Customer experience software company CSG Systems (NASDAQ:CSGS) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 2.3% year on year to $297.1 million. The company’s full-year revenue guidance of $1.23 billion at the midpoint came in 9.9% above analysts’ estimates. Its non-GAAP profit of $1.16 per share was 10.7% above analysts’ consensus estimates.
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CSG (CSGS) Q2 CY2025 Highlights:
- Revenue: $297.1 million vs analyst estimates of $291.7 million (2.3% year-on-year growth, 1.9% beat)
- Adjusted EPS: $1.16 vs analyst estimates of $1.05 (10.7% beat)
- Adjusted EBITDA: $67.98 million vs analyst estimates of $59.64 million (22.9% margin, 14% beat)
- The company reconfirmed its revenue guidance for the full year of $1.23 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $4.78 at the midpoint
- EBITDA guidance for the full year is $263.5 million at the midpoint, in line with analyst expectations
- Operating Margin: 10%, up from 8.8% in the same quarter last year
- Market Capitalization: $1.72 billion
StockStory’s Take
CSG’s second quarter results reflected solid execution on margin expansion and ongoing efforts to diversify revenue away from its legacy cable and telecom base. Management pointed to a notable improvement in non-GAAP operating margin, driven by higher-margin SaaS deal wins and continued cost discipline. CEO Brian Shepherd highlighted progress in expanding into financial services, insurance, and property management, emphasizing that “32% of total CSG revenue came from industries outside of cable and telecom, up from 31% in the prior year period.” The company also benefited from a nonrecurring, high-margin license arrangement recognized during the quarter.
Looking ahead, CSG’s full-year guidance is shaped by a stable pipeline and disciplined investment in product innovation, especially in artificial intelligence (AI) and workflow automation. Management reiterated its commitment to expanding operating margins and growing free cash flow, with Shepherd stating, “We are committed to consistently expanding non-GAAP adjusted operating margin...without impeding our ability to deliver good annual organic revenue growth.” The company also intends to leverage strategic partnerships and selective acquisitions to accelerate entry into new verticals while maintaining a cautious approach to larger M&A deals.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance primarily to operating improvements, a favorable sales mix, and ongoing success in entering new industry verticals.
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Revenue diversification progress: CSG continued shifting its revenue mix beyond cable and telecom, with Shepherd noting that new industry verticals accounted for 32% of revenue. This trend was supported by wins in financial services and property management, indicating traction in markets with complex, recurring customer relationships.
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Margin expansion drivers: The quarter’s margin improvement stemmed from a mix of high-margin SaaS contracts, improved operating efficiencies, and a one-time license deal. CFO Hai Tran noted that, even excluding the nonrecurring benefit, gross margin saw over a 100-basis-point improvement year-over-year, driven by better service margins and cost controls.
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SaaS and payments growth: The company’s SaaS and payments businesses showed continued strength, with the merchant base growing 14% year-over-year and management highlighting the stickiness and scalability of cloud-based payment offerings. This supports the broader strategy of migrating toward more asset-light, recurring revenue streams.
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Key customer renewals: CSG secured a long-term renewal with Comcast through 2030 without price concessions, a rare achievement in the industry. The relationship with Charter remains stable, with a contract extending into 2028, underscoring revenue stability from its largest clients while still reducing overall customer concentration risk.
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M&A and capital allocation: Management maintained a disciplined approach to acquisitions, favoring smaller, highly accretive deals that add recurring revenue. While larger transformative M&A is not off the table, Shepherd emphasized a focus on shareholder value, stating that “to do the bigger deals, we’ve got to get those right.”
Drivers of Future Performance
Management expects future performance to be driven by disciplined expansion into new verticals, operating efficiency gains, and continued investment in AI-enabled solutions.
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Pipeline and new verticals: CSG anticipates growth from continued wins in targeted industries such as financial services and property management. Management views these markets as ripe for expansion due to their need for integrated, recurring revenue solutions, supporting the company’s goal of exceeding 35% revenue contribution from new verticals by 2026.
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AI and digital transformation: Ongoing investment in AI and workflow automation is expected to accelerate profitability and operational efficiency. Shepherd noted growing optimism about AI’s impact, stating that the anticipated improvements in EBITDA and operating margin “are going to come faster and be more impactful even than we thought 2 or 3 quarters ago.”
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Potential headwinds: Management cited elongated sales cycles and cautious discretionary spending among customers as factors that may keep revenue growth at the lower end of guidance. Additionally, foreign currency fluctuations could weigh on reported profitability, as seen in the latest quarter.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be monitoring (1) CSG’s ability to further penetrate new verticals and secure additional cross-industry customer wins, (2) the pace of adoption for AI and workflow automation within its product suite, and (3) continued progress on margin expansion and free cash flow conversion. Execution on disciplined M&A and resilience in customer spending patterns will also be important areas to watch.
CSG currently trades at $62.87, in line with $62.81 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).
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