Good morning. My name is Lee, and I will be your conference operator today. I would like to welcome everyone to the CSG First Quarter 2020 Earnings Call. I will now turn the call over to John Rea, Treasurer and Head of Investor Relations. Please go ahead.

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 are glad to join today's call as we begin on Slide 4. Team CSG got off to a good start in the first quarter of 2024, broadly in line with our expectations for the quarter. For the first time in CSG's history, 30% of our revenue came from industry verticals outside the communication service provider space. This is a testament to our multiyear revenue diversification strategy of selling our SaaS suite of solutions into exciting industry verticals like financial services, health care, retail, technology, and insurance. As we continue to deliver double-digit organic revenue growth in our smaller but faster-growing solutions, we fully expect that our revenue diversification will expand well above this level in the quarters and years ahead. With respect to shareholder returns, we continue to reward shareholders in the form of dividends and buybacks. In February, we announced a 7% annual increase in our dividend and returned $9 million in dividends to shareholders in March. Additionally, we repurchased $10 million worth of stock during the quarter. Over the last 12 months, we have returned over $160 million to shareholders. Looking forward, we will continue to opportunistically repurchase shares through the end of 2024, with the expectation that at a minimum, we will buy back enough shares to offset employee stock compensation, with the opportunity to buy back more than this when we believe it will create greater shareholder value. From a financial perspective, in Q1, we delivered $295 million in revenue, generated a 16.6% non-GAAP adjusted operating margin and reported $1.01 in non-GAAP EPS. As we have mentioned on previous earnings calls, our Q1 2023 financial results included approximately $10 million in highly profitable net license revenue, which distorts the Q1 year-over-year growth comparison. We knew this would be the case when we issued 2024 guidance. If you normalize the impact of this one-time license revenue from last year, our Q1 2024 organic revenue would have grown year-over-year. Also, free cash flow in Q1 was slightly softer than anticipated due to several timing-related items that I will discuss momentarily. We continue to place a big focus on generating good free cash flow and believe the Q1 timing-related items will not impact our ability to meet our original free cash flow guidance for 2024. Just as we saw in 2022 and 2023, the majority of our free cash flow being generated in the second half of the year, we expect a similar trend this year. With Q1 results broadly in line with our expectations, we are pleased to confirm all full year 2024 guidance targets. Our confidence in reaffirming guidance comes from the strong ongoing market demand for CSG's industry-leading SaaS products and good sales performance across all areas of our business. CSG's sales pipeline is as large and healthy as ever, and we continue to win and deliver exciting new deals all around the world, thanks to our over 6,000 talented and dedicated CSG employees. We also wanted to share two meaningful updates on our corporate responsibility journey. We were proud to issue our second annual global impact report in March, which highlights what Team CSG is doing around the world to create a more sustainable future by reducing our environmental impact, supporting our communities, and fostering a culture of inclusion and belonging. Additionally, we issued our latest carbon footprint greenhouse gas emissions report, and we are proud to have already achieved a nearly 40% reduction in our Scope 1 and 2 emissions since 2019. This shows the excellent progress CSG is making with the goal of reaching carbon neutrality in Scope 1 and 2 emissions by 2035. Turning to Slide 5. We want to reiterate the four strategic objectives that will help CSG create greater shareholder value and allow followers of our story to track our progress. CSG aspires to deliver long-term organic revenue growth in the 2% to 6% range, striving to consistently be at or above the midpoint of this range. The midpoint of our 2024 revenue guidance implies an approximately 4% year-over-year organic growth rate even as we faced some slight headwinds at several of our North American cable broadband customers. We aim to add operating scale and expand our operating leverage by growing revenue to $1.5 billion by year-end 2025 with bottom line growing faster than top line growth. This scale will come from a combination of good organic growth, combined with disciplined inorganic moves. Our third strategic imperative is to be the #1 SaaS provider of choice for global communication service providers by providing the most value-adding technology platforms and by helping our customers make more money in the digital world. Finally, we plan to significantly diversify our revenue even more as CSG wins big in high-growth industry verticals like retail, government, financial services, health care, technology, and more. Moving to Slide 6, you can see that we are delivering against all four objectives. On strategic revenue growth, in 2023, we reported a record-setting $1.169 billion of revenue, resulting in 7.3% year-over-year growth, our best full year result in nearly 20 years. Taking the midpoint of our 2024 revenue guidance implies that CSG will consistently deliver approximately 5% annual revenue growth between 2021 and 2024, with the vast majority of this being pure organic revenue growth. On the right-hand side of Slide 6, we believe that CSG's high recurring revenue SaaS business model and our strong healthy balance sheet make us an attractive investment. By 2025, we aspire to gain scale in the markets where we compete and generate $1.5 billion in annual revenue, which implies that CSG will have added over $500 million in profitable recurring revenue from 2020 to 2025. Over the medium to long term, we aspire to expand CSG's operating leverage and use our strong balance sheet to deliver non-GAAP EPS growth that meets or exceeds revenue growth. As it relates to capital deployment, team CSG will add strategic scale with disciplined M&A that puts a premium on accelerating our organic growth, expanding our operating margins and cash generation and creating greater shareholder value by paying the right price and extracting the expected M&A synergies inherent in the investment thesis for each acquisition that we close. On the M&A front, we're happy to share that we closed our first transaction in 2 years in April as we acquired a small customer engagement company that serves multiple industry verticals, including insurance. While small, this