CSG Systems at Oppenheimer Conference: AI Drives Future Growth

On Monday, 11 August 2025, CSG Systems International Inc. (NASDAQ:CSGS) participated in the Oppenheimer 28th Annual Technology, Internet & Communications Conference. During the conference call, CSG’s CEO Brian Shepherd discussed the company’s strong financial performance and strategic growth plans, while acknowledging challenges in revenue growth. The company remains optimistic about leveraging AI and expanding into new markets to boost profitability.

Key Takeaways

• CSG reported strong double-digit growth in profitability, EBITDA, and EPS.
• Revenue growth is currently at 2-3%, below historical averages, but expected to improve.
• Significant growth in free cash flow with a 20% year-over-year increase.
• CSG is expanding into global telecom and diversifying into financial services, healthcare, and retail.
• AI is expected to enhance efficiency and margins, with potential EBITDA margins of 28-30% by 2030.

Financial Results

• Double-digit expansion in operating margins and EBITDA.
• EPS also saw double-digit year-over-year growth.
• Free cash flow increased nearly 20% compared to the previous year.
• Current revenue growth is at 2-3%, with expectations to return to mid-single-digit growth.

Operational Updates

• CSG serves over 75% of the US cable broadband market.
• Revenue from non-cable/telco verticals increased from 7% in 2017 to 32% in Q2 2024.
• The company has secured six to eight deals on its SaaS platform in global telecom.
• Focus on digital disruptors in media and adoption of public cloud by telecom players.
• Digital customer experience and payments businesses are growing at strong double-digit rates.

Future Outlook

• Targeting mid-single-digit organic revenue growth.
• AI is expected to impact all business areas, driving profitability and cash flow.
• CSG is pursuing disciplined and opportunistic acquisitions.
• Potential expansion opportunities if a merger involving one of CSG’s customers occurs.
• Plans to grow globally in customer experience and payments through channel partners.

Q&A Highlights

• CSG competes with companies like Adobe in the customer experience sector.
• AI is being explored for cost reduction and new revenue opportunities.
• Challenges and opportunities in the telco sector, including slow cloud adoption.
• Strategies to improve digital engagement and cost synergies in telecom services.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call discussions.

Full transcript - Oppenheimer 28th Annual Technology, Internet & Communications Conference:

Tim Horan, Analyst, Oppenheimer: Afternoon, everybody. Tim Horan. I am the communications, digital infrastructure, and now satellite analyst, here at, Oppenheimer. As the whole world kinda converges on top of cloud, it’s a little difficult to know exactly how to cover the sectors, but this is where we’re at right now. And luckily, it is a growth sector thanks to AI and AI driving base speed all things.

My pleasure to be hosting the CEO of CSG. We have Brian Shepherd. Brian, I know we just talked last week, at length after your earnings, so we’ll we’ll probably just continue that conversation for a bit and get into a lot more detail. So, you know, I find these forty minute sessions incredibly useful, actually, and I know our investors But thank you, Brian.

And, Brian, I guess maybe we can just start out. Can you maybe just hit on the highlights of the quarter and what you thought, you know, the most important takeaways, you know, were were?

Brian Shepherd, CEO, CSG: Yeah. No. Thanks, Tim. Great to be here. The big takeaways for us is even in, you know, the current macroeconomic environment, double digit expansion of our profitability on the op margin, double digit expansion of EBITDA, double digit growth, year over year on the EPS, and almost 20% through the first half of the year, 20% year over year growth in free cash flow.

We’ve been telling investors for a while, we love what we’re seeing in the business, mix shift to more SaaS, strong operating discipline. We expect not quarter turns of the wrench, but half turns of wrench on profitability and cash flow, and we’re delivering on that, and and that’s gonna continue. And that’s our expectation. On the growth side, we we like what we see on the sales side and the pipeline. On the revenue side, we’re a little bit lower than what we historically had delivered over the last prior three years of about 5.3% organic.

We’re operating more in the two to three percent range. What we’ve told people is there’s no, negative implication on our our revenue, view of the market, but there is a little more headwind coming from a few different areas. So we’re likely to operate over the next couple quarters more in that two to four percent, heading into next year as we try to grow back to mid single digit organic revenue. But regardless, even with some of that current demand signal out there and some of that noise, strong double digit across the board on cash flow and profitability. So we love what we see.

