Customer experience software company CSG Systems (NASDAQ:CSGS) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 1.5% year on year to $299.5 million. The company’s full-year revenue guidance of $1.23 billion at the midpoint came in 8.1% above analysts’ estimates. Its non-GAAP profit of $1.14 per share was 12% above analysts’ consensus estimates.
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CSG (CSGS) Q1 CY2025 Highlights:
- Revenue: $299.5 million vs analyst estimates of $295.2 million (1.5% year-on-year growth, 1.4% beat)
- Adjusted EPS: $1.14 vs analyst estimates of $1.02 (12% beat)
- Adjusted EBITDA: $64.34 million vs analyst estimates of $59.35 million (21.5% margin, 8.4% beat)
- The company reconfirmed its revenue guidance for the full year of $1.23 billion at the midpoint
- Management raised its full-year Adjusted EPS guidance to $4.78 at the midpoint, a 2.1% increase
- EBITDA guidance for the full year is $263.5 million at the midpoint, below analyst estimates of $265 million
- Operating Margin: 9.8%, in line with the same quarter last year
- Market Capitalization: $1.79 billion
StockStory’s Take
CSG’s first quarter results reflected the company’s ongoing shift toward higher-margin SaaS solutions and expanded presence in non-telecom verticals. Management noted that 33% of revenue now comes from industries outside of cable and telecom, up from 30% a year ago, which CEO Brian Shepherd described as a record for the company. Shepherd emphasized customer wins in areas like payments, healthcare, and transportation, citing extensions with Mediacom and Liberty Latin America and a new deal with the North Texas Tolling Authority as contributors to growth. These developments, alongside improved operating discipline and cost efficiencies, drove the improvement in non-GAAP operating margin compared to the prior year.
Looking forward, CSG’s guidance for the remainder of the year rests on continued momentum in SaaS and recurring revenue streams, as well as disciplined cost management. Management stated that margin expansion will be fueled by a mix shift toward higher-margin SaaS deals and ongoing process improvements, with CFO Hai Tran projecting a clear path to achieve non-GAAP adjusted EBITDA margins above 25% in the coming years. Shepherd added, “We absolutely believe there’s a clear pathway for CSG to achieve at or above the upper end of our 18% to 20% non-GAAP adjusted operating margin over the next several years,” and highlighted that revenue visibility remains high due to the mission-critical nature of CSG’s solutions.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to expanding into new industry verticals, a growing SaaS revenue mix, and focused cost optimization measures.
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Revenue diversification progress: CSG increased its share of revenue from non-cable and non-telecom verticals to 33%, with notable wins in healthcare, financial services, and transportation. This broadening of customer base is reducing reliance on legacy telecom clients.
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Large customer concentration declines: The top two customers, Charter and Comcast, now comprise 37% of total revenue, down significantly from 49% in 2017. Shepherd clarified that this is not due to declining revenue from those clients, but rather faster growth in other business areas.
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SaaS margin expansion: Higher-margin SaaS product sales are driving company-wide operating leverage. CFO Hai Tran pointed to improved procurement, increased productivity, and process reengineering as key contributors to better margins.
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Payments business momentum: The payments division expanded its merchant base by 13% year-over-year, reaching 135,000 merchants in the quarter, supporting both revenue growth and further diversification.
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Cash flow improvement: Non-GAAP adjusted free cash flow marked its strongest first quarter result since 2018, attributed to margin gains, improved working capital, and disciplined vendor management. Management expects continued double-digit free cash flow growth as profitability scales.
Drivers of Future Performance
CSG expects continued growth driven by SaaS adoption, recurring revenues from diversified verticals, and further operating efficiency gains.
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Broadening industry exposure: Management expects further expansion into industries like healthcare, payments, and transportation to drive both top-line growth and reduced revenue concentration risk. This is supported by recent contract wins and ongoing initiatives to address complex customer needs in these sectors.
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Margin expansion initiatives: The company plans to maintain or improve non-GAAP operating margins through a mix of cost discipline, greater SaaS penetration, and a shift to more asset-light operations. Shepherd pointed to continuous process optimization and targeted R&D investment as foundations for achieving margin targets.
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Disciplined M&A approach: Management signaled ongoing interest in acquisitions that complement CSG’s domain expertise in monetization and customer engagement, but stressed a commitment to only pursuing highly accretive, value-adding deals. The company’s strong balance sheet and new revolving credit facility provide flexibility for such opportunities.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace and scale of new customer wins outside of cable and telecom, (2) the degree to which SaaS solutions and payments drive further margin expansion, and (3) management’s execution on disciplined M&A to support diversification. Sustained free cash flow improvement and reduced customer concentration will also be important indicators of long-term progress.
CSG currently trades at a forward P/E ratio of 13.6×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).
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