accretive deal will expand CSG's offering and customer base in the insurance sector, which is a high-priority vertical for us going forward. We believe this M&A deal will be the first of several good accretive M&A transactions that will close in 2024. Turning to Slide 7. We have good success in our goal to be the #1 technology provider of choice for communication service providers globally. We have long-term contracts with both Charter and Comcast running through Q1 2028 and year-end 2025, respectively. And as a reminder, CSG's contractual relationship with Comcast and Charter is on a per-customer basis, which is an important distinction for us because this pricing model, combined with the tiered pricing inherent in our big customer contracts means that any subscriber losses at our big customers have a relatively small impact on CSG's overall revenue. Given the concerns about broadband subscriber losses in the cable industry, it is worth reiterating that we serve nearly 64 million combined subscribers at Comcast and Charter and nearly 80 million subscribers across all of North America cable broadband customers. So small changes in subscriber counts do not have a meaningful impact on our business results and growth. It should also be noted that our two largest customers recently dropped to less than 40% of our total revenue for the first time. CSG's improving revenue diversification and 5% consistent annual revenue growth since 2021 is a testament to our success in consistently winning big, exciting new sales deals. Also during the first quarter, we completed a successful digital CX implementation with one of the largest North American broadband providers. Specifically, we helped this customer capture significant cost savings by redesigning their monthly bill, improving their digital customer payment capabilities, and reducing billing and payment-related calls into their contact center. This success with an exciting broadband customer reinforces the benefit of our strategic product expansion beyond billing and monetization, which positions CSG well to help thousands of enterprise customers and many industry verticals make more money with extraordinary data-driven customer experiences and integrated real-time payment solutions. Outside of North America, we continue to win more business with leading telecom companies. A great highlight of the quarter was CSG closing a fantastic new sales win in Latin America with one of the largest telecommunication operators in Brazil. Specifically, CSG will enable their digital evolution to better serve the wireless MVNO market in the largest country in South America with our highly scalable cloud-native Ascendon platform. We also signed a significant business expansion with MTN, Africa's largest mobile network operator, where CSG will provide managed services support in selected divisions within MTN South Africa, including their MVNO business. This project will enable MTN to speed time to market for new products and services. CSG also secured a notable new contract with Banglalink, a leading telecom operator in Bangladesh. Team CSG was selected to help this customer optimize its wireless business by providing our modular wholesale billing and settlement solutions. Drawing on previous wins in 2023 in Airtel Africa, M1, and PLDT, the Banglalink deal also underlines CSG's increasing leadership in Asia Pacific as telecom and wireless leaders continue to embrace customer-first digital transformation. Finally, we signed a new deal with one of the leading global MVNO enablers. Specifically, CSG is implementing our cloud-native Ascendon product to enable this customer to onboard and offboard new MVNO partners quickly and seamlessly. We are confident that our strong sales pipeline in the global telecom market will position CSG well to announce more exciting new logo sales wins in 2024. Turning to Slide 8. Since 2017, we have diversified revenue coming from exciting new industry verticals from 7% of total 2017 CSG revenue to 30% of our Q1 2024 revenue, a fantastic accomplishment in a relatively short period of time. As mentioned, Q1 marks the first quarter where over 30% of our revenue came from industry verticals outside of CSPs. During the quarter, we announced a significant deal extension and expansion with JPMorgan Chase. Specifically, we are deploying our CSG Exponent suite of data-driven CX solutions to create a better fraud alert notification experience. Our enhanced solution eliminates the need for expensive contact center calls and creates an improved digital customer experience during an often stressful time as cardholders try to identify and recover from fraud, including digitally requesting a replacement credit or debit card. Another highlight of Q1 was the excellent multi-year contract extension with Formula One, the world's most prestigious motor racing series. Since 2018, our cloud-native multichannel Ascendon solution has enabled Formula One to quickly launch new live and on-demand OTT subscription services for racing fans who want to connect with Formula One's content. This is another great example of how CSG Ascendon can help grow and retain a customer's digital subscriber base. In the payments market, we now provide award-winning payment solutions to 119,000 active merchants and ISV partners, which represents a 17,000 increase or 17% year-over-year growth from the 102,000 active merchants we served in Q1 2023. Our solutions are critical to customers who need ACH, credit card payment gateway, and payment processing capabilities, serving a wide range of recurring revenue industry verticals. We continue to see a significant growth runway for CSG's payments business, and we are optimistic about accelerating our organic and inorganic revenue growth even faster through 2024 and beyond. Wrapping up on Slide 9. Simply put, CSG continues to execute well on our strategic vision, even as we help several of our biggest customers overcome some near-term headwinds. We continue to win fantastic new customer logos quarter in, quarter out. We continue to innovate with industry-leading AI-driven SaaS solutions that big brands all around the world are buying to solve some of their most pressing business challenges. We continue to progress our revenue diversification strategy, and we continue to demonstrate our determination and commitment to run our business more efficiently with consistently expanding profitability and free cash flow generation. We hope you see why we believe that CSG's best days and biggest breakthroughs are still ahead of us. This is also why CSOs around the world stay hungry and customer-obsessed every single day because we know this relentless focus is what is required to create significant shareholder value in the quarters and years ahead, regardless of any near-term challenges standing in the way of Team CSG.

