Good day, everyone, and welcome to the CSG System International First Quarter 2021 Earnings Announcement. [Operator Instructions] Today's call is being recorded. At this time, I would like to turn the conference over to Mr. John Rea, Head of Investor Relations. Please go ahead.

[Audio Gap] operator, and thanks to everyone for joining us. For this quarter's earnings call, we will be working from a slide deck which can be found on the Investor Relations section of our website. Please take a moment to locate those slides. Today's discussion will contain a number of forward-looking statements. These will include, but are not limited to, statements regarding our projected financial results, our ability to meet our client's needs through our products, services and performance, and 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 our most recently filed 10-K and 10-Q, which are all available in the Investor Relations section of our website. Also, we will discuss certain financial information that is not prepared in accordance with GAAP. 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 in our financial and operational decision-making. For 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. With that, I'd like to now turn the call over to Brian.

Thanks, John. For those accessing the slides for today's earnings call, please follow along starting on Slide 4. Since being named CEO at the end of 2020, I committed on behalf of the entire CSG leadership team that we would accelerate our revenue growth, diversify and grow our industry vertical revenues, and build a consistent track record of outperforming. While only one quarter in to our more ambitious strategy, I'm pleased to report that even in the face of continued COVID-related headwinds, the business momentum we regained in Q4 2020 has accelerated, with strong Q1 results across our business. CSG employees all around the world continue to rise to the occasion, and we are extremely grateful to each one of them. Together, we are CSG. The refreshed CSG mission is clearly resonating with customers globally, as we help solve their toughest business problems. By channeling the power of all, CSG makes ordinary customer and employee experiences extraordinary. As we continue turning this mission into reality, CSG is more committed than ever to turbocharge our growth and amplify the social impact we make by unleashing the full potential of our people and our culture. We will achieve this by relentlessly executing against 3 strategic growth pillars. First, CSG will obsess over the success and the value we create for our customers, as we help them design and digitally enable exceptional customer and employee experiences. We believe in jointly innovating customers to redesign and technologically enable personalized engagements for their consumer and enterprise customers. While seemingly simple concepts, being easier to do business with and adding more value than competitors are key CSG differentiators. Second, CSG will develop, partner and acquire category-leading technology that address the market's biggest and most pressing needs. Our SaaS platforms and pre-integrated solutions in revenue management, digital…

Thanks, Brian. As Brian highlighted, we have a strong resilient business that generated healthy year-over-year revenue growth in the first quarter, even in the face of the ongoing COVID pandemic. With a strong first quarter start, we are pleased to reconfirm our 2021 full year financial guidance targets. So let's walk through our financial results for the first quarter and revisit our 2021 outlook. Turning to Slide 7. We generated $253 million of revenue in the first quarter representing 3.1% year-over-year organic growth, our best quarterly organic growth since the third quarter of 2019. In addition, our first quarter non-GAAP adjusted revenue, which excludes transaction fees related to our payments business, was $237 million representing a 4.1% year-over-year increase. These increases are mainly attributed to the continued growth of our revenue management solutions, along with a strong quarter of professional services revenue related to the implementation of new customer contracts that we continue to win. Additionally, we started to see some real momentum this quarter with our digital communication solutions building on some key wins that Brian highlighted outside of our cable and telco industry verticals. As Brian mentioned earlier, our first quarter growth is all organic growth. That said, acquisitions are an important component of our growth strategy aimed at advancing our diversification into new industry verticals and increasing our leadership position in our core markets. As we accelerate our inorganic growth in the quarters ahead, we will remain disciplined by focusing on strategic, financial and cultural fit with an appropriate risk return profile for each acquisition we close. Moving on to the bottom of the slide. Our first quarter non-GAAP operating income is $40 million or 17% of non-GAAP adjusted revenue as compared to $42 million or 18.5% in the same prior year period. As I highlighted this…

[Operator Instructions] And first, we'll go to Tom Roderick from Stifel.

