Good day, and welcome to the CSG Systems International Fourth Quarter 2020 Earnings Announcement. All participants are in a listen-only mode. A question and answer session will follow today’s presentation and instructions will be provided at that time. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. John Rea, Head of Investor Relations. Please go ahead, sir.

Thank you, operator, and thanks to everyone for joining us. Today's discussion will contain a number of forward-looking statements. These will 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.

Thanks, John, and thank you all for joining us today. Glad to be here. To start, the entire CSG family hopes that all of you are staying healthy and safe. The pandemic reminds us every day to put our people and our priorities first. It has also changed the way we and the world do business, and we couldn't be more grateful for everything our 4,800 dedicated global employees do to put our customers first and propel our business forward. As challenging as 2020 was, team CSG had a very strong Q4 2020 finish, which created momentum heading into 2021. We're fortunate to have a resilient SaaS-based business model that generates strong recurring cash flows with high revenue and earnings visibility. I couldn't be prouder to announce that, despite COVID, our 2020 financial performance finished at the high end of our guidance ranges. These good results were underpinned by the strength of our customer relationships with leading global brands in many different industry verticals. Our clients know that they can trust CSG to help them better acquire, monetize, engage, and retain their customers.

Thanks, Brian. As Brian highlighted, we have a resilient business that continues to generate strong cash flows and provides us with high visibility into both revenue and earnings even in the face of this COVID pandemic. We believe our business model gives us the stability necessary to continue to deliver on our strategic growth initiatives and create shareholder value, both now and into the future. We are pleased with our solid 2020 performance, finishing at the high end of our guidance metrics, and we feel well positioned to deliver strong business results in 2021 and beyond. So let's walk through our financial results for the fourth quarter and full year 2020 as well as our outlook for 2021. We reported revenue of $260 million for the fourth quarter, up 2% year-over-year and $991 million for the full year, down 1% year-over-year. The increase in our fourth quarter revenue can be mainly attributed to a strong quarter of managed services, software, and professional services revenue. The decrease in our annual revenue is primarily due to the pricing adjustments associated with a 5-year Comcast contract extension that was effective January 1, 2020, as well as foreign currency headwinds, partially offset by our strong fourth quarter revenue performance. In addition, non-GAAP adjusted revenue, which excludes transaction fees, was $243 million for the quarter and $923 million for the full year, representing a year-over-year increase of 3% and a decline of 1%, respectively. Our revenue saw a second half acceleration as customer sales and implementation activities that had slowed during the pandemic picked up. This trend was even more apparent when looking at our sequential performance from the third quarter to the fourth quarter of 2020 as revenue and non-GAAP adjusted revenue each increased 7% quarter-over-quarter.

And we will take our first question from Tom Roderick with Stifel.

So Brian, I want to start with you. And this is going to be a very high-level question, but you guys really handled a very difficult year quite well and finished on really solid footing. If you go back to where things were back in the spring and how your customers evolve their decisions over the year, just tell me a little bit more about this concept of CX, consumer experience, and how the changing nature of the world might be forcing their hand to evolve a little faster than perhaps they wanted to. You mentioned Mobily. I think you mentioned Charter. You mentioned Telecom Argentina. Any common threads as far as accelerated decision-making and what the pandemic might have done to force some customers' hands on that front?

Thanks for the question, Tom. Happy New Year, and congrats to you on your new role that you'll be taking. So first, a couple of key points around what we saw. In the middle part of this year, I think every business was trying to figure out what COVID was all about. So we saw a little bit of a slowdown. But as we talked about in Q3 and Q4, we saw the sales returning with the strength of our sales pipeline and where we were going, and we saw that turn into wins. And I think a couple of things really drove that. One is the transition to all digital is accelerating all around the world. And so we see customers in every industry vertical coming to us with ideas and business problems to say, how do they improve their customer experience, how do they operate without going into consumers' homes, how do they basically make it easier for them to do business and be all digital. And so what that's done is that's accelerated our pipeline and some of the win rates we've had, both for our revenue management solutions, but also things like how do we help enable technicians to solve customers' problems in a home without having to physically go in the home. How do you do customer care and support in an environment where you can do that online and make it easier and an improved experience and enable them to continue with the business. We also saw that in payments where merchants still need to complete transactions. They're just going to do it more online. So we've seen this acceleration of the digital adoption that's actually helping our business and driving some of the momentum we talked about in the earnings script.

Yes. I'm glad you mentioned payments. That was the second thing I wanted to ask you about, just in terms of how we should think about the payments business and a cyclical recovery. Rollie, it might be worthwhile tying you in as part of this question, but can you guys kind of bring it all home and give us a sense as to how much of a headwind the growth payments might have been to the overall growth level this year? And as you issue your guidance for next year, should we be thinking about a little bit of a recovery in that business, flattish? Just directionally relative to what you saw this year.

Yes. Brian, do you want to touch on? Or do you want me to?

Yes. Maybe I'll give the high level and you can give the specifics. Specifically in payments, we didn't see nearly the downturn and reduction in volume. We did see some single-digit reduction in transaction volume. So as a result, we actually fared pretty well year-over-year from '19 to '20, Tom, but it wasn't a growth year for us. We still are in the middle of COVID, as we all know. And so I think we're cautiously optimistic as we watch the first couple of months coming in, in 2021, that we have good expectations and high hopes that our payments business will get back to year-over-year growth. And as we talked about before the pandemic hit, we expect our payments business to be a strong double-digit revenue growth business for us, and that's our focus on getting back to that level, notwithstanding any headwinds we feel in the first part of this year. Rollie, any other color you want to add to that?