Thanks, Brian. Let's walk through our Q1 2024 financial results, and then I'll wrap it up with some key conclusions. Starting on Slide 11. We generated $295 million of revenue versus the $299 million we generated last year. The decrease in revenue was primarily related to the timing of approximately $10 million in high-margin revenue licensing deals signed in Q1 of 2023, which was highlighted throughout last year and temporarily distorts our revenue and profitability comparisons for the first quarter on a year-over-year basis. Our Q1 2024 non-GAAP operating income was $45 million, or a non-GAAP adjusted operating margin of 16.6%, as compared to $54 million or 19.3% in the prior year. Similarly, our non-GAAP adjusted EBITDA was $58 million for Q1 of 2024, or 21.5% of revenue, excluding transaction fees, as compared to $67 million or 24.3% in Q1 of 2023. As was the case with our year-over-year revenue performance, our Q1 2023 non-GAAP operating income, non-GAAP adjusted operating margin, and non-GAAP adjusted EBITDA were all positively impacted by the high-margin licensing revenue deal we closed, thus distorting the Q1 2024 comparison. Excluding the impact of the $10 million in licensing deals, our non-GAAP adjusted operating income and adjusted EBITDA margin percentages would have been broadly similar to Q1 of 2023. Lastly, our Q1 2024 non-GAAP EPS was $1.01 as compared to $1.04 in the prior Q1. The decrease in non-GAAP EPS is mainly due to lower operating income, partially offset by positive foreign currency movements and share repurchases over the last 12 months. Turning to Slide 12. I'll go through the balance sheet, our cash flow performance, and shareholder returns. Our Q1 2024 cash used in operations was $29 million as compared to cash flow from operations of $15 million in Q1 of the prior year. Importantly, cash flow generated from operations before changes in working capital in Q1 of 2024 was $52 million compared to $50 million in Q1 of 2023. Further, we had non-GAAP free cash flow of $34 million in Q1 of 2024 as compared to $7 million of non-GAAP free cash flow generated in Q1 of 2023. The primary drivers of the year-over-year decrease in non-GAAP free cash flow were timing-related working capital movements, including two key factors: one, unfavorable changes from the Q1 2023 bonus accrual being significantly higher than the bonus accrual in both Q1 2022 and Q1 2024; and two, the timing of converting certain trade receivables into cash. As a reminder, historically, our non-GAAP Q1 free cash flow performance tends to be the low point for the year. Over the last five years, the vast majority of our annual non-GAAP free cash flow has been generated in the second half of the year. Moving on, we ended the first quarter of 2024 with $121 million of cash and cash equivalents. That, along with our outstanding debt as of March 31, 2024, results in $435 million of net debt. Our net debt leverage ratio stood at 1.9x of adjusted EBITDA. Further, we have approximately $570 million of liquidity as of the end of the quarter. Moving to the bottom right of the slide, we declared $9 million in dividends during Q1 of 2024. In addition, we repurchased $10 million in stock during Q1 under our stock repurchase program. Turning the page, I'll revisit our 2024 guidance target. In summary, we are reiterating all 2024 targets. Further, we are currently forecasting our first half 2024 revenue to make up approximately 48% of our full year revenue, while we expect 52% of our revenue to be generated in the second half. As has been the case for the past two years, we currently anticipate our Q2 revenue being the low point of the year from a quarterly phasing perspective. We continue to see strong demand for our solutions, and we intend to capitalize on those opportunities to realize both near-term and longer-term growth, with timing being our biggest challenge and not underlying demand. Additionally, we remain focused on generating improved profitability and actively pursuing opportunities to deliver enhanced efficiencies and operating leverage. Wrapping it up, CSG will continue to prioritize every investment we make and stay disciplined in the allocation of resources and the use of capital. Innovation, including how we leverage the transformative power of AI across CSG, and adherence to a risk-reward framework with continuous learning are key cornerstones of how we manage the business. CSG is well positioned with a strong sales pipeline and a high-quality recurring revenue customer base. We remain committed to accelerating and diversifying our revenue growth, which may include closing and integrating disciplined, value-adding acquisitions. We believe this approach, combined with our consistent capital distribution, will serve our shareholders well.

