Earnings Call Transcript - CSGS Q1 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to CSG's First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. And I would now like to turn the conference over to John Rea, Senior Vice President of Finance. You may begin.

John Rea, Senior Vice President of Finance

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.

Brian Shepherd, CEO

Thanks, John. Hi, everyone. Welcome to the call as we begin on Slide 4. Q1 was an excellent start to 2025. We delivered a 19.0% non-GAAP operating margin in the quarter, a 240 basis point improvement compared to 16.6% in Q1 2024. Based on the confidence we have from our 90% plus revenue visibility, our success selling higher gross margin SaaS deals and our consistent ability to unlock greater operating efficiencies, we are pleased to raise our 2025 full-year profitability and non-GAAP EPS targets that Hai will cover in more detail. We diversified CSG's revenue even more with 33% of Q1 revenue coming from faster-growing industry verticals outside of cable and telecom, led by our data-driven CX monetization and payment solutions. This is a new quarterly record for CSG, up from 30% in the first quarter last year. Our top two customers, Charter and Comcast, now represent 37% of total Q1 revenue, down from 49% of revenue in 2017. The great news is that this significant improvement in CSG's revenue concentration is not because the revenue we earn from our top two customers is declining. In fact, we've grown the annual revenue at Charter and Comcast by approximately $76 million from 2017 to 2024, representing a 2.6% compound annual growth rate. And yet the revenue concentration from our big two customers has significantly improved because the other parts of our business are growing revenue even faster, a trend that we believe will continue in the years ahead. We reported our best first quarter non-GAAP adjusted free cash flow performance since 2018, generating $7 million of non-GAAP adjusted free cash flow in Q1, a huge improvement over the negative $34 million free cash outflow in Q1 2024. And as promised, we rewarded shareholders with even more dividends and more buybacks. We announced a 7% annual dividend increase in Q1 for the 12th consecutive year, and we paid $9 million in dividends and repurchased $22 million worth of CSG shares in the first quarter. We hope these results prove that great operating discipline is becoming a trademark of Team CSG that investors can bank on. Slide 5 highlights the three long-term value creation commitments that the CSG leadership team and Board of Directors will hold ourselves accountable to deliver. First, CSG aspires to deliver 2% to 6% pure organic revenue growth and to diversify revenue from bigger, faster-growing new industry verticals to greater than 35% of total CSG revenue by 2026. For 2025, we are reiterating our original full-year 2025 revenue guidance range with a midpoint of $1.23 billion in revenue, which would result in approximately 2.7% revenue growth even in the face of more macroeconomic uncertainty. Second, we are committed to consistently expanding non-GAAP adjusted operating margin with a long-term range of 18% to 20% without impeding our ability to deliver mid-single-digit annual organic revenue growth most quarters and years. And we expect this improving profitability to convert nicely into strong double-digit adjusted free cash flow growth in both 2025 and 2026, with the midpoint of our 2025 guidance range sitting at $130 million, which would represent approximately 15% year-over-year growth in free cash flow. Third, we are also committed to excellent shareholder capital returns year in, year out as evidenced by the over $570 million worth of capital returned to shareholders since 2020. And specifically, for 2025, we committed to return more than $100 million in share repurchases and dividends combined, which we are well on our way towards achieving with $32 million of capital returned to shareholders in Q1. On Slide 6, investors can see the exciting revenue growth coming from big new verticals. As a reminder, CSG targets industry verticals that have high recurring customer relationships powered by complex subscription and consumption-based business models because the business problems and customer pain points are surprisingly similar. With CSG's integrated workflow solutions, our customers sell, monetize, and engage better as we help them simplify their complex monetization and customer engagement processes. The highly sticky, mission-critical nature of our SaaS solutions is also why we enter most years with 90% or greater revenue visibility, and it's why the vast majority of our customers stay with CSG for decades, thereby reducing the risk for us and our investors even in times of greater market volatility. This also explains why we announced so many fantastic new sales wins, including in 2024 with leading brands like Comcast, Formula One, Walgreens, NRC Health, Telenor Denmark, Lyse Norway, One New Zealand, Zain Sudan, and many others. CSG's global sales and go-to-market teams continued this momentum with more good sales wins in the first quarter. I'm excited to announce that we extended our 30-year relationship with Mediacom, the fifth largest cable provider in the United States. Mediacom employs an arsenal of integrated CSG solutions, trusting us to manage their billing, product catalog, order management and provisioning activities, process secure payments with our cloud-based payments platform, optimize their dispatch and field tech operations, and digitally engage with customers in intuitive and personal ways to reduce call center volumes with CSG Xponent. I'm also excited to announce that with this extension, Mediacom will continue to leverage CSG Bill Explainer.ai, our