Good afternoon, ladies and gentlemen, welcome to the CSG Systems International First Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. And please be advised that this call is being recorded. After the speakers’ prepared remarks, there will be a question-and-answer session. [Operator Instructions] And now at this time, I'd like to turn the call over to Mr. John Rea, Vice President and Head of Investor Relations. Please go ahead, Mr. Rea.

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 phone are Brian Shepherd, Chief Executive Officer; and Hai Tran, Chief Financial Officer. With that, I'd like to now turn the call over to Brian.

Thanks, John. Hi, everyone. We appreciate you joining today's call as we begin on Slide 4. I'm proud to report that team CSG delivered a fantastic Q1 across all key financial metrics. We posted 13% year-over-year revenue growth, all organic, our best quarterly organic revenue growth performance in nearly two decades. We improved profitability in Q1 with 19.3% non-GAAP adjusted operating margin and 24.3% non-GAAP adjusted EBITDA margin, both of which represent our best quarterly performances since 2016. And we grew bottom line non-GAAP EPS faster than revenue with 20.9% year-over-year growth, delivering on our commitment to expand CSG's operating leverage as we gain scale. Team CSG is committed to growing revenue faster, expanding operating leverage more and delivering record-setting results quarter-in, quarter-out. And as we do this, we never lose sight of our biggest competitive advantage, a fantastic culture and talented dedicated people who work so hard every day to bring greater value to the growing number of fantastic brands we serve in many big, exciting and faster-growing industry verticals. During Q1, we had several exciting customer wins and success stories. I'm pleased to report that 100% of the Charter subscriber migrations off of a competitor's billing system are now fully complete. We also expanded our relationship with one of the top CSPs in Saudi Arabia, and we surpassed 100,000 active merchants on our payment platform for the first time. I'll provide more color on these and other wins shortly. At the end of the day, our success in growing revenue faster is fueled by our exciting ongoing market demands for CSG's industry-leading SaaS products and our impressive sales results. We continue to win and wow big new customers in a wide variety of faster growth industry verticals. Our sales pipeline continues to be healthy and strong. Another important…

Thanks, Brian. Let's walk through our Q1 2023 financial results, and then I'll wrap up with some conclusions. Starting on Slide 11. We generated $299 million of revenue which represents 13.0% year-over-year growth, all of which was organic. The strong organic revenue increase was primarily attributed to the closure of certain deals, increased payment volume, conversions of customer accounts onto CSG solutions and other ancillary services. As we mentioned on our Q4 earnings call, some of the revenue uplift we recognized in Q1 was related to the timing of certain deals slipping from Q4 2022 into Q1 2023. When excluding these items, our Q1 revenue growth rate would still have been higher than the top end of our long-term organic revenue growth range of 2% to 6%. Our Q1 2023 non-GAAP operating income was $54 million or a non-GAAP adjusted operating margin of 19.3% as compared to $40 million or 16.3% in the prior year. The increase in non-GAAP operating income and non-GAAP adjusted operating income margin percentage can be mainly attributed to the higher revenue and the associated operating leverage. Moving on. Our non-GAAP adjusted EBITDA was $67 million for Q1 of 2023 or 24.3% of revenue, excluding transaction fees, as compared to $56 million or 22.9% in Q1 of 2022. Lastly, our Q1 2023 non-GAAP EPS was $1.04 as compared to $0.86 in the prior Q1, which represents 20.9% year-over-year growth. The increase in non-GAAP EPS is mainly due to the higher operating income in the quarter, offset by higher interest expense and foreign currency movements. Turning to Slide 12. I'll go through the balance sheet, our cash flow generation and shareholder returns. Our Q1 2023 cash flow from operations was $15 million as compared to cash outflow from operations of $6 million in Q1 of the prior…

Thank you, Mr. Tran. [Operator Instructions] We'll take our first question this afternoon from Matt Stotler of William Blair.

Hey. Gentlemen, thank you for taking the questions. Maybe just to start off with, I would love to get some more color on your pipeline for new products and how it's developing in this environment, specifically Xponent, Forte. Any color you can give on overall demand here, both top of the funnel and you kind of flow through the deal closures. And then as you think ahead, where some of the keys you're focused on to driving expanded adoption of these products going forward.