Tim Horan, Analyst, Oppenheimer: Oh, very good. And before we go into the, you know, primary areas of growth and how we get back to the mid single digit, Can you just talk about your, you know, two or two to four different major business units, you know, what they do and, you know, roughly you know, we’ll just talk about them in order of size, I guess. Right. Yeah. Yeah.

Brian Shepherd, CEO, CSG: Yeah. So for those that don’t know our story as well on CSG, we our our claim to fame going back three decades has been the undisputed industry leader in The US cable broadband market. We now serve over 75% of all, of all the market share, with players like Comcast, Charter, others. And some people ask, well, you do the billing. It’s like, no.

We’re not the biller for Comcast, Charter, and The US cable broadband. We are their ATM. We are their backbone, all things digital customer experience, product catalog, order management, billing, every truck role, every technician that goes into the home, printed statements, electronic statements. You name it, we touch it. That was our claim to fame.

And the real strength of that is a multi tenant product solution that grew with the industry. We’ve served those giants for three decades. That’s our largest. We then said starting, back in the early, February, we’re gonna do the same thing in global telecom and become that, disruptor, if you will, that brings a a simplified product platform stack, little different than an Amdocs or some of our other competitors to simplify the experience but do the same things. And you’ve seen us since 2016 really grow significant new logos where we’re replacing competitors and winning more market share both on the b to b side as well as on the consumer side of global wireless and telecom.

Those are the two larger segments. We then, going back about seven, eight years ago, said, we think that there are similar business needs in other recurring industry verticals, financial services, insurance, government, health care, retail, big tech. And so we started to invest and build SaaS platforms in both the digital CX and payments to serve those multiple other industry verticals who also have a similar need to have more digital, lower cost to serve, more agile approach, and we started to bring significant value to those other verticals in data driven CX customer experience and through our payment gateway, payment processing businesses that’s kinda driven revenue diversification from about 7% of revenue in 2017 coming from non cable, non telco to this, last quarter. For the 2025, we’re at 32%. So it shows how how quickly we’re improving both on the industry vertical, diversification and reducing our concentration from some of our bigger customers.

Tim Horan, Analyst, Oppenheimer: So, Ryan, can you just go back to, what are the, you know, what are the three or four key things you do for, like, each one of these industries? I I I think it’s pretty similar. But Yeah. I I know you started to describe it with cable. Can you just go into a little bit more detail of, you know, what exactly you do for cable?

Brian Shepherd, CEO, CSG: Yeah. And I think it’s a great way to kind of tie it all together with reflecting on our strategy. Our strategy and what we believe is if we have a vertical specific integrated technology stack that is increasingly SaaS, everything from onboarding a customer with product catalog, having all the product offers, everything around order management, how you can activate or enable a, consumer to initiate service with the brand, billing, AR, collections, monetization, statements, that side, that’s that end to end workflow that when you deploy it, it becomes mission critical to those brands. That’s what we started out doing in The US cable, and we did touch every part of their customer experience and their operations. And that’s why we’ve been sticky for going on three and a half decades with these customers.

We then take the same business model with, in some cases, different products and tie again that fully integrated digital experience and monetization platform from start of onboarding all the way through the monthly processing of their payments and bills for wholesale, enterprise business, wireless, and consumer, we do it all. In these other verticals, this is where our strategy our inorganic strategy started to kick in. We use our digital CX and payments to get a foot in the door. And over time, though, we wanna acquire, build, or cross sell the monetization platform so we can do that same onboard, activate, deal with customer issues or resolution, upgrade, downgrade service, and then do the the the monetization. An example, we expanded into media and, do a lot with some of the meeting players, including Formula One.

So now on race day, every subscription, whether it’s a individual race or an annual subscription for Formula One, we handle the subscription. We handle the billing. We handle the digital experience. We handle the wallet, and we do that end to end. In some of these other verticals where we may just get a foothold at JPMorgan Chase, we’re not doing the monetization.