leading-edge AI-driven solution that helps eliminate bill confusion and relevant customer engagement to create a clear and engaging customer journey. We look forward to continuing to help Mediacom increase long-term customer loyalty and mitigate call center costs. In April, we announced a fantastic expansion with Liberty Latin America, a long-standing CSG customer and one of the leading communication companies in the region. Liberty Latin America chose CSG to streamline its wholesale business and unify operations across 21 countries and multiple lines of business. CSG's digital wholesale suite will optimize their wholesale rating, charging, and settlement processes by reducing operational costs and simplifying the management of their B2B partner agreements and business relationships. We won an excellent extension with PLDT, the Philippines' largest fully integrated telecom company. Team CSG will continue to help PLDT enhance its wireless customer experience by delivering smart invoicing solutions that streamline their billing operations and enable more personalized and transparent billing communications. We are proud to help PLDT strengthen their customer retention as a result of their enhanced subscriber experience. In financial services, we expanded our relationship with JPMorgan Chase as CSG solutions will now help improve their cardholder overdraft experience. This is another great example of our sales team growing CSG's share of wallet with existing customers. We closed an exciting new win with North Texas Tolling Authority; NTTA selected CSG to provide data-driven customer experience solutions to streamline communications with drivers who use their toll roads. This win further diversifies CSG's presence in the tolling and transportation industry and comes on the heels of another exciting tolling win we announced in Q4 2024 with the Oklahoma Turnpike Authority. CSG is highly focused on bringing greater value to toll road operators all across the U.S. with opportunities to expand our tolling presence globally over time. Payments also continue to contribute nicely to our revenue diversification success and our revenue growth, where we grew our payments merchant base 13% year-over-year to 135,000 merchants in Q1. We continue to see good business performance and growth in payments. Moving to Slide 7. The CSG management team and Board are fully committed to turbocharging our profitability and free cash flow well beyond our good Q1 results. We will hold ourselves accountable to become a more asset-light SaaS company where we generate much greater profit and cash flow from every dollar we invest. While we have relatively low annual CapEx spend ranging from $20 million to $30 million, we aspire to reduce our working capital needs and fixed asset levels going forward with the same discipline that we've applied to our profit improvement efforts. With the consistency that we have expanded non-GAAP adjusted operating margin from 16.6% in 2022 to 17.2% in 2023 to 18.1% in 2024, with the midpoint of our revised 2025 guidance now sitting at 18.6%. Looking ahead, 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 with an aspiration to operate in the 19% to 20% range for 2026. And we are seeing similar improvements in adjusted EBITDA margin, where we grew our adjusted EBITDA margin 220 basis points to 23.7% in Q1 year-over-year, a trend we expect to continue, which is represented in our revised 2025 guidance. As we work hard to achieve all these improved operating results, one of the metrics we care most about is seeing this better profitability convert nicely into strong double-digit non-GAAP adjusted free cash flow growth in both 2025 and 2026. Turning to Slide 8. CSG has a strong, healthy balance sheet, a proven ability to unlock shareholder value with disciplined M&A and a commitment to being an excellent, offensive and defensive choice for investors looking for relative safety in today's turbulent markets. We believe CSG's stock price represents an excellent buy for investors and for CSG, so we will stay balanced and disciplined as we focus on any strategic or financial move that the Board of Directors and management believe will deliver excellent value for shareholders. With respect to M&A, we are very pleased with the two smaller, highly accretive acquisitions closed in 2024. We were able to acquire both companies at highly attractive multiples with both small tuck-in deals adding highly profitable, high recurring revenue for CSG. We continue to actively search for, vet and potentially close more value-creating M&A deals in 2025. As I wrap up my opening remarks, we are excited about our good Q1 start as we stay laser-focused on making 2025 a year of breakthrough results that can become the springboard for even bigger growth heading into 2026 and beyond. As we pursue every creative new idea that can help us elevate our performance and accelerate our results, the foundations of our success remain constant. CSG has an unwavering commitment to being a humble culture-first, diverse global leader. CSG will hold ourselves accountable to world-class operating discipline with a relentless drive to constantly learn and get better. CSG will co-create value with customers all around the world as we help them sell, monetize and engage better with our integrated domain-specific CSG workflow solutions. CSG will put our money where our mouth is by tightly linking management compensation to the business and financial commitments we make to our shareholders. And CSGers all around the world will stay hungry and obsessed because we know growth-oriented relentlessness is an essential ingredient to creating sustained value regardless of the obstacles standing in our way. With that, I will turn it over to Hai for more details.

