Customer experience software company CSG Systems (NASDAQ:CSGS) beat Wall Street’s revenue expectations in Q1 CY2025, 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.
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
Free Cash Flow was $7.07 million, up from -$34.13 million in the same quarter last year
Market Capitalization: $1.66 billion
“Team CSG’s strong first quarter results enabled us to raise our 2025 non-GAAP profitability and EPS guidance targets. We grew revenue nicely at customers outside of communication service providers (“CSPs”) with a third of our revenue now coming from big, faster growing industry verticals providing a buffer against today’s macro-economic uncertainty.” said Brian Shepherd, President and Chief Executive Officer of CSG.
Company Overview
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ:CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.
With $1.20 billion in revenue over the past 12 months, CSG is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.
As you can see below, CSG’s 4.2% annualized revenue growth over the last five years was mediocre. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.
CSG Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. CSG’s annualized revenue growth of 3.4% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
CSG Year-On-Year Revenue Growth
This quarter, CSG reported modest year-on-year revenue growth of 1.5% but beat Wall Street’s estimates by 1.4%.
Looking ahead, sell-side analysts expect revenue to decline by 4% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
CSG has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 10.6%, higher than the broader business services sector.
Looking at the trend in its profitability, CSG’s operating margin decreased by 2.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
CSG Trailing 12-Month Operating Margin (GAAP)
This quarter, CSG generated an operating profit margin of 9.8%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
CSG’s EPS grew at an unimpressive 6.3% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.
CSG Trailing 12-Month EPS (Non-GAAP)
Diving into the nuances of CSG’s earnings can give us a better understanding of its performance. A five-year view shows that CSG has repurchased its stock, shrinking its share count by 12.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
CSG Diluted Shares Outstanding
In Q1, CSG reported EPS at $1.14, up from $1.01 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects CSG’s full-year EPS of $4.87 to shrink by 1.8%.
Key Takeaways from CSG’s Q1 Results
We were impressed by CSG’s optimistic full-year revenue guidance, which blew past analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $61.30 immediately following the results.