We’re doing the digital experience engagement around fraud alert notification and some of their processes around insufficient funds or digital lending, in an online world. With pharmacy retailers like Walgreens and CVS, we’re doing things like helping them with prescription abandonment, notifying consumers on when there’s a prescription refill, using their channel of choice, driving both revenue and lower cost engagement. With that and what we’d like to do over time is expand and have some of the monetization engines that we’re more sticky, more integrated, bring more value in all of these verticals. So we do take a different approach, depending on the vertical, but we’re trying to get to the same strategic endpoint.

Tim Horan, Analyst, Oppenheimer: So, you know, it sounds like you’re doing an awful lot more of their IT, of your customers, both front end and tying it into back office, a little bit more to automate everything. I mean, how much like, I guess, the cable industry, you probably doubled and tripled what you actually do for them in the last thirty years. Is there much and, you know, maybe even describe that. And is there much more to go, or or is there many more things you can do for a cable or telco industry and these other industries?

Brian Shepherd, CEO, CSG: Yeah. We believe, obviously, different areas of our business and different verticals will have different headroom and will have different growth rates based on industry and based on where our position is, whether we’re the de facto leader like we are in US cable, or we’re more of the disruptor brand in some of these other verticals. So if I just take them in the in The US cable broadband, we do we are the undisputed leader. No question. We moved 9,000,000 subscribers off of Amdocs at Comcast five or six years ago.

We moved 14,000,000 subscribers off a competitor at Charter, have a 100% of their triple play, but we’re still not fully penetrated. We don’t have all their enterprise b to b. We don’t have their wireless today. We don’t have all of our digital CX solutions deployed. So even though we are the undisputed leader, there’s still headroom for growth even in a competitive US cable broadband market.

On global telco, we’ve made huge inroads over the over the last ten years. We won m MTN. We won, Telstra. We won, Mobily in Saudi Arabia. We won six or eight brands on our our SaaS platform, industry leading, only true native SaaS platform for monetization and global telecom in the last couple quarters.

And yet, we still have massive headroom to of growth to take from either internal or from competitors. And in these other verticals, a, like financial services, health care, retail, government, tech, they’re faster growing than cable and telecom, number one. So the natural growth in the industry helps us, and we’re a fraction of the market share. So when we’re serving giant brands like JPMorgan Chase and CVS, Walgreens, and many others, then the question is, we could serve everybody in the industry. Why aren’t we?

And that means we have more opportunities on the sales side. We gotta execute even better to just keep growing even faster in those on the organic side, and then look for smart, disciplined capital deployment that can bring great technology solutions in to broaden our integrated reach in these industry verticals.

Tim Horan, Analyst, Oppenheimer: So the telco, you have the only native SaaS platform for someone to, I guess, run a wireless company. What percentage of your IT are are you are there your their CX or their operations are you doing now? Like, I know you said there’s a major area of of growth there. Yeah. How else do you grow, like, in that that vertical?

Brian Shepherd, CEO, CSG: Yeah. On the SaaS side, this is where we see one of the some of the fastest growing opportunities for us. We started out back in 02/1516 building. We just thought that the industry, global telecom, was need gonna need to go through a massive business simplification, simplify it didn’t start with technology. It starts with simplifying the product offer, simplifying the business processes that could lead to a more agile, lower cost platform product based approach that could leverage SaaS.

And to be honest, we were four or five years ahead of the curve. So what we did while we were waiting on the industry to realize this was what was gonna help them drive price commoditization on the telco side, make more money, be more responsive, be more digital, easy to do business with. We sell start selling to a lot of the more digital disruptors in media, got a great placement in the media segment. And then what we’ve seen over the last two or three years is global telecom players start to embrace public cloud. Now some of our competitors, they’ll talk about their cloud offer, but the reality is they’re taking on prem solutions and taking them to a private data center or trying to take them to a cloud from a data center approach, which still has economic value to our customers, but it’s a completely different approach than building a cloud native monetization.

We’re on AWS. They’ll try to confuse that, but the reality is they don’t have that. And and we’ve won six or eight great deals that we think will become the the proof points that this is the path of the future. So lots of Still in the early innings of adopting cable, cloud in the core for monetization in telco, but we like where it’s headed.

Tim Horan, Analyst, Oppenheimer: Yeah. Well, you know, telco is kinda interesting. I mean, it might be a situation where outside The United States, they’re substantially more efficient than inside The United States. And I guess these six to eight wins, are they generally for new start up divisions, or have you had many incumbents more to port over to the platform?