Hai Tran, CFO

Thanks, Brian. Let's walk through our Q1 2025 financial results, and then I'll wrap up with some key conclusions. Starting on Slide 10, we generated $299 million of revenue versus the $295 million we generated last year and represents the highest first quarter revenue in our company's history. From a phasing perspective, our Q1 results came in slightly better than we had expected and benefited from a couple of million dollars of revenue we had anticipated coming in later in the year. Looking ahead, we now expect to grow revenue in 2025 between 2% and 3%. Moving on, our Q1 2025 non-GAAP operating income was $51 million or a non-GAAP adjusted operating margin of 19% as compared to $45 million or 16.6% in the prior year period. Similarly, our non-GAAP adjusted EBITDA was $64 million for the first quarter or 23.7% of revenue, excluding transaction fees, as compared to $58 million or 21.5% in the prior year period. We are excited to see non-GAAP adjusted EBITDA improve over 200 basis points in Q1 of 2025, and we believe we have a clear path to exceed 25% non-GAAP adjusted EBITDA margins in the coming years. Our margin expansion is being driven by our increasing success in selling sticky SaaS revenue solutions, combined with operating leverage enhancing initiatives that include improved procurement, increased productivity, and process reengineering. Specifically, we were able to grow Q1 non-GAAP adjusted operating income and non-GAAP adjusted EBITDA at 15% and 11%, respectively, against the prior year period. We expect to maintain our higher profitability metrics as we have taken significant cost-efficiency actions to optimize our capacity and better align CSG's resources to areas of our business that will deliver faster growth. I'll share more on our revised 2025 guidance targets momentarily. Lastly, our Q1 2025 non-GAAP EPS was $1.14, a 13% increase as compared to $1.01 in the prior year period. The increase in non-GAAP EPS is mainly due to the higher non-GAAP adjusted operating income, partially offset by adverse foreign currency movements. As investors can see, Team CSG is delivering on our commitment to consistently grow non-GAAP adjusted EBITDA, non-GAAP adjusted operating margin and non-GAAP EPS much faster than revenue growth in 2025 and 2026. Turning to Slide 11. I will go through the balance sheet, our cash flow performance and shareholder return. Our Q1 2025 cash flow from operations was $11 million as compared to cash used in operations of $29 million in Q1 of the prior year. Further, we had non-GAAP adjusted free cash flow of $7 million in Q1 of 2025 as compared to $34 million of non-GAAP adjusted free cash outflows in Q1 of 2024. This represents our strongest Q1 non-GAAP adjusted free cash flow result in seven years and is driven primarily by our increased operating margins, improvements in our working capital, including changes in our variable incentive compensation and active management of vendor relationships. Moving on, we ended the first quarter of 2025 with $136 million of cash and cash equivalents. That, along with our outstanding debt at March 31, 2025, results in $415 million of net debt, and our net debt leverage ratio sits at 1.6x adjusted EBITDA. Further, we have $610 million in liquidity as of the end of the quarter. I'm also pleased to share that in March, we entered into a new 5-year revolving credit facility. With this transaction, we were able to consolidate our term loan and revolver into one highly flexible and capital-efficient $600 million revolving credit facility. This transaction had multiple benefits, including our ability to secure borrowing rates identical to our former 2021 credit facility terms, an overall covenants-light package, and greater flexibility with a 100% revolving line of credit structure. Turning to the page, I'll revisit our 2025 guidance targets. In summary, we are raising profitability and non-GAAP EPS targets. Further, we still expect approximately 48% of our revenue to be generated in the first half of 2025 and the remaining 52% in the second half. 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. We remain committed to our 2% to 6% long-term annual revenue growth range with the expectation to be at the midpoint or higher in most years. As part of our commitment, I want to highlight CSG's focus on sticky, high quality recurring revenue that continues to support our improved margin expansion and non-GAAP adjusted free cash flow growth. Wrapping up, we love what we see in our business, powered by our operating discipline, R&D innovation and ongoing sales wins. CSG will continue to relentlessly prioritize every investment we make and stay very disciplined in the allocation of resources and the use of capital. Innovation, including how we leverage the transformative power of AI across CSG and in adherence to a risk/reward framework with continuous learning are key cornerstones of how we have and will continue to grow top and bottom results even faster. 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. With that, I will turn it over to the operator to facilitate the question-and-answer session.