Congratulations on a very nice quarter, really nice to see some sustainable growth there. So Brian, I guess I'll ask my first question to you. In some of these wins -- and by the way, great slide. I love having some of the visual to go with it. Some of the wins there, you highlighted Ascendon as being a key critical component of landing the customer. And we've talked about Ascendon for so long, but yet it hasn't risen to the point of being a material revenue driver, but it seems like it's becoming -- finding its way into more and more conversations. Can you talk a little bit more about customers, maybe even new customers, embracing Ascendon and what you're doing from a go-to-market perspective to drive that into the hands of customers?

No, it's a great question, Tom. Thanks for joining us and hope you're doing well these days. Maybe a little color is, first, more from the marketplace. We see the market adopting and becoming more comfortable with a cloud-first approach, which hadn't historically been the case in revenue management. So that's a great trend to see in the market more holistically. Secondly, as we've always talked, CSG technology has to be future ready. And that means investing ahead of the curve, which is exactly what we did in our cloud-native Ascendon platform. And last year, as a reminder, was our fastest growth and our highest revenue in 2020 for Ascendon. And we continued to like what we're seeing in the marketplace. And with the 3 wins we announced, we see more and more interest and more and more adoption in Ascendon, to your point, as a percentage of our overall revenue. It's still small, but we like the growth rate. We like what we're seeing in the market. And we just have to continue to sell and win and deliver more value with it. But we also have great other revenue management solutions. So it's still smaller on the overall materiality, but we like what we're seeing in the business.

Yes, it's a great trend. Turning the attention here to the payment side of the business. So fully understand what sort of transpired in 2020 relative to COVID being some headwinds on that business. Remind us if you don't mind, Brian, just in terms of some of the challenges that the revenue or the transactional headwind face, how much of that was sort of customer churn versus just transactions themselves dropping. In other words, if the churn wasn't that bad from a customer perspective, are you seeing those transactions come back? And then, as we think about this on a sequential basis, as opposed to year-on-year, has that revenue base stabilized? It seems like it probably has to the extent you might start seeing some year-on-year growth in the back half of the year, but on a sequential trend line, that would be helpful to understand as well.

No, again, good question. What we saw, it was great to see a stronger March month close in the Q1, but on your question around what drove the decline last year or the erosion of our growth, this is a business that pre-COVID was growing nicely, a double-digit organic growth rate. And what we saw is we saw transaction volumes drop by about 8% to 12%, depending on the month. And that was about half of the drop we saw in the industry. So overall, we fared well because of the recurring nature of our customer base and the merchants we saw. When you talk about the majority of that was actually driven by just a reduction in transaction volumes from our merchants. We lost 1 or 2 customers that struggled in the COVID environment, but that would have been a small impact on the overall headwinds that we've been facing. So as we progress into 2021 and continue to regain the momentum, last year, we saw a business that eroded the growth, but still performed quite nicely. We're cautiously optimistic that we can get back to growth in the second half of the year. But I would just say, we need to see another quarter and some more strong months like we saw at the end of Q1.

Great. Rollie, last quick one for you. I know this is kind of philosophical, but would love to hear how you also think about it. Super low interest rate environment. The rates are starting to tick back up a little bit, but you've done well with acquisitions and diversifying the business. And Brian, you mentioned that's a core tenet of how you think about the future. What would keep CSG philosophically from levering up the business, taking on some debts and accelerating that M&A road map? Are there not enough targets in your immediate line of sight? Or do you just prefer not to have that extra leverage on the balance sheet? How do you think about the push and pull of that topic?

No, fair points. I think from a debt perspective, we're in a really good position where we're at. I would say, historically, you raised it, we have been under levered. I think we have the potential to increase our leverage. Certainly, we could afford 2 to 3x for future investments and the ability to provide returns to our shareholders. We're currently in the marketplace. We're looking at M&A targets every day. I think, as we've discussed previously and Brian's pointed it out as well is, right now, from a valuation perspective, valuations are pretty frothy. Brian, I don't know if you have anything you want to add to that as well.