Brian Shepherd, CEO, CSG: I mean, it’s it’s a combination. We announced in Brazil a really cool MVNO solution where we had one of the leading wireless players actually want to, drive an MVNO solution through banking partners. They did a a bake off. They wanted a more agile, more modern cloud solution. We beat one of our larger a larger cloud competitor that’s not one of the traditional monetization platforms, and we deployed it in record time ahead of schedule.

And now that creates other opportunities. We’ve also announced two wins in in The Nordics with, with Telenor and with Lisay that actually are more incumbent traditional kinds of models. So it’s kind of a combination. We did announce wins in in the Asia Pacific market that was more of a traditional wireless deployment. So we see a combination of both.

But I think the early wins we’re seeing are players that really say the cost pressure that they’re facing in their local telecom market and the the consolidation, the increasing investment that’s having to go into handsets and network build outs, and ARPUs and growth is getting squeezed. So these these are the players that basically say for us to be competitive and become more digital and lower our cost to serve, we can’t go with the complexity of a service or managed service model. We gotta go with a plat product platform model. And we think that’s the trend that will clearly play in our favor over a longer period of time. But this will be measured over the next three to ten years relative to, say, a competitor that has more of a service or managed service model that wants to wrap it with the cloud story, but the underlying technology is not cloud.

Tim Horan, Analyst, Oppenheimer: And how much more efficient and better is the product on your platform? I mean, versus maybe, I guess, you’ve only measured what they were doing before, and then maybe it’s a little hard to measure. But, yeah, any sense would be helpful. Yeah. I mean, it

Brian Shepherd, CEO, CSG: it really is not just about the product stacks of us, of our customers. The core of the strategy and there’s a fantastic article that the CEO of one of our customers, Mobily in Saudi Arabia, just put out in the last, week on LinkedIn that talks about what they’re doing to fundamentally transform and all parts of their business, become a digital service operator, completely transform the engagement experience, be more agile, lower the cost, change their product offers, be more dynamic. That is what we believe the winning approach of global telecom in every market’s gonna have to go through. And so it starts with a fundamental belief that to compete and win big in global telecom over the next ten years is gonna take a rethink of the business, starting with business process and product offer. If you do that, then you gotta reenvision your entire tech stack, and you can’t go with a highly customized services based, solution.

And so if an operator does that holistic thing, not just thinking about a technology upgrade, You’re talking about you could re you could drive 20 to 50% of the cost out if they take that kind of bold approach, but it is that broader kind of reinvention of the business. And then our technology would support them in doing that. It is not the only driver of them doing that, but we think they have no choice. It is a business imperative.

Tim Horan, Analyst, Oppenheimer: Yeah. No. I would I would I would agree with you, and and you’ve got plenty of examples of of your customers doing this very successfully. Right? I mean, it would seem to be a no brainer for management teams to wanna do this.

I mean, I know it’s a lot of heavy lifting. But that that 20 to 50%, is that for, I I guess, each individual thing you’re looking to do? So if it’s customer care, you can improve that. If it’s billing, you can improve it. So the 20 to 50, would that apply to SG and A primarily, or could you also apply that to kind of network operating cost?

Brian Shepherd, CEO, CSG: I wouldn’t say on the network. On the network cost itself, there’s still big costs on the build out. We’re not, we don’t go into we’re not a NAP. We don’t compete against Ericsson and Huawei and, Nokia. We’ll have we don’t we’re not a major player in OSS.

We’ll do some things around service fulfillment, policy management that really ties in more with billing and monetization. But it’s really the bigger cost. They can lower their tech stack, but text the tech cost stack cost is relatively small. It’s those other areas. It’s it’s the retail store operations.

It’s their contact center. It’s becoming more online and digital, which can take out a majority of their whether it’s in their COGS line or in their SG and A line or their support cost probably differs by operator, but they can make a major dent in that. And we also think their IT and their tech costs will actually be lower as well because you don’t have near the complexity and near the cost to customize and then change every time business wants to roll something out. Much more agile, different approach. It’s diff it just it’s fundamentally different business model that we would have relative to, say, a competitor like Amdocs.