Hey. Matt, appreciate you joining. Thanks for the question. Yes, in both the digital CX and the payments business, we saw strong double-digit growth. And with what we see in the pipeline of just a steady stream of new deals, a growing pipeline and good conversion. We have good expectations that, that will continue into the remainder quarters of this year. A big focus for us in digital CX is a couple of things. One, just continuing to be a deal machine where we expand existing customers, and we continue to get new logos in North America. A big new area for us is given the success we've had in North America with CSG Xponent Ignite, we're actually taking it global with more of a focus on Europe. There we'll both have direct sales and working with channel partners to try to get more amplification of our sales force to keep it going. So on the digital CX side, we like what we're seeing a lot, and we just have to continue to perform well, which we fully expect to do. On payments, it's a combination of several things. One, ongoing good sales wins in these high recurring verticals that we've just performed well, and working with ISV channel partners to get more pull-through and just seeing increased transaction volume. And again, we expect strong double-digit organic growth to continue based on the sales pipeline that we're seeing. Kind of in the core business, you could see it in our big two cable companies. We continue to grow nicely from a variety of factors. And then in global telecom in the CSP space, we just have to continue to win, deliver and convert and bring value and then that will actually help contribute to great referenceability for more wins.

Got it. Very helpful. Maybe as a follow-up to that, just on the partner ecosystem here. Obviously, you mentioned the ISV channel for payments and more broadly when you're looking outside the U.S. Could you just double click on partner contribution at this point, where you're at in terms of how partners influence deals? And where are you at in terms of enablement as you think about additional opportunities for partner engagement going forward?

Sure. I'll break it across different maybe customer segments, market segments, I would say in the cable and global CSP space, we work with partners sometimes. But what we're seeing more is that they want more of the product vendor and supplier of platforms to kind of bring that domain expertise. They want to simplify their business process. They want to reduce the amount of customization and complexity. So we will work with partners. But I would say it's much more of a direct sales approach. In the digital CX, I think there's a big opportunity to work on these industry vertical-specific solutions where there's other brands that have more domain expertise, more brand credibility from the other offerings and products they offer to those verticals. And we think that there's a big opportunity. I would still say it's still a majority coming from direct sales in the digital CX. But I think you could see that begin to morph. In payments, it's actually more kind of a good combination. We have always sold with our cloud platforms through ISV partners. They can take our full stack or we have a modular approach where they can pick and choose which modules integrate with what they're doing. So it's always been a very channel-friendly model, and we've been trying to layer on more direct sales. So there, you see more of a good combination in the mix between the two. Net-net, we can do a lot more with channel though.

Very helpful. Thank you for taking the questions.

Thanks, Matt.

Thank you. We go next now to Matthew Harrigan of Benchmark.

Thank you. I guess kind of echoes back to, I think, Brian's McKenzie background, but the report you put out on the state of the customer experience, you really talked about getting more demonstrable ROI and with digital transformation. Can you talk about how it's getting easier to demonstrate to customers the economics rather than people having to take a leap of faith on products like Xponent. And you also talked about Metaverse monetization, which doesn't sound nearly as [indiscernible] as it did 18 months ago, but it sounds like you have something fairly real there on the virtual storefront. And I know that you could probably talk about this for a while, but I'd love to just get your salient points? Thanks.

Thanks, Matt. Really appreciate you joining. This is one. COVID actually helped us in this regard in terms of the world has gone digital. And every – almost every business in every vertical in every region of the world just realizes they've got to make it easier to sell on board, provide next best action to expand loyalty, retention and share of wallet in every industry vertical. And a great example of that we weren't hearing as much in digital CX in telecom and cable maybe 12 to 18 months ago. When we just wrapped up Mobile World Congress, I would say every single big telecom or cable operator that was in Barcelona, their number one or number two was we've got a major initiative around digital CX, more agile, easy to do business, reduce costs, to drive bottom line. What could you do to help us in that? So I think, one, there's just a market trend that says the world has gone digital, they need solutions. That would maybe be the first point. The second point would be everybody is trying to figure out how to reduce silos and harness the data they have to get more share of wallet to improve their NPS. And by having a solution that's SaaS and modular like we have with Xponent, we can go in and say, here's the value we can bring. We can have you up and running in less than one to two months. And it's a fairly low price point to get in, and it will pay for itself in very short order. So that proven ROI that out-of-the-box kind of quick implementation, I think, makes it easier and reduces the barrier to deploy because they can experiment and deploy in one line of business and then reduce the silos and then expand to all lines of business quickly after they've proven it without a giant check. And I think that referenceability, that success is then leading to more of the increased sales pipeline and more wins. So for us, it's really a land grab at this stage, and we've just got to continue to accelerate capacity of our sales, our deployment, our brand recognition, which going back to the question for Matt, the first question, which means we should do more with channel and leverage the amplification that other partners could bring us.

