve their business problems and obviously, we'd love to give them an incentive and a reason to come our direction on that like Comcast did.
Moving subs off of Amdocs to us almost 11 million subs a couple of years ago. So that's obviously in our interest we won't speak on behalf of charter.
But we just try to serve them well every day and get them.
Things to think about on moving in that direction Ah stay tuned.
Okay.
Okay great.
And then I highlighted some of the areas.
Ah you're you've been nice growth chart, or and I guess, it's not totally from incremental subscribers from its more coming from Ingram micro services. So could you make.
Some of those areas, we're picking up more business with these large customers and then maybe you could tie that back into Comcast because I know you took the price adjustment.
But what are you seeing maybe in the pipeline with that customer to refill that AD revenue GAAP.
Yes, I think with all of our customers not just charter the thing we focus on is bringing more and more.
Solutions across revenue management across the customer engagement across payments to solve more and more of a big problems in an all digital world and that can come from helping them grow their subscriber base. So we are getting some benefit from our cable customers that are adding a lot of.
Broadband subscribers when they do that that also is on our platform and that brings us revenue and as you said, we also didn't work on trying to sell new technology platforms and again, coupled with we've highlighted our kiosk solutions, where individuals' will walk into a retail store and wanted to change service.
Or making payments and do that without having to talk to a human being better done through our kiosk solutions at charter and that other customers. We're also doing more around helping them with engagement and care, both lower their cost and make it easier to do business in a digital world, but that's part of what she is she focuses on on continuing both through our own.
R&D, but also with our partnerships from the acquisitions, we do to bring more value. So it's those kinds of things that we do with all of our customers to try to expand our existing relationships in our the revenue that we earn from them.
Okay. Thanks, and then the.
<unk> contract with the drugstore.
The pipeline looks like for your.
Customer experience solutions outside of the cable.
Jacob.
A part of your business is debt currently non cable.
Yeah, we don't break it out today are what we do what we can say is it is a material part of our revenue and we actually see when we look at the customer engagement space that that falls into we typically see that market growing kind of mid single digit organically.
And one of the things we try to do on all of the markets that we compete in is grow at or at the upper end of the market growth from an organic standpoint. So it is material. We do have a strong healthy broad pipeline with lots of customers and brands in different industry verticals and that's what we'll continue to focus on winning big.
Deals with big large customers like that in a digital world.
What's the competitive landscape like there once you move outside of the cable market.
Yes.
I would say like every one of our markets Greg that we compete in the competitive intensity is intense and there's good customers, which means we've got to bring our a game every day around the quality of the innovation and the technology the robustness of the operations the ease of doing business.
I wouldn't say, it's more or less in competitive each one of the Barclays has helping competitors going after it but as we've proven.
When we convert to a market we want to be.
Leisure in the space and we want to invest accordingly, and bring those kind of quality of solutions and win more than our fair share and that's what we're seeing in that space.
Yeah.
Okay, great. Thank you.
Thanks for the time Greg.
Thank you and at this time there are no further questions I'll now turn the conference back over to Mr. Brian Shepherd for any additional or closing remarks.
Yeah, I would just say in closing thank you for joining the call today. We're proud of the results. We're proud of our global employee base, what they do to keep themselves safe move our business towards serve our customers and we're extremely grateful for the business that our customers do get us and we try to earn more and more every day and and that shareholders. Thank you for.
We're investing in us were committed to returning the capital to the business to deliver a strong return we're laser focused on having 'twenty 'twenty one be at a higher growth more diversified year and it's all about the results. We deliver so thank you for joining the call all the best.
Thank you that does conclude today's conference. We do thank you for your participation have an excellent day.
Yeah.