And your first question comes from Maggie Nolan from William Blair.

Congratulations, nice quarter. I'm wondering if you can elaborate a little more on the acquisition last month, the offerings, the size of the business, and then expand on where you are in the process and what you're targeting with respect to the comment, Brian, that you made about likely closing several more deals in 2024?

Thanks, Maggie, I hope you're doing well. I appreciate you joining. On the acquisition, it is in the customer engagement space. It serves several customers in multiple verticals. Insurance is the largest. This is a company we've worked with for many years. We got to know the technology. We got to know the customer base that they serve. We got to know the talent that they had. We had an opportunity to just add to our customer engagement business and offering and really build some dedicated expertise in insurance, which is a high-target vertical for us. So we love the team. We've launched the product expansion that we got that brings in, and we love the vertical focus. As we've talked about being a disciplined acquirer, we also love the fact that we purchased this business for a very low multiple of EBITDA relative to what we trade at. We think that there's a lot of shareholder value. That's more specifically on that acquisition. Regarding the comment we made, as we've discussed on previous calls, we've just seen a couple of years ago, pricing was out of whack with a lot of the sellers. We saw a lot of good deals, but not necessarily the price point that we thought would create shareholder value, and we're seeing that change. We do have a very active pipeline on the inorganic move side, and we're going to stay very disciplined. We've had to go back to both looking at small, mid, and larger deals. We would anticipate that there's a reasonable likelihood that we could announce and close more deals in the coming quarters in 2024.

And then a couple of questions on the other segments. As that continues to grow, which you sounded confident that it would as a percentage of revenue, any variations in margin across the different verticals? And then do you feel like you have the structure in place to continue growing that? Or are there changes that you need to make, investments you need to make in the sales force and the go to market, etc.?