Operator, Operator

Thank you. And we will now begin the question-and-answer session. And our first question comes from the line of Dan Bergstrom with RBC Capital Markets. Your line is open.

Dan Bergstrom, Analyst

Hey, thanks for taking my questions. Any thoughts you could share as far as what you're hearing from customers around the end of the quarter? Anything to note around those last couple of weeks? We've heard different views across software so far as to whether it was a normal close or there were some elevated uncertainty. And then maybe could you talk to the tone of business through the first month of the new quarter here?

Brian Shepherd, CEO

Yes, sure. Thanks, Dan. Appreciate the question. I wouldn't say there's anything unique in Q1 or the first month of this quarter. I think just the global macroeconomic uncertainty in general that's been around for a couple of quarters, we see that continuing. And so, what we see in most industry verticals are some belt tightening. And therefore, any solution that can actually improve experience can help drive cross-sell or upsell on their part or cut their operating costs and has a short ROI payback, you're seeing those deals still move through even with some of the heightened concern that most customers and most companies are operating with today. I think the second thing that we see is if there's a strategic longer-term transformation horizon that can really move the business and put it in a better competitive position, we still see those bigger deals coming to the market. We still see deals getting signed as we've announced a bunch of those. But I would say people are thoughtful and they're measuring two to three times before they move forward with those bigger transformations. But we see them. It's just they're being thoughtful. Hai, anything else you'd add to that?

Dan Bergstrom, Analyst

Will just ask a follow-up then on the margin side, really impressive here in the first quarter, and I appreciate the added color in the script around guidance. The presentation pointed to constantly optimizing and reinventing how you do business around the expense side. Maybe, Brian, could you take a step back and maybe expand on those concepts a bit and then talk to your philosophy around constantly optimizing costs?

Brian Shepherd, CEO

I appreciate that question. We will be discussing operating discipline frequently in the upcoming quarters. I take great pride in how the CSG teams are closely examining our actions. If something does not provide value to our customers or our business and shareholders, we will either stop it or reinvent it. This includes everything from AI to traditional operational improvements. We're making significant progress, moving from small improvements to more substantial changes. We are only beginning to enhance our EBITDA and operating margin. It's not solely about efficiency; we are also focusing on innovation. As our margins rise, we are increasing our R&D spending at a quicker pace because, as a technology company, we believe innovation is crucial to maintain both our current and future platforms for our customers. Investing in innovation and reallocating less effective spending to more value-added initiatives is something I am proud to see progress in over the last two years. Additionally, part of our margin growth is connected to our revenue mix shift that Hai often discusses. By selling more SaaS and high-margin deals, along with diversifying into faster-growing industries, we are gaining operating leverage. This is showing up in our gross margin, operating margin, EBITDA, and free cash flow. I am particularly excited about the potential for our free cash flow, especially as we are starting to see improved profitability translate into cash flow. We are focused on becoming more asset-light and achieving double-digit returns through 2026. Stay tuned for what comes after 2026; we aim to keep this momentum going.