Tim Horan, Analyst, Oppenheimer: So I’ve been doing all the talking. Guess, you know, where are you focused on for the next two or three, you know, big opportunities to drive that revenue growth back up?

Brian Shepherd, CEO, CSG: Yeah. It’s it’s really a couple. First, even though a lot of our investors ask us, you know, hey. So, you know, we got we see Comcast and Charter being the fastest growing wireless in The US market. We see T Mobile, Verizon, AT and T being the fastest growing broadband, and you see net broadband losses on our on players like Charter and Comcast.

Our view is, first, we just call it like it is. That does drive some smallish headwinds to our revenue that’s contributed to us being more in the two to 3% revenue growth versus the 5% we were for three straight years. So we’d love to get back. But what we actually like on that is it’s actually had diff competitive difficulties that like that that actually lead players like Comcast and Charter to mount a much more formidable competitive response and maybe open up the aperture to things that we don’t have. We don’t have wireless today.

We don’t do everything on the enterprise or b to b side. And so with the value we’ve brought these players over three decades, we actually think you could end up with some smallish headwinds and potentially lead to much bigger step ups. Obviously, one of our customers has announced a major merger with Cox. If that goes through, we don’t have, the the billing and monetization platform for Cox. That’s on a competitor.

That gets consolidated and that merger goes through, that could be an opportunity for us. In the global telecom, I mean, I think we’re just getting started on the market share. We’re gonna, continue to win big. The good news is replacing your core ATM and monetization platform is still risky, and it’s still hard. And so, therefore, it is very sticky.

And, therefore, what we see in global telecom, in any given point in time, we’ll have between five and ten major full stack transformation sales pursuits that we’re in. We won’t win all those. Not all those will even make a decision. But what that leads to is it tends to lead to, at any point in time, us working on five or six major billing system transformations. We continue to see that even in a tough macroeconomic environment.

But we gotta continue to have a good sales win rate and continue to deploy with great success in those. And then on the CX and payment side, those have been strong double digit growth businesses organically. They can continue to be that. Every now and then we might have a quarter that’s more in the mid to high single digits and they’ll bounce between rule of 40 and rule of 30, kind of performance. But we love the growth, and that’s what’s driving this big step up in revenue diversification.

So that’s on the organic side. And then what customers have come to expect is we’re very disciplined and very opportunistic on both small, mid, and larger acquisitions. We’ll continue to deploy capital. And where there’s an opportunity to buy a great asset at the right price and integrate it and accelerate the strategic growth, that’s exactly what we have and we’ll continue to do.

Tim Horan, Analyst, Oppenheimer: Really, really, really, really helpful. And I I guess just getting back to the telco sector. Yeah. Thanks for that color on that. But and I know the industry is extremely conservative.

But, you know, you would think at this point, it should be kind of a no brainer for them. Like, you know, we’ve been through COVID. I mean, the cloud is pretty well proven at this point. There’s not a huge amount of growth out there. Like, you know, why not digitize a business as aggressively as you possibly can?

Like, wouldn’t you think we’re hitting the s curve adoption cycle of that at some point, I guess?

Brian Shepherd, CEO, CSG: I I think I think the answer should be yes, and I think we’re hitting the early inflection point. But the reality is if you think about kind of what I shared is it’s really not about tech refresh. It’s to really unlock the competitive advantages that really they need to do. It’s a complete business overhaul. Changing their product, offers, changing their product catalog and how they go to market, changing their business processes from retail stores and online, which then leads down to a pretty big transformation of their technology stack.

And there’s a there’s hundreds of systems in all these. So the answer is, do I believe every telecom operator and management team in the world knows this is what they need to do? Yes. 99% of them know it. But that’s a lot of work.

It’s hard to do, and they all have they’re all in different stages of do they do that in a series of steps? Do they do that as a holistic business transformation program? Do they wanna believe the sales pitch of their incumbent and take a chance on the incumbent and then put some newer edge systems around the top, or do they wanna replace the core? They’re all going they’re all trying slightly different approaches even though the end goal is the same because it’s a lot of work. I mean, most of these transformations are two to four years in the making, and they know some sometimes there’s setbacks along that journey.

So I think that’s why we still even though it’s clear what they need to do, the speed and pace of what you’re gonna do that over the next three to ten years does vary a lot.