Hey Maggie, it's Hai. Thanks for the question. The margin differences are less about industry verticals, but more dependent on our solutions that we go to market with. So obviously, our more SaaS-like solutions have very high margins, typically 70% to 80%, like a traditional SaaS model would have. Services-type solutions would be lower on a relative basis. So with that said, those customers where we are providing some of our CX solution journey orchestration solutions or our payment solution, they're going to tend to have much higher margins than some of our other solutions that are in the market.

Maybe one add-on around the margin expansion potential of these businesses. We do have the scale in both Digital CX and payments to significantly expand organically, drive operating leverage, and keep strong double-digit organic growth going. We do have the scale and infrastructure to handle that as we also add on acquisitions. The area that we have invested in is taking a more channel-specific approach. As we've talked about on a couple of the last several earnings calls, we do a nice job with our direct sales teams. We do a nice job of cross-sell, upselling, and land and expand. But we realized that in these multi-industry verticals, there are big partners that have existing offerings, strong sales teams, and big marketing budgets. If we invest more in a channel-driven approach, it can generate and accelerate organic growth in this business. That's one we've done over the last several years. That is not a new investment we're going to make. That's something we've already done. We expect that to yield dividends for the business in the coming quarters.

Our next question comes from the line of George Notter from Jefferies.

I just have a few, I guess, financial questions. I noticed that the unbilled receivables were up a little bit sequentially. I know that they're elevated relative to where they've been historically. Is there something driving that trend? Can you kind of talk about what that looks like and when that might step down going forward? And then also, we saw another step function up in stock comp expense sequentially. I'm just wondering if $18 million is kind of the right level going forward? Or is that something that will step down in the future?

Yes. I think on the unbilled, one of the things that we talked about is some of the larger wins we've had on the global telco side with some large CSPs. As we're undergoing the implementation related to a lot of times, the way the contract works is the unbilled is tied to milestones. As we reach those milestones, we'll convert unbilled into invoices and account receivables. So that's just a timing thing. We are in the midst of a couple of large deployments right now, and that's what's driving up the midterm trend. Our expectation is as we get to the back half of this year into next year, it will start to moderate.

And on the question around executive-based compensation, maybe we'll take that one offline. Our executive-based compensation as it relates to equity has always averaged on a dilution basis, around $35 million in terms of where it is. We fully expect to offset that dilution in terms of where it is. You may be seeing something specifically that's different, as we haven't seen a big step up in the compensation. We paid out slightly higher bonuses last year because we had a record-setting year and outperformed on all of our financial metrics, but there's no substantial step change, so maybe we can dig into that in the post-call.

Our next question comes from the line of Nehal Chokshi from Northland Capital Markets.

And probably a couple of questions for me. First, can you give more detail on the headwinds that you're seeing at your North American cable operators?

Yes, happy to. Nehal, I hope you're doing well. As we discussed in some of the comments, obviously, there are others seeing what some of the cable broadband operators are announcing. We are facing, as we've talked and planned for in the first part of this year, some small headwinds. We've seen some tens of thousands of subscribers that have been lost on the broadband side and on the total customer side in that. We're feeling some small headwinds, as anticipated. It's kind of as we thought it would be. We anticipate, as a lot of people might have heard from some of the cable broadband customers that, that's likely to continue into Q2 and Q3. On a longer-term basis, we do anticipate having worked with these customers for a long time that there's likely to be a longer-term competitive response. We like where they're positioned with their networks. We like where they're positioned with their customer base. We're mission-critical. We're doing a lot to try to help them in some of those areas where they continue to perform well. We also see that both Comcast and Charter are passing 2% to 3% more homes every year. We think that could help reverse some of these trends. But, we are seeing small headwinds as have been reported.

And then a different question here. Did the CEF and Payments business in aggregate grow at least double digits for the March quarter?

Yes, the combined of those two did have strong double-digit growth in Q1 that continued from last year. We like what we're seeing in the sales pipeline. We like what we're seeing on the close and win rate. We like the conversion and the adoption as we bring that revenue on board. We really like what we're seeing in those combined solution units.

And just to be clear, is that including or excluding the year-ago $10 million software one-time revenue recognition?

So the $10 million nonrecurring software licenses were not in the CX or payments business. The double-digit organic growth would exclude that.

Our next question comes from the line of Matthew Harrigan from Benchmark.