Dan Bergstrom, Analyst

Thank you.

Greg Burns, Analyst

Good evening. Can you discuss the revenue trends at Charter and Comcast? It appears that Comcast was flat year-over-year but declined sequentially, possibly due to seasonality. Additionally, Charter experienced a slight decrease year-over-year and quarter-over-quarter. Could you elaborate on the factors driving these trends and the overall demand dynamics within the cable market?

Brian Shepherd, CEO

Sure. Greg, I hope you're doing well. There are a few points to discuss. Looking at the trends we've shared, we’ve seen a compounded annual growth rate of about 2.6% from 2017 to now. Over the medium to long term, we anticipate annual growth in that range. Our contracts include price escalators, and there are new solutions and territories we can offer, which may lead to quarterly fluctuations. As we mentioned, our revenue is not significantly affected by the number of broadband additions or total adds they have, so that headwind isn’t impacting us much. One factor to note in Q1 is that we secured a new deal with Comcast in a billing area outside of the core triple play, which contributed about $10 million in one-time revenue and may affect the growth comparison between 2024 and 2025. Additionally, we have a six-year renewal with Comcast, but we decided not to increase prices in 2025. This means we won't see the benefit of a price increase from Comcast this year, but it's part of the favorable six-year agreement. These factors are influencing the quarter-over-quarter comparisons you mentioned.

Greg Burns, Analyst

All right. Great. Thank you.

Matthew Harrigan, Analyst

Thank you. And congratulations on the guidance. I'm curious on the M&A side as you look to be more active and maybe some larger assets get dislodged. I know every circumstance is a little unique and sometimes idiosyncratic. But what are you really looking for? Is it IP? Is it channels? Is it incremental market share right out of the blocks? And generally, what sort of disparity are you seeing in the parent seller versus buyer multiples when you layer in synergies? I know some of it's on the revenue side and it's realized over time, and it's tricky. But just kind of general thoughts more specifically on your ideal M&A candidate. I know probably different companies have different possibilities. And then secondly, also on the thing one and thing two, otherwise known as Charter and Comcast, you've seen some divergence in results. I mean, Charter, I think, has done a better job on bundling and pricing sometimes even though there's a lot of commonalities on the product, okay. But it feels like broadband is just becoming more of a unified category between mobile and fixed line and the walls are breaking down. And it feels like there's even more maybe of an imperative for these companies to have unified billing on a competitive vantage point. So those are my two quick questions, I guess, fairly broad. Thank you.