Great. Thanks, Brian. Congratulations on the quarter.

Thanks, Matt.

Thank you. We go next now to Brett Knoblauch at Cantor Fitzgerald.

Hi, guys. Thanks for taking my questions. Congrats on the quarter. It seems like you guys are extremely positive on pretty much every aspect of the business right now so really executing on all cylinders. But you kind of left a lot of your kind of full-year outlook guidance the same. I guess just walk me through the thinking there in terms of what you're expecting kind of as we progress throughout the year? Or are you more confident we can end up at the top end of that range based on what's happening in maybe CX and payments and some of the ancillary services or different kind of industries that you've been expanding into?

Yes. I mean I think – this is Hai, good to be with you today. I think that right now, it's still early in the year. Obviously, we're feeling really good about our performance in the first quarter. But as we highlighted a couple of times, we did benefit, and we anticipated a benefit from a couple of deals that slipped from Q4 to Q1. With that said, as I mentioned in the prepared remarks, even excluding those, we saw some nice robust revenue growth on a year-over-year basis. So that gives us great confidence in our ability to reiterate our guidance. But with that said, there's going to be some tailwinds and some headwinds as we get into the balance of the year. I think we'll have greater visibility in terms of how we're going to perform for the full-year when we meet again next quarter for sure. And then on the expense side, as we mentioned, those inflationary pressures are still with us, right? And these are the things that we're managing through. But once again, given the recurring nature of our business and once those inflationary elements kind of flow through our P&L, we'll have a better sense of what that looks like for the balance of the year when we get together again in 90 days.

Perfect. Really appreciate it. Thanks, guys.

Thanks, Brett.

And we'll take our next question now from Shlomo Rosenbaum of Stifel.

Hi. Thank you very much for taking the questions. It was very strong results, obviously, historically very strong. Just piggybacking on the last question just a little bit just in terms of keeping the guidance the same. You talked, Hai, about the stuff that you anticipated coming from 4Q slipping into 1Q. Was there any pull forward maybe in things that you had expected to be in 2Q or beyond that you were able to close earlier? In other words, is that part of what's contributing to keeping the guidance the same? Or is it a matter of, hey, this is actually kind of what we were expecting, and that's pretty much it.

Yes. I think it's just a matter of this is kind of what we were expecting. In fact, we performed – we knew we were going to have a strong first quarter. It's a little bit stronger than we thought. And hence, we did alter our guidance slightly, saying that the first half of this year will be slightly stronger than the second half of this year, given our current forecast. But there was no acceleration of opportunities into – from Q2 into Q1.

Yes. Maybe the only thing I would add to both those. Hi, Shlomo, hope you're doing well. Thanks for joining. We love the start we got in Q1 and now the key, but there still are macroeconomic pressures. We love the demand signals we're seeing in the market across all the different markets. We love the size of our sales pipeline and performance, and we like what we're seeing. But we also know companies are also looking at how they can conserve, how they can do other things. And so I think it's really, we want to see another strong quarter in Q2, Q3, and that's what we want to continue to perform against and find that balance.

And Mr. Rosenbaum, did you have anything further, sir. Hearing no response. We'll take our next question now from Tim Horan of Oppenheimer.

Hi, guys. Great quarter. Can you give us some color on how Q2 is going so far, if you don't mind?

Yes. I mean I think that once again, early yet in the quarter, but we continue to see positive momentum across all of our different solution set regarding some great adoption. And so far, so good. As expected.

Two more, if you don't mind. Some investors are a little concerned that your customers are under a little pressure and they're trying to cut expenses and they might cut what they spend on you. But obviously, it's kind of counterproductive because you're saving them a lot of money. Can you talk about the – do your customers recognize you can save them a lot of money, it's a way to digitize and automate – and I guess in that regard, can you talk about the payback periods? Are they shortening, lengthening or improving, any color on the ROI there?