No. All I would say is, it is the right direction and we do believe the strength of our business allows us to increase the debt leverage. And that's something that we're actively looking at. So I'd say stay tuned. On the acquisitions, we see very attractive strategic assets that could actually fit our culture, give us the offering to solve more future-ready problems of our customers. I think it's really staying disciplined on the price and making sure that we can get good deals, but also bring the financial attractiveness with the strategy that accelerates growth. We see assets that are actionable, Tom, and it's just making sure that we look at a lot to the ones -- to close the ones that we believe will bring us the most value.

[Operator Instructions] Next, we'll go to Greg Burns from Sidoti & Company.

I wanted to, I guess, talk us a little bit more about the acquisition strategy. In the past, you've done some scale positions, you've done Forte, getting you into some new verticals. And then you also mentioned adding technology in these prepared remarks. So what are your priorities in terms of when you're looking at deals and in terms of acquisitions?

Greg, hope you're doing well. Thanks for joining. I think the best way, you kind of framed it out, it isn't an either or. There's attractive assets in all of those categories. And the key for us is adding technology talent that matches our culture and the ability to integrate, that enables us to be more future ready for what customers need in all the industry verticals we serve all around the world. And so with the current market conditions and prices being higher and elevated, we are looking at scale deals that add capability and strength, that can expand our global reach. We're looking at high growth strategic assets in new verticals that can drive. And we're also looking for nice capability or product tuck-in, both in North America as well as globally. So it really does fall in those several categories, and we believe there's value across the board, and we're focused on extracting that. And you'll see us close acquisitions in all of those categories to continue to elevate and accelerate the business.

Okay. And then when we look at the full year guidance relative to the strong start of the year, can you just walk us through maintaining the guidance, relative to the strong start to the year? I guess revenue is kind of a range, so that might not be an issue, but what will drive the margins back down into that full year range versus where you were in the first quarter?

I'll give you the high level and I'll let Rollie comment [indiscernible]. First, we're one quarter into the year. So we're extremely pleased with how we started. Obviously, building a culture and a track record of outperforming is something that we need to deliver quarter in, quarter out. So we really want to see that continued execution in the second quarter and the third. And we expect to continue the momentum, but we know we have work to do. But Rollie, you want to provide a little more color on that, including on the margin question that Greg had?

Yes. So still, after a strong first quarter, still believe the current ranges are a good indicator for our performance. Like I said, first quarter margin percentage of 17% is right in smack dab in the middle of our long-term target range. And I think the 17% is a really good indicator of how CSG can perform in the midst of an ongoing pandemic, absent any events or factors that are outside of our control. So as Brian said, we know it's early in the year, but we like what we see.

Okay. Just with the midpoint of the full year guidance, on the margin front, being a little bit low in the first quarter. I mean is there incremental investment you're planning on making in the balance of the year? Like I'm just trying to get a sense of it.

No, fair question, Greg. When we had initially provided the guidance ranges, a couple of things that we had highlighted as potential headwinds to our performance trending out of 2020 into '21, one was the potential for higher levels of employee-related costs, especially in the form of travel and entertainment expenses. The other was the potential for repricing pressure associated with the potential for the early execution on both the Charter and the DISH contracts that are coming up for renewal in December of this year.

Okay. So I guess, since you brought that up, is there any update on the progress of the talks there? Do you expect to get that done before the end of the year? Or is there possible extensions to the current deal that can be made?

Yes. At this stage, there's no update, Greg, around that. What we've always done is just focus on bringing all of our customers, including our large in a renewal window, greater and greater value. Obviously, we love to see the ongoing revenue growth that we've announced the last several quarters with Charter, and we're continuing to work those and don't have any other updates. Other than, if you look at the history of CSG, they've tended to work out well for us. And that's what we're working darn hard to make sure happens this time as well.

And with no further questions, I'll turn it back to Brian Shepherd for closing remarks.

I would just say, hope you're all staying healthy, doing well. We're going to continue to build on the strong start to Q1. Look forward to talking in the quarters ahead. Thank you.

And that does conclude our call for today. Thank you for your participation. You may now disconnect.