Brian Shepherd, CEO

Thank you, Matt. I appreciate it. On the M&A front, there are several positive aspects we can explore. Firstly, we feel no urgency to pursue any deal. Our focus on operational discipline will guide us forward. However, we observe that the M&A market is currently as active as ever. There are valuable opportunities with decreasing pricing that we find appealing. Yet, we will maintain our discipline and will not feel compelled to engage in a deal merely for the sake of it. To provide more insight into our interests, we recognize that sustained growth, profit expansion, and cash generation across industry verticals hinge on delivering comprehensive, integrated, domain-specific solutions. These solutions encompass elements such as product catalogs, order management, monetization strategies, improved digital customer experiences, and integrated customer engagement. We value the sticky nature of integrated offerings. If opportunities arise, we aim to allocate two-thirds of our M&A budget to acquiring companies that excel in areas relevant to us. We're particularly interested in SaaS technologies and sectors that simplify complex customer engagement and monetization. When we encounter assets with strong gross margins, double-digit organic growth, and high profitability that can enhance our operations and facilitate cross-selling, we would be eager to pursue such acquisitions within our core markets or in other industry verticals. Additionally, we see potential in scale and portfolio expansion deals that could be significantly beneficial before synergies are considered. These acquisitions could integrate well into our existing portfolio and be effectively marketed by our global sales teams in the telecom and cable sectors. Post-synergy, these deals could generate substantial profits. We categorize these opportunities as scale and portfolio expansion and believe several attractive options may arise for our shareholders. We are evaluating both sets of opportunities to invest our capital wisely and effectively, with a strong emphasis on risk adjustment. Our goal is to enhance the double-digit organic growth we are currently experiencing. Moving on to our key partnerships, we continue to feel privileged to support both Charter and Comcast in their initiatives. They are the two fastest-growing wireless providers in the U.S. market, and we anticipate this trend will persist. While both companies face challenges in broadband, we recognize that they are each taking distinct approaches to address these issues. I've previously mentioned the importance of not underestimating the competitive responses from either Comcast or Charter when they confront market difficulties. We are excited about the advancements taking place, and our focus is on remaining mission-critical, delivering consistently, and offering innovative ideas to enhance their customer experiences while helping them reduce costs. This could allow them to adopt more aggressive pricing and customer acquisition strategies, benefiting both them and us. Therefore, we expect to see strong competitive responses from both companies in the forthcoming quarters and years, and CSG is committed to supporting their efforts.

Matthew Harrigan, Analyst

And since you clearly have a purview even outside the U.S., if that's the right word on telecom, I would think that even if you look at Europe or Africa or India, you're seeing more of an imperative on companies to kind of break down the walls on the separate billing for broadband and mobile. I know you can't be too specific on Charter and Comcast, but it just feels like that's ever more of an imperative. And how tricky is it? I mean, how fast could you do that? I mean, based on what you're doing in Africa, for instance, I would think you could probably do that, implement that pretty fast because you certainly have the experience internationally.

Brian Shepherd, CEO

I mean, obviously, what we've seen in markets outside the U.S., where I think there was much more price pressure and intense competition across cable and wireless, that drove a level of maybe reinventing a more radical reinvention of business process. It doesn't start with the tech stack. If you want to radically reduce your cost, have an easier digital experience. And so, what we saw in other markets is them simplifying their business processes, driving a converged experience exactly like you're talking about, that therefore enabled a lower-cost tech stack to actually be part of the winning strategy for a lot of these operators. That's been a core tenet in both consumer wireless and enterprise wireless that's caused a big part of our growth in that part of the market. I think that pressure now has clearly finally come to the U.S. market. We see that with T-Mobile and Verizon and AT&T getting the lion's share of the broadband adds. You see that in the U.S. market with Comcast and Charter being the fastest-growing wireless by a landslide. And so therefore, I think being more intentional about simplifying business processes and product offers, simplifying the pricing and lowering the cost to serve, we think is fundamental to winning big in the U.S. market or in the global markets, and we're trying to do our part. So obviously, we have our view that a converged experience on broadband and wireless could drive significant consumer benefits and significant cost-saving advantages. When some of our customers may decide to take advantage of that, that's clearly their decision. We're just trying to bring them ideas and solutions.

Matthew Harrigan, Analyst

Great. Thanks, Brian.

Michael Berg, Analyst

Hi, thanks for taking my question. I just wanted to dig in a little bit differently on the telco angle. There looked to be some weakness in that vertical there. Is that strictly a function of the Charter degradation here in Q1? And maybe you can just dig into both the dynamics of the weakness in Charter and telco and the relationship there. Thanks.

Brian Shepherd, CEO

Yes. Hai, have you joined? Do you want to talk anything about the telco side?

Hai Tran, CFO

Yes. No, I mean it isn't specific to Charter. It is generally speaking, part and parcel of the natural cycles that we're seeing across the board. As Brian said, the global telco business has undergone a multi-year transformation and continues to undergo a multi-year transformation. It's highly competitive. And we are battling for our fair share of that business, and we're winning a number of opportunities. But what we are seeing and one of the reasons we pointed to kind of that 2% to 3% growth rate is the normal anxiety given the uncertainty in the marketplace that does slow down some of the decision-making, but nothing abnormal with regards to what we're seeing in that global telco business, except maybe an extension of the decision-making.