Tim Horan, Analyst, Oppenheimer: So outside of the the traditional business, the new growth business is 32% of revenues. What, I I know you touched on some of them, but what are the two or three largest verticals there that you serve now? And are there new verticals you’re looking to get into?

Brian Shepherd, CEO, CSG: Yeah. So there’s there’s several. One, we continue to do a lot in the media space, like with the example I gave on the Formula One, where they use our Ascendiant AWS cloud platform and handle all their race experience, whether it’s in subscription management. Continue to be significant opportunities in media. We’re doing a lot in financial services across different parts of our offer.

We talked about on the CX side helping JPMorgan Chase with fraud alert notifications and managing that process and how they’ve expanded with us. We’ve also talked about big deals we’ve won, like deploying at one of the larger banks in Australia. They they decided they needed to redo their deal management and pricing for SMB and their b to b, side of their business. They looked at a lot of solutions. They selected our Ascendon billing solution and our quote and order platform on the banking side.

So Ascendon was initially built for telecom, cable, and media. But what we realized, there’s actually similar needs with both the monetization and pricing and our quote and order offer that can be deployed in banks. So financial services is a huge one for us, Tim. Second one would be pharmacy retail and health care. We started out with our CX and digital communications, digital engagement platform, helping large pharmacy retails retailers with appointment scheduling and vaccinations because they had an influx of customers, when’s their availability, how do you, enable customers to sign up and then get them to come in.

We then, after that, transition to that to help them with prescription abandonment to be able to take all that rich data they have and target consumers to then around prescription refill notifications through their channel of choice and drive revenue in a lower cost digital stack. We’re doing similar things around helping doctors and physician offices to deal with, in a digital way, appointment reminders because one of the biggest, revenue losses there is missed appointments. And so that pharmacy and retail and health care are big growth verticals for us. We also have pretty big presence in the technology and government space. So what we’re doing there is we have great solutions.

We can get, I would say relatively modest price points, get a foot in the door, anywhere from 500,000 ARR to 2 or 3,000,000. We perform well on a couple targeted use cases, then we expand into these those others. And when we serve those giants, we then get great customer testimonial and references to try to go get other large or mid sized players in those same verticals.

Tim Horan, Analyst, Oppenheimer: And I’m I’m assuming I mean, a lot of what you do is kinda new white spaces and, stuff. But, I mean, have you also measured the productivity improvements there, you know, versus what they were doing previously? And is it kinda similar to that 20 to 50%?

Brian Shepherd, CEO, CSG: There, it’s a little different in terms it depends on the vertical and the use case. For example, with one of the largest tech players in the world, they needed help. They have lots of product lines. They were having an issue where they had lots of data. They have lots of different call centers and one eight hundred numbers by product.

And what they were having trouble with is with effectively their first call resolution and doing massive amounts of warm transfer because a consumer would come in. They would hit something wrong in the a IVR. They would get to the wrong agent. They would spend a ton of time. They’d have to do a warm transfer.

And we we were able to work with them on some data driven solutions we have, natural language processing and speech recognition to actually help them get the consumer to the right skilled agent in the right product line. What they saw from one of our biggest competitors was they went from a high 40s first call resolution and not needing a warm transfer to upwards of high 80% that drove tens of tens of millions of dollars of cost savings on a call center side with a more digital engagement and getting to the right agent. So the metrics are different, but they are just as meaningful and large. And that’s why we’ve been able to maintain double digit growth on that side of the business because these things pay for themselves extremely quickly, and they tend to get deployed in three to six months. It’s not, you know, eighteen months to three years like replacing a billing system for a cable or wireless provider.

Tim Horan, Analyst, Oppenheimer: And I’m assuming there’s a lot of room to grow in each one of these vertex existing verticals. You’re probably just scratching the surface.

Brian Shepherd, CEO, CSG: There there are. I mean, we’re we’re on a market share basis. We’re we’re not even on the, the radar, you know, not beyond even single digit. These are large verticals. I I would say both on the payment side and the CX, we’ve had a lot more success so far in The US market.

CX in particular, we think there’s an opportunity with channel partners as we’ve proven success with large brands, but CSG doesn’t have the reputation in financial services or insurance or health care or retail or government or tech in these in in other global markets. Working with channel partners say, hey. We’ve got the proven solution. We’ve got the proven use case. You can wrap some of your technology or your capabilities around ours, pull us in.

