Good afternoon. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the CSG Systems International Inc. Q3 2021 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I'll now turn the call over to John Rea, Head of Investor Relations. You may begin your conference.

Thank you, operator and thanks to everyone for joining us. Like last quarter 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 these slides. Today's discussion will contain a number of forward looking statements. These include, but are not limited to statements regarding our projected financial results, our ability to meet our clients' 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 risks 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…

Operator We'll take our first question from Tom Roderick with Stifel. I apologize, we'll take our first question from Greg Burns with Sidoti and Company.

Good morning or afternoon, sorry. So congratulations on the contract extensions, just have a couple about Charter. You know, when you -- the contract essentially with Comcast, I guess at the time, there was and you updated guidance following that, you lowered revenue guidance, lowered your margin guidance for the following year, obviously, we're not seeing that in the preliminary 2022 results. So can you just help us understand how you're still able to drive top line growth and consistent margins in 2022 even following the recent contract renewals?

Yes, no, happy to Greg and I appreciate you joining today, I love the question. So first is, we are accelerating as we've been talking about the last several quarters. Our overall sales performance, our sales pipeline is as large and has as many large late stage deals in that pipeline. And our closure rate continues to be quite strong, and we love what we're seeing in the market. So one is just the underlying performance of our sales teams. Secondly, when you look at the renewals, and you see what's going on in the North American broadband industry with the number of subscribers that our customers are adding, it's fantastic to see their success and their growth. And CSG is a main partner and platform provider, we're benefiting from the overall rising water level of the industry. And then third, we continue to expand the offerings in the business that we win with our existing and our new customers. And so with the Charter announcements, what's also factored in, along with the any discount we gave him was the fact that we're gaining significant number of subscribers and we'll be migrating those onto our platforms like we've done in 2021, but in an accelerated fashion over the next 12, 18 months. So it's really all of those things are going into the growth in the guidance that we gave preliminarily for 2022 for both top line, adjusted revenue and the operating margin as well staying consistent with that 16.5% to 17% range.

Okay, great. And I definitely was surprised to see the timeline you laid out in terms of porting over all those Charter subscribers. I think it was a multi-year process with Comcast. So in that 12 to 18 months, is there, like a target number of subs per quarter? Like, how should we think about that, is that backend loaded? Is it equally prorated over that time period? How should we think about the timing of those ports?

Yes. So first, it's one of the things that Charter Communications has done is they've invested a lot in their infrastructure and their technology platforms, and they really get a lot of credit for the work they're doing, and trying to deliver that excellent customer experience for their spectrum customers and that's a benefit and a testament to them. And so from our standpoint, what you could expect, is a steady progression of the conversion or the migration of the additional customers that they serve from their existing platform that they use on to the CSG SaaS platform, and fairly consistent over that 12 to 18-month period, and I can't really comment more than that at this stage.

Okay. And just the absolute number, I guess you said you reported $1 million, so that leaves $13 million, is that the number we should be thinking about that's not on your platform?

That's correct.

Okay. And then in terms of the acquisitions you've been doing of late, I think all of them have been prior partners of yours. So is that kind of -- I'm just trying to get a feel for maybe, do you have a handful of partners that are looking to vertically integrate these, or how should we think about these like little tuck-ins going forward, do you have a number of partners you're still working with that kind of might make sense to bring in-house? And then it also sounded like, now with these deals out of the way, you might be looking at bigger opportunities going forward. So maybe you could just give us a little bit more color on your thought process in terms of acquisitions going forward?

No, perfect, great question. So our acquisition approach, we really kind of use four main criteria, we focus on strategic fit, financial fit, cultural fit, and integration, and then the risk return profile. So we really target deals across the spectrum from an M&A standpoint. We look at large scale that could just add operating leverage to our business is one category. The second big category are fantastic, innovative new SaaS platforms, where we see our large enterprise customers in every industry vertical, wanting to buy more from kind of a one-stop shop from partners they trust, like CSG. And so when we can add innovative high growth, multi-vertical SaaS platforms that's a second big category. A third one is, exactly what you said, a lot of times we're more partner friendly, easier to integrate, easier to do business with than some of our customers. And so, by actually partnering with more and more companies to bring greater value to our global customer base, often we see great companies, great talent, great SaaS platforms, and we decide, hey, if we've had success in the market, why not go ahead and acquire. And you'll also see us doing some innovative, early stage investments in companies even pre-crossing the CASM to really support this initiative we have to deliver category defining SaaS platforms. And so the acquisitions can fall in any one of those and it could lead us to do much larger acquisitions, midsized, or smaller. And we really lacked the discipline nature of our process, drive which acquisitions we end up closing, it wasn't -- we weren't waiting to do midsized and bigger acquisitions this year until the renewals were done. We all know that the valuations in the market are quite high these days. So we've tried to stay very disciplined on the companies we buy. And it just turns out that the last three have been more of those in those partner categories. Like you said, we expect to do more of those, but also in the other categories as well. But we like discipline and strong value creation drive, how we think about that.