I was curious about the customer success business, particularly with companies like JPMorgan and other financial institutions. There's a significant opportunity to expand your relationships, especially since you have a diverse range of clients across various sectors. Can you provide a rough breakdown of growth between existing and new customers? How feasible would it be to bring JPMorgan on board? Moreover, considering HSBC as a new client, how challenging is it to transfer those insights to a different financial institution? Are there limitations in applying the same strategies learned with JPMorgan to other banks? It appears there’s substantial potential here, and I'd like to understand how AI is specifically enhancing the fraud detection aspect of the business.

We have seen a lot of success as we penetrate accounts and expand within them, which is driving most of our growth. While we have achieved good market penetration, we recognized last year that our brand awareness wasn't as strong in certain verticals. By transitioning to a channel partner-led approach for acquiring new logos, we can utilize the sales force and marketing relationships more effectively. We're about three quarters into this investment in channels, and it's beginning to yield results. We have partnered with numerous channel partners across various verticals that offer consulting, systems integration, and products that can be integrated with our platform. We believe this will significantly enhance our new logo growth moving forward. Currently, most of our progress is on the expansion side. Once we establish ourselves at price points between $200,000 to $500,000 by addressing one or two high-priority use cases, we can then expand to multiple use cases over time. This expansion is quite promising. Regarding fraud, while it primarily exists in financial services, we launched one of our initial AI products focused on fraud detection in the payment sector, which assists merchants in minimizing fraud risks and enhancing identification. We also see potential for fraud detection within the telecom sector, leveraging our network monitoring capabilities to spot potential fraud in the global telecom market. Additionally, we have strengthened our relationship with JPMorgan Chase, one of our top customers in financial services. Recently, we secured an important deal with one of the largest banks in Australia by deploying Ascendon last quarter. There are numerous opportunities in both monetization and digital customer experience related to fraud and other use cases, which we anticipate will continue to be a key focus area.

Our next question comes from the line of Dan Bergstrom from RBC Capital Markets.

So on the international opportunity, you called out deals in Bangladesh, Brazil, and South Africa this quarter in the prepared remarks. Impressive reach and in disparate geographic areas, what are some keys to driving this wide reach? Is it partners like you've referenced a few times in Q&A here, reference customers, or just simply your solutions really resonating with customers no matter what the location?

Yes. Hi Dan, pleasure to join. Thanks for the question. First, we serve hundreds of global telecom operators all around the world. We have a global footprint of sales, account management teams that have worked with a lot of these large operators. A lot of that is a direct sales model, and we have teams co-located in many cases, all around the world in South Africa, in India, in Southeast Asia, in Europe, in the U.S. Part of that is a trend we've seen and we bet on going back 5 or 6 years ago, where we felt like the cost and complexity that global telecom operators have always had was not sustainable. We saw the price commoditization on consumer and enterprise. We saw the big investments they had to make in their networks and moving to 5G, soon to be 6G, and it wasn't sustainable. Our product-based approach, often SaaS, has been to help them simplify their business process, simplify their tech stack, become more digital, and take costs out of their business. We had success in the markets outside the U.S. and Western Europe, where they felt the most economic pressure. Now, we're seeing Western Europe and the Nordics experience the same economic pressure. We expect to continue to win business and drive economic value for large operators all around the world and in the U.S. and Western Europe.

And then you mentioned AI in the Q&A here on the previous question. Could you build out or talk a little more about some of the reception or thoughts around the pipeline build for some of those AI-infused products you introduced over the back half of last year?

Yes, I think everyone is doing a lot in their strategy. First, as it relates to selling more and building it into our offerings, we have taken our digital CX, which has always been a data-driven solution. Journey analytics, journey orchestration started with machine learning and used conversational AI in early days and now building in where it makes sense using generative AI. We launched our AI Bill Explainer solution. We've got dozens of sales candidates, and we've closed several deals. Like a lot of our digital CX, these use cases can deploy $200,000 to $400,000 to $500,000 annual ACV kinds of sales deals. They're not for big-ticket items. You can ring the cash register, reduce costs, help drive revenue and offset some of the pressure they're feeling and then you can expand on top of that. So we're seeing nice adoption. In the payment side, I would say it's not quite double digits, but we see strong interest in the AI fraud detect solution, and it's getting bundled into a broader sale of improved AI-driven fraud detection that can enhance the merchant experience and reduce the risk they face on the financial side. I think we're seeing good adoption, but it's less a specific buy decision, more of a core capability that we need to have. In the telecom side, I'd say it's there, but still early. Our approach is not to build large language models. We want to leverage the hyperscalers' infrastructure around AI, which we've done in many cases. We want to leverage the capability of our platform. In many cases, we let our customers leverage their own large language models or ones they partner with to speed adoption. We like what we're seeing in the early days, but we're still in the early phases of having a bigger impact on our overall revenue.