That’s where we’re trying to expand globally with those businesses, but do it in a smart, high return way with more of a channel approach.

Tim Horan, Analyst, Oppenheimer: So, Brian, just just on that point, I I guess, what is it that you’re doing? Like, in CX, there’s hundreds of companies going after it. Right? And AI is seeing major productivity improvements, but, like, new entrants kinda coming in. Like, what what’s your core competency?

What do you know how to do differently than, you know, someone who’s been a traditional contact center supplier not Yeah.

Brian Shepherd, CEO, CSG: I mean, our our real strength is and and we would compete against an adobe what Adobe does on the marketing side is what we do on the digital customer engagement side. And so, we take massive amounts of structured and unstructured data. We pull them into our our data platform. We then have advanced analytics to, in real time, referred to often as journey analytics and journey orchestration to get the insight at an individual consumer level, whether it’s trying to drive an upsell, why whether it’s trying to identify a customer dissatisfaction event or predict what it is they want when they want it through their channel of choice. We then did we also have the solutions that engage whether it’s text, whether it’s an I’m whether it’s a WhatsApp, whether it’s an email, whether it’s a phone call to then do the outreach to the consumer to solve a targeted use case.

And the best way, though, to really bring it home is think about the use cases. In telecom and cable, two of the the biggest issues are promo roll off and bill shock. And so what happens is if I get a wireless plan, I get a deep discount for six, twelve months, and then I roll off that promotional period, my price goes up. Guess what? Drives a call to a call center, drives a bill shock experience, higher risk of churn.

And so by using advanced data that we get from our billing systems, from their data warehouses, and from other social and unstructured data, we can actually help them predict when there’s gonna be a bill shock or churn event and actually give a targeted digital outreach to either avoid the call center call, reduce the churn event, or educate the customer in a lower cost way. With the pharmacy yeah.

Tim Horan, Analyst, Oppenheimer: Please. New new competitors coming in, you know, that are doing something similar? Or like

Brian Shepherd, CEO, CSG: I mean, we’ve we faced, competition from it could be in Adobe. What Adobe really excels on is more of the marketing customer acquisition side. So our biggest issue there is some big brand has deployed them for marketing customer acquisition, and then they say, oh, well, we can do that digital experience, those other use cases. And what we find, they’re not as effective as us. But we have to overcome that if they’ve already become the incumbent on the sales and the acquisition side.

We are seeing some, I would say, slowing of sales cycles in some areas around just AI for some of the brands that say, hey. Maybe we could use new technology in AI to try to do this ourselves. What we find is with our ROIs and our value based selling and how we’re able to quantify, rarely can they, but sometimes that might lead to them trying some things like that. And so there is a lot of experiment ation just like we’re doing in terms of how we run our own r and d testing and using AI to make ourselves more efficient. We are seeing companies trying that.

But so far, the the success we have on a targeted use case, when we go in and say, this is a giant problem, they tell us the size, the magnitude of the problem, and we show them they can solve that in less than three months with typically a six to twelve month payback or less. Even if they go try it on themselves, often, and they come back to us and drive. So for sure, there’s competition in this, in the current space, but we we are performing well. We’re closing great new wins and doing lots of land and expand in this, but we just have to keep performing better and keep working hard because it is a there there is there are a lot of choices out there for sure.

Tim Horan, Analyst, Oppenheimer: So, you know, just getting back to the cable side, I was pretty cautious on Charter for the last seven, eight years. I upgraded them a little soon, but, you know, it it seems to me that their product is improving dramatically. We’re converging, obviously, fixed broadband and fixed services with mobile. We’re converging, I think, legacy linear TV with over the top TV, I think. One, I’d like to know if you kind of agree with that or not.

And secondly, that would seem to be a pretty big opportunity for you guys to do more for Cox and ultimately Charter if it’s successful, but not to put words in your mouth.

Brian Shepherd, CEO, CSG: No. I mean I mean, you look at it. You look at the strategy that Charter’s taking. You look at the operational discipline, truly one of the best operational performers across the market. And when they they hit something that snags them, they just get real intentional and go solve it.