Okay, I know, the maximum leverage you'd be willing to put on the balance sheet?

I don’t know if there is a maximum, but I know what we target is, we target two times net debt leverage for the right deal or for the right larger deal. It doesn’t mean we would not go above that. But I think the higher we go the bigger the deal. The more we need to have that much conviction and have done that much deep due diligence to ensure that we can actually deliver value creation for our business, for our customers, and for our shareholders. So there isn't a limit that we put on that. There's obviously plenty of capital in the market, but we like the discipline and our strategic vision kind of drive us on those. But to 2x net debt is our target operating, is our target, kind of capital structure range and plan.

Okay. Thank you.

Thanks Greg.

Next, we'll go to Tom Roderick with Stifel.

Hi, guys. It's Max Osnowitz on for Tom. I would like to start by just going to congrats, because this is truly an impressive quarter and I know those two big contract renewals were kind of an overhang for a little bit.

Thanks, Max.

For starters, yes, you're welcome. I guess for starters, I just want to kind of go back to those renewals. And the upside for Charter is a little more clear, just based on the amount of subscribers that we are able to get kind of one over the platform. But could you kind of go into little more detail on the expand business with DISH?

Yes. So the DISH contract is a four and a half year extension of the contract. We provide all their platform for their pay TV business. Obviously, DISH is a fantastic innovative leader in the industry, in pay TV, in content, the bold move into wireless and what they're doing. Today, CSG is a main partner and provider for their pay TV business. We love the opportunity to extend and expand even further with DISH, that's not something they've decided to do at this stage. So we continue to focus on bringing them value and innovative solutions every day, and see if there's an opportunity to expand with that fantastic customer over time. But it is a similar business to what we have today extended for four and a half years on a term.

Got it. That makes sense. And then just thinking about the industry, vertical diversification, and then it's in the presentation other has grown incredibly from 2017 to 2020. How important are those industries in the kind of journey to $2 billion? And what is it that's driving that so much? I mean, is it these customers that are realizing cloud transitions and software and need someone like you or they're just put displacing old providers as they move or is it kind of a new Greenfield opportunity in a lot of cases?

It's really a combination of both. And the industry vertical diversification is a huge focus going from 7% to 23% last year, we have a stated goal to get to 30% or more. And that growth will come as we also continue to grow nicely in both our North American cable and our global telecom business. So we want to continue to expand as a leading, highly recurring revenue, SaaS platform company, serving multi-vertical kinds of companies, financial services, retail, government, healthcare, technology, and many others. Our platforms have what those big brands all around the world need. It lets us serve a much larger addressable market than just our cable and telecom base. And it lets us also participate in higher growth industry verticals, where the water levels are rising even faster. And that is a meaningful part of our strategy. It's also a meaningful part of our current growth acceleration, and what we see in the years to come. So it's something that we're extremely excited about. We announced this quarter the rollout of our SaaS platform, brand name, CSG Xponent, where we're serving great brands and many verticals and it's a huge opportunity for growth. And we just need to continue to bring good value. In some cases it's a new Greenfield deployment and solution. In some cases, we're displacing competitors. It's kind of across the board, Max.

Got it. And then just one more quick on from me, just thinking about, as you just mentioned, Xponent and you said the Forte payments pipeline is returning strong. Is there anything that's kind of really driving a lot of activity lately that maybe hasn't in the past?

I don't know if I would say compared to the past, but the big trend, a couple of big trends that we see in every industry vertical is, number one, the world going digital. And as the world goes digital, brands have to work that much harder to really use real-time analytics and insights to improve the experience and the engagement that they offer to their customers on a real-time, individualized basis. And we all know customer satisfaction and great experience is becoming table stakes and the use of data and insights and breaking down the silos in that experience is critical. And so those are some of the main drivers that's really causing great brands to want to do business with CSG. We've talked about last quarter the three fantastic wins where COVID with three large pharmacy retailers, where they are wanting to go more digital with COVID appointment scheduling appointment vaccinations, your prescriptions are ready, and our solutions with some of the partner providers are solving those needs with our SaaS platforms. And that's also true in financial services, where we've talked about JPMorgan Chase and how we're helping improve the efficiency and the customer experience of some of their processes from mortgage lending, to auto lending, to how they're doing fraud alert notifications, that's what excites us about our customer engagement offer and some of these diversifications and the other industry verticals.

Make sense. Thanks for taking my question and congrats again.

Thanks so much Max.

I show that there are no further questions at this time. I'll now turn the call back over to Brian Shepherd for any additional or closing remarks.

I would just say we're proud of the quarter Thank you to Team CSG and all the employees all around the world and our leaders. We are focused on obsessing over our customer success and the value we bring them. And we're laser focused on making sure that every quarter we accelerate the results and deliver for our investors as well. So thank you for joining today.

This concludes today's conference call. You may now disconnect.