Our next question comes from the line of Brett Knoblauch from Cantor Fitzgerald.

This is a question for Brett. Regarding free cash flow, I know it was mentioned during the call, but it came in a bit lower this quarter. Could you provide more details on what gives you confidence in the full year target?

Yes, certainly. As I mentioned, when we expect this year, unlike last year, to build fairly normally, where profitability and revenue increase throughout the year. As that happens, it will improve our cash flow performance. We will also see some working capital elements that revert through the year. One thing we saw in Q1 was a strong year last year. There was higher incentive compensation payouts last year due to a record-setting year and outperformance on all of our financial metrics, which heavily impacted our Q1 comparatives. We generated a strong fourth quarter of roughly $74 million of free cash flow. I believe we've got a good understanding of how to drive those improvements in working capital as we learned throughout last year. Our expectation is that Q1 is a low point here, and we will begin to build gradually in Q2. Q3 will show momentum, and Q4 should be comparable to last year.

Our next question comes from the line of Shlomo Rosenbaum from Stifel.

Just to dig a little bit more on the acquisition side. That small acquisition you noted in CX with insurance, is it purchasing vertical expertise? Or is there some CX capability that they have that's more foundational? If you could just expand a little bit on that.

Yes. Shlomo, I hope you do well. Thanks for joining. This one, they have a great team with great industry expertise. This was less about buying a strategic capability that could really move the ball forward that we can do a lot of cross-sell of the platform. It was an opportunity to bring a strong customer base, a group that we have worked with and done a lot with in the past at a great financial price. I wouldn't say that there was no benefit to the value we picked up, but it was on the low side. That wasn't the main driver. I think there are other acquisitions that you might end up seeing us announce this year that would have a much more strategic product solution fit that would expand our product portfolio or extend our platform and drive a lot more cross-sell or upsell, but that one wasn't the main driver.

And then just continuing on the acquisition side. The language on Slide 5 seems tweaked a little bit, getting to $1.5 billion by the end of fiscal year '25. Could you just comment on that? You talked a little bit about the M&A environment, the pricing seems to be starting to go down. Can you talk about the potential and the willingness to use equity to consummate some of these potentially larger strategic deals?

Yes. No, it's an interesting question. I'll add mine; Hai, if you want to jump in. By and large, first, as we talk about in our liquidity, we've got a lot of firepower in a super healthy balance sheet. We do not need to use equity in deals. We wouldn't expect to for small to mid opportunities. If there was, and obviously, if we felt like our equity is undervalued, you can see what we've done in terms of returning. We wouldn't want to do a deal if we felt like our equity was undervalued because we want to have a good return on that. If there was a bigger deal, an opportunity to do something strategic, where we could transform the structure of the industry, or if there was an opportunity to really change and give us more competitive advantage that could turbocharge EBITDA, EBITDA expansion and strategic scale, we wouldn't rule it out. It wouldn't be our first approach, given where we are today and the kinds of opportunities that are more actionable in the near term. But what else would you add to that?

No, I think that's right. The key message is we're not going to try to utilize our equity if we believe we're undervalued and that is ultimately what we're going to have to assess almost as a game day decision when we look at the opportunity.

Our next question comes from the line of Tim Horan from Oppenheimer.

Just following up on that, could you give us a sense of how much you plan on spending in cash on acquisitions in the next few years to kind of hit that target out there?

I think that answer is unsatisfactory as it just depends, right? It depends on the type of assets available, as certain assets will yield or require a higher multiple than others. As Brian said, we have quite a bit of liquidity as we sit here today, roughly $570 million in cash and our credit facility. It just depends. We are working hard to make sure we're finding opportunities that are truly accretive right out of the gate or shortly thereafter as we recognize some synergies baked into any sort of valuation case.