Yes. I'd just say we didn't lose significant ground this year in the payments business, essentially flat year-over-year, which we're thankful for, considering the circumstances. And to your point, we look forward to getting that business back to double-digit growth in line with our expectations.

Fantastic. One last quick one from me, if you guys don't mind. Rollie, you did a nice job. I appreciate it on the guidance sort of outlining the margin potential, the margin outlook in the context of the potential for repricing on an early renewal basis for, say, Charter and Dish. I know it's impossible to go into exactly what component of the guidance that is. But just historically, if we were to think about an early renewal on a Tier 1 customer, what would that mean if that happened, a year in advance of expectation, what might that mean for the impact to margins just so that we can help frame up how your guidance might encapsulate some of the wiggle room on that potentially getting solved early?

Historically, when considering repricing on our large contracts, I would estimate it to be in the range of 5% to 15%. Ideally, we aim for the lower end of that range. In terms of our revenue base, while our previous disclosures regarding Comcast and Charter are not as significant now, specifically with Charter and DISH, that’s the range I would consider. It's challenging to estimate timing, but we hope to finalize a deal sooner rather than later and expect a favorable renewal for both parties. Brian, do you have any additional insights on this?

No. We just continue to serve both customers extremely well, and we've had a good track record. We're focused on moving the business forward.

And our next question comes from Greg Burns with Sidoti & Company.

And when we're looking at the renewal with Charter, is the remaining subscribers that are not on your platform, is that part of the conversation you're having with them as part of that renewal deal?

Yes. Greg, thanks for the question and joining the call today. We can't talk specifically about that. What we can highlight is there's about 14 million subscribers that we do not serve today. What we try to do every day with Charter, as we've done over the past many years, is just serve them well, bring more future-ready ideas to solve their business problems. And obviously, we'd love to give them an incentive and a reason to come our direction on that, like Comcast did by moving subscribers off of Amdocs to us, almost 11 million subscribers a couple of years ago. So that's obviously in our interest. We won't speak on behalf of Charter, but we just try to serve them well every day and give them things to think about on moving in that direction. Stay tuned.

Okay. Great. And then I highlighted some of the areas you've done; you've been very close with Charter. And I guess it's not entirely from incremental subscriber, it's more coming from incremental services. So could you maybe just tie some of those areas we're picking up for business with these large customers? And then maybe we could tie that back into Comcast because I know you took the price adjustment. But what are you seeing maybe in the pipeline with that customer to refill that revenue gap?

Yes. I think with all of our customers, not just Charter. The thing we focus on is bringing more and more solutions across revenue management, across customer engagement, across payments to solve more and more of their business problems in an all-digital world, and that can come from helping them grow their subscriber base. So we are getting some benefit from our cable customers that are adding a significant number of broadband subscribers when they do that, that also is on our platform, and that brings us revenue. And as you said, we also then work on trying to sell new technology platforms into them, a couple that we've highlighted, kiosk solutions, where individuals will walk into a retail store and want to change service or make a payment and do that without having to talk to a human being. Those are done through our kiosk solutions at Charter and at other customers. We're also doing more around helping them with engagement and care to both lower their cost and make it easier to do business in a digital world. And that's part of what CSG focuses on, on continuing both through our own internal R&D, but also with our partnerships and the acquisitions we do to bring more value. So it's those kinds of things that we do with all of our customers to try to expand our existing relationships and the revenue that we earn from them.

Okay. And then the contract with the drugstore, the pipeline looks like for your customer experience solutions outside of the cable market and how big a part of your business is that currently? But not non-cable.

Yes. We don't break it out today. What we can say is it is a material part of our revenue. And we actually see when we look at the customer engagement space that, that falls into, we typically see that market growing kind of mid-single-digit organically. And one of the things we try to do in all the markets that we compete in is grow at the upper end of the market growth from an organic standpoint. So it is material. We do have a strong, healthy, broad pipeline with lots of customers and brands in different industry verticals, and that's where we'll continue to focus on winning big deals with large customers like that in a digital world.

What's the competitive landscape like there once you move outside of the cable market with those solutions?

I would say like every one of the markets that we compete in. The competitive intensity is intense, and there's good customers, which means we've got to bring our A game every day around the quality of the innovation and the technology, the robustness of the operations, the ease of doing business. I wouldn't say it's more or less competitive. Each one of the markets has healthy competitors going after it. But as we've proven, when we commit to a market, we want to be a leader in the space, and we want to invest accordingly and bring those kinds of quality solutions and win more than our fair share, and that's what we're seeing in that space.

And at this time, there are no further questions. I'll now turn the conference back over to Mr. Brian Shepherd for any additional or closing remarks.

Yes. I would just say in closing, thank you for joining the call today. We're proud of the results. We're proud of our global employee base, what they do to keep themselves safe, move our business forward, serve our customers, and we're extremely grateful for the business that our customers give us, and we try to earn more and more every day. And as shareholders, thank you for investing in us. We're committed to returning the capital to the business and delivering a strong return. We're laser-focused on having 2021 as a higher growth, more diversified year, and it's all about the results we deliver. So thank you for joining the call. All the best.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.