Brian Shepherd, CEO

Yes. I would like to add that this is part of our strategic focus aimed at transforming global telecom over a longer timeframe. We've had significant successes with our SaaS AWS platform, Ascendant in telecom, with several impressive wins. We are intentionally shifting towards offering a less services-heavy, more out-of-the-box, lower-cost solution through our SaaS billing and digital customer experience. We believe that the key to success for global operators lies in reducing radical costs and adopting newer technologies. As a result, we are transitioning to a model that relies less on traditional services, and you can see some SaaS revenue reflected in our numbers. We haven't experienced any slowdown in telecom; in fact, we've achieved more wins than ever. There will be a gradual shift from on-prem implementation services to more SaaS solutions, which I believe will unfold over the next three to five years.

Greg Burns, Analyst

Got it. Super helpful color. Thank you.

Nehal Chokshi, Analyst

Thank you. A couple of questions here. First question is that in the prepared commentary towards the end, you commented on a strong pipeline. Can you give a little bit of characterization as far as what that means numerically? I mean, like does that mean better growth than at least what you're putting up revenue-wise? Or just what does strong pipeline mean?

Brian Shepherd, CEO

Hai, are you on or did we lose you? It seems we lost Hai. Nehal, I can take that and I appreciate you being here and your question. We track the overall size of the pipeline on both a weighted and unweighted basis, looking at annual contract value and total contract value. We monitor the progression through our six stages of the sales pipeline, examining where deals are falling out and where we can accelerate. We also analyze win and loss rates at Stage 5 and 6. Overall, I can say that the size of the pipeline is slightly larger than it was last year. The shape is healthy, and we continue to see good win rates and progressions. So, when Hai shares insights, we see a robust overall size and shape of the pipeline, and we expect to announce positive outcomes in the coming quarters as we execute. While we don't provide specific details, that's what Hai was referring to, and we're pleased with what we're observing across the board.

Nehal Chokshi, Analyst

And is that shape skewed towards the Ascendant platform?

Brian Shepherd, CEO

We have observed an increase, particularly in global telecom and media, and one of the exciting developments has been our partnership in financial services with Australia on our AWS SaaS Ascendant platform. We are also seeing growth in our quote and order CPQ business. There is a strong pipeline in the payments sector, and we are pleased with the activity. There are various telecom deals across small, mid, and large segments in consumer wireless and enterprise, all at different stages in our sales pipeline. The overall trend is positive.

Nehal Chokshi, Analyst

Okay. And then the other question I had was on cash from operations, definitely much stronger than what we expected. It looks like stronger than consensus. Is it fair to say that it was also stronger than what you guys are expecting?

Brian Shepherd, CEO

I think we performed slightly better than we expected in Q1 due to some timing and strong performance, which we were very pleased with. We generally focus on the midpoint of the ranges we provide, and moving from $113 million last year to a midpoint of $130 million demonstrates strong double-digit growth. We anticipate a very strong double-digit free cash flow year. While we did get off to a slightly better start in Q1, it was encouraging to see that.

John Rea, Senior Vice President of Finance

And Nehal, it's John. Maybe just from a phasing perspective, because it was such a beat versus kind of estimates. We still expect Q1 to be the low point of the year. So, this was not the case where we had significant pull forward from other quarters. We still expect it to be the low point of the year and to grow free cash flow from here as we progress through the next three quarters.

Nehal Chokshi, Analyst

That's great. Very helpful. Thank you. Congratulations.

Brian Shepherd, CEO

Thanks, everyone, for attending. As you heard, we are proud of the Q1 start, but we're not satisfied at all. We think Team CSG is just getting started on this operating discipline, constantly putting up results that we're proud of. And we think we can do a lot better, and we're holding ourselves accountable to ensure we do that in the coming quarters. So, thanks for joining, and I look forward to talking to you this time next quarter.

Operator, Operator

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.