Yes, no, I was not looking for specifics, just overall on average. Are we looking to spend like $300 million, $400 million to hit that type of target? Or is it $100 million or $200 million on the $1.5 billion?

Yes. I mean, think about it this way: we're going to have to acquire roughly $250 million in revenue, right? Depending on the mix, if the $250 million of revenue that we acquire has more CX or payments in there, it will require a higher multiple. If it's more in our traditional revenue monetization, then the valuation multiple will be more akin to where we're trading at. Those are some of the considerations.

And then can you give a little bit more color on the dividend segment revenue breakdown for the year? I guess, just specifically, broadband obviously is under some pressure. Do you think you can grow that revenue line item this year? Or what are you assuming in your guidance? Do you think it will worsen here? Because it seems like the cable guys are about to come under a lot more pressure over the next 6 months or 9 months or so.

Yes, I think you said it, Tim. That’s why we used the language. We're feeling some smallish headwinds related to broadband, some of that on the North American cable side. Based on the earnings calls we've listened to from some of our customers last week, I think the general tone suggests that you'd expect that to continue through the next couple of quarters. We built that into our plan coming into the year, and we anticipate facing that. But we're excited that the other parts of our business are growing even faster to offset some of those headwinds. Next year could be a different equation, right, with the homes passed and competitive response. We don't believe it's a foregone conclusion that these headwinds will continue into next year. But for the next quarter or two, we anticipate some smallish headwinds.

And is there much products you can upsell to improve your ARPU, basically to help the cable guys get more efficient? Your ARPU is relatively low. I know you're doing modest few things for them. But with AI and a whole bunch of other products that you have, do you see any way to upsell to make them more efficient?

Yes. I mean, first, I think they're doing a lot in their own rights to continue to improve efficiency, drive improved CX, and we try to do our part to help them with that. The biggest opportunity, both in North America and cable customers and global telecom, is on the digital CX side. A lot of our early success with our Journey Analytics and orchestration platform was in those other verticals. We've targeted AI-driven sales assists to cross-sell to their customers. We rolled out our Bill Explainer AI, which has huge implications. We've viewed digital CX use cases around promo roll-off because a large part of churn comes when a subscriber rolls off of their introductory price period. So we believe there are many opportunities, especially in digital CX, both in North America and globally.

Our next question comes from the line of Michael Berg from Wells Fargo.

I just have a quick one on the seasonality of the business. Just looking back historically, it looks like the other revenue line item takes a step function up in terms of the mix of total in Q1 and tends to be fairly flat to the rest of the year. Is there any dynamics to point to that's driving that phenomenon?

Yes. I think what you're seeing is that there's seasonality on the payments business. If you look at our payments business, both Q4 and Q1 are typically the strongest quarters while Q2 and Q3 are the weaker quarters. A lot of that is because a chunk of our payment business serves the government sector, so many tax payments hit in Q4 and Q1. That’s why you’re seeing some of that trend.

And then just one quick follow-up. In terms of the guidance and M&A, does the current reiteration of guidance incorporate the acquisition you did? And does it also potentially include the acquisitions you seem to be likely to do?

Yes, in terms of the guidance, yes. Bear in mind, the acquisitions are quite small here. We're talking about single digits in terms of revenue, so the impact is quite nominal, particularly once you provide for timing of the year.

I think the only other thing I would add is we expect to have good organic growth in fiscal year 2024. Even with that guidance, where we've reiterated on the revenue side, we believe we can achieve a 4% growth rate organically, with some minimal impacts from acquisitions.

At this time, I'm showing there are no more questions. I'll now turn the call back over to Brian Shepherd for closing remarks.

Thanks, everyone for joining. We're focused on delivering against our guidance commitments. We're focused on driving operational efficiency ongoing. As you saw in our adjusted margin guidance, we expect to strongly be in the 17% range. We expect to grow top line. We expect to deliver better results as we get into Q2, Q3, and Q4. It's tough for us to execute that, and that's exactly what this management team is focused on doing. Thank you for joining today's call.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.