It's a great question, Tim. I'll take the first one and then come back on the ROI and is it changing. The good news is any of the customers we serve, even our big two that we report on because they're above 10%, on an overall percentage of their spend, we are a very small percentage of what they do. And so what we do spend a lot of time talking about is not just what they spend with us, which is kind of like what's above the water level on the iceberg, but there's huge spend that they have internal with other vendors below. And what we really spend a lot of time saying is we can actually help you save money. We can help you be more agile. We can help you improve your customer experience and your loyalty and the market share you get from your end customer by doing more with us. And as long as we continue to bring those kinds of proactive ideas, it does exactly what you were talking about in your question, which says, we can bring value, and therefore, it has a great payback. Therefore, it's a good spend. It has a good ROI, and it could accelerate our sales and our sales pipeline. So that's what we're spending a lot of time with customers. It's great to be coming out of COVID and get face-to-face with customers. I've been with two in the last two weeks that I hadn't seen face-to-face in a while, and we're just seeing that kind of engagement, but there is still that pressure. And that's why I think when you then try to maybe correlate the strong Q1 and what you're hearing and not raising guidance at this stage is, every customer around the world is also feeling that pressure. So we get approved every day that we can bring them more value by doing more business with us than competitors or internal spend. So it's still an effort to do. I would say on the second part of your question around ROI, I think in the core cable and telecom space, I think the ROIs are still similar to what they've been. I don't think there's been a fundamental shift – what I do think has changed, more competition, more commoditization of voice and data, more need to recoup the big investment in 5G. Therefore, if you can bring value-adding ideas to help them put more money in their pocket by doing those things like agility, leveraging platforms, reducing complexity and customization, then that's a net benefit to us, we got to prove it every day. I'd say the sales cycles are similar, where I think sales cycles have gotten shorter is on the digital CX because of what we talked about before. The world has gone digital. Everyone knows that and they want to respond accordingly. We've got to prove our solutions. We'll help them do that better than anybody else.

And then just on that point, on some of the cable companies you're talking about going then kind of [indiscernible] from both wireless and wireline kind of converging into one platform. And then, frankly, a lot more of the content maybe over-the-top. Does it make sense to kind of consolidate that down into a wireless platform or more the legacy line platform? And would you guys be able to participate in over-the-top video offerings that are probably put together by cable companies around DNOs or others?

Yes. I think this is one that's obviously been a trend for quite a few years. That's why we invested in a pure cloud platform in Ascendon. We're one of the leaders in anything related to overtop and video. And we're proud with all the deployments and customer wins we have on that. The fact that we serve all the triple – or the majority of the triple-play customers in North America and a huge market share on that, we think, gives us a leg up. And we've had three decades of experience with these customers just proving, we can bring value. We're mission-critical. We don't let them down. And therefore, they can do more with us. And it's nice because we don't have 100% of their business, in some cases, on wireless and others, and we see that as an opportunity where if you perform well, you bring in more value, you're mission-critical and don't disappoint. There's a net benefit that can come over time, but that tends to be a long game, not just a short game.

Thank you.

Thanks so much, Tim.

Thank you. [Operator Instructions] And we will take a follow-up question now from Shlomo Rosenbaum.

Hi. Thank for letting me back in. Just a quick one for Hai. Just there's a lot of cash on the balance sheet. Why was there a need for borrowings of $30 million in the quarter? Is it the location of the cash in terms of stuff you're doing internationally? If you could just give us a little explanation there.

Yes. I think it's a combination of location of the cash as well as just timing of the cash flow. And so that's why you're seeing some of that. But it's based on our revolver, so that revolver is now move up [indiscernible] end of the quarter.

Okay. Thank you.

And it appears we have no further questions today, Mr. Shepherd. I'll hand things back to you, sir, for any closing comments.

Thanks. Thanks for joining the call today. We are excited and proud of our fantastic Q1, and now we're on to delivering a strong Q2. We've got work to do, but we love what we're seeing and we're grateful to all the CSG employees around the world for making it happen and for the customers for giving us an opportunity to do more and more and serve them in a bigger way. Thank you for joining today.

Thank you, Mr. Shepherd. Ladies and gentlemen, that does conclude the CSG Systems International first quarter 2023 earnings call. Again, we'd like to thank you all so much for joining us and wish you all a great rest of your day. Goodbye.