So, I I think you’re right on saying there’s huge upside, in Charter stock. We think there’s probably been an overreaction, but I’ll let investors make that decision for themselves. For us, we’re critical to what they’re doing. We’ve had a almost a thirty five year relationship with them. Love that they made a decision to move 14,000,000 subscribers off a competitor three or four years ago to us.

We converted those in less than eighteen to twenty four months. And if the Cox merger goes through, which everything says it should, we think that could be a net benefit from us. And and the fact that we don’t have wireless, we don’t have all their enterprise today, you know, we love our opportunities, but we what we know, we’ve gotta earn it. If we bring more value, we outperform our competition, it should work out well from us over some period of time.

Tim Horan, Analyst, Oppenheimer: So they are using a competitor for their wireless, services. I mean, why why should they go with you, and and when could they kinda converge everything?

Brian Shepherd, CEO, CSG: First, that’ll be their choice. What we talk to them about is, you know, if you have your triple play on CSG, you’ve got your wireless on another competitor, Amdocs, this case, you know, could you actually get cost synergies by not having two systems, not have to integrate everything twice? Could you improve your digital engagement with your customers and do that? You know, that’ll be their decision. Obviously, we have our beliefs, what we have to do is just keep bringing ideas.

Maybe they’ll make that decision someday. Maybe they’ll never make that decision. Time will tell. We just keep working it. But what I would say, if I go back ten years ago, the industry used to think they used to need to have two billing platforms for their triple play, And that was a philosophical belief.

And then pressure, market changes, the the opportunity eventually led them to move massive volume off our competitor onto us. We’re trying to run the same playbook on wireless. Time will tell. We just gotta keep working it, keep bringing in value.

Tim Horan, Analyst, Oppenheimer: So I save the best for last. AI, is it reducing your expenses and or driving new revenue opportunities? Yeah.

Brian Shepherd, CEO, CSG: Combination of both. I mean, first, it’s table stakes. We have to build more and more real time insights driven into all of our platforms, whether it’s our billing and monetization, whether it’s our CX or our payments. We’re doing that. What we’re seeing is on I would say, so far, the double digit expansion of our profitability and free cash flow is actually coming from more, SaaS mix shift on the revenue side and just great operational discipline.

But the breakthroughs we’ve seen on AI in the last three to six months, we signaled that we believe by 2030, we could see EBITDAs north of ’28 to 30, and we believe we could have an op margin approaching ’24, 25. We have not committed to that yet or the exact horizons. But what we said is if we we believe we can continue the SaaS revenue mix shift, the operational discipline, you’ll start to see AI impact every part of our business from CFO, accounting, payroll, HR, marketing, how we do compliance and legal, all the way through then how we do our r and d, engineering, test harnesses. We think it’s gonna have a massive impact. So far, the big growth in profitability has not come from AI, but you’re gonna see it start to come in the coming quarters and years.

That’s why we’ve been so bullish, that, investors will see this continued double digit free cash flow and profitability expansion from CSG.

Tim Horan, Analyst, Oppenheimer: And just out of curiosity, what’s happened in the last six months in AI? Is have the models just gotten so much better and and yeah. Where where are we?

Brian Shepherd, CEO, CSG: I I think we’re just everybody’s in the early adoption curve of looking at all the use cases and then starting. You’re seeing more experimentation inside our company, the large language models. We take an approach where we work with some of the large players to use their infrastructure and their models. And then we have unique proprietary capabilities on our side. We see an ecosystem of other innovative tech providers, that can actually help us with some of the agentic capabilities on QA and testing and R and D that is absolutely game changing.

And so I think it’s just the it’s all of the above, Tim. I think everybody’s advancing. And I think what we thought might be possible eighteen months from now, we’re now sitting here six months later saying, this is possible in the next couple quarters. Obviously, it still takes you know, it’ll take a few years to fully ramp across every aspect of our business, but we’re now, like, it’s not two years out. It’s one or two quarters out.

Tim Horan, Analyst, Oppenheimer: We are, out of time, Brian.

Brian Shepherd, CEO, CSG: Jim, always great to catch up with you. Thanks for the time, and, thanks for hosting us.

Tim Horan, Analyst, Oppenheimer: Absolutely. Thank you so much. Thanks.

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