CSG Systems International, Inc. (CSGS) Earnings Call Transcript & Summary

So today, we announced the acquisition of U.S.-based CSG Systems International, Inc., software company serving telecom and broadband service companies. This is the executive summary. The first one is, so in the U.S. broadband industry, CSG Systems International is a very strong company, not only in this area, but also in the software and service offerings, and we decided to acquire this company, and we will be able to enjoy the synergy by complementing the customer bases and solutions of CSG and Netcracker, our U.S.-based NEC subsidiary. They have different geography as well as customer segment. So we will be able to provide the optimal service to the customers. And also by leveraging on their capability, including DX, we will be able to cross-sell and also expand our businesses. And I believe that there are numerous synergetic businesses that we can have. And also, we can utilize NEC Group's technologies, customer base and capital to drive further global growth of software services businesses from North America, and along with Europe focused digital government and digital finance businesses already explained in the presentation. And from the financial point of view, we can have the stable earnings of CSG. And therefore, NEC's non-GAAP EPS can be increased by 7.7% even without the synergies. But with the synergy, we will be able to aim at further upside impact. Now please look at the details of the deal summary. The company name is CSG. And in terms of acquisition, it's $80.7 per share and the total acquisition is $2.9 billion, which is about JPY 441.7 billion. And in terms of implied enterprise value, it is about $2.9 billion, which is about JPY 438.5 billion. The premium is based on October 28, 2025, the share price was $68.75. So we have a premium of 17.38% and implied EV is at 10.3x. And in terms of financing, we will use our cash on hand and have the new borrowings. In terms of the structure, through the wholly owned subsidiary of NEC, through a reverse triangular merger with a merger sub will be the scheme. And the conditions are to get the approval from CSG shareholders' meeting and obtain applicable regulatory approvals. And we believe that we will be able to close the deal within next calendar year. This is the CSG systems overview. As you can see, it is the telecom broadband BSS, business support systems software business. And they provide this software, and it is a leading company and it can -- and is securing stable revenue. It was established in 1994. And in terms of the business content, as mentioned before, they have BSS software business mainly for telecom/BB service companies. And also, they have customer experience or CX business, and also they have payment software-related businesses as well. On the right, you see the historical revenue and profit. So the vertical is the sales/revenue. And in 2024, they were able to do $1,197 million, and they were able to increase by 5% CAGR. And adjusted OP was 18% last year and adjusted EBITDA in FY 2024 was 23%. Let's move on. What is the strength of CSG? They have been in business for broadband as well as telecom. And through BSS offerings, they have a very strong portfolio of customers, and they will be able to help DX of the customers. Therefore, they can open the doors of different industries. Please look at the left, this is for Telecom/BB. So they have major U.S. telecom/BB companies as their customers. And on the right, you see the depth and width of their industry. They include financial, healthcare and logistics, and they have expanding CX and payment software. And this segment is growing. And this compares 2020 to 2024 in terms of what is the sales ratio by segment. So the revenue was $991 million and about 77% was telecom and BB customers. And others, i.e., 23%, as you can see on the right, cover CX and Payment Software. Now when you look at 2024, the revenue was $1.197 billion, and the absolute value of telecom/BB increased, but percentage is going down. On the other hand, others, meaning CX and payment software is increasing. This is a significance of this acquisition. This is to enhance a strong base in the telecom and broadband software and service market, and also to expand through the broader customer base of CSG and Netcracker. As you can see in the blue letter, as the highly complementary capabilities between the two companies. So we can expect a very strong synergy potential. In case of CSG, it's headquartered in Englewood, Colorado, and then a pie chart shows the different sales and revenues for different regions. The Americas sales dominates about 90%. But in case of Netcracker, it is situated in Waltham, Massachusetts, in Boston, and also global, and Asia and EMEA is quite prevalent in Netcracker business. So also at the bottom, you see, solutions in business support system is the good in CSG, but CSG provides CX and payment and Netcracker, not just BSS, but also provide the operational support system, so to support systems for the operation of network. Next slide. This is the synergies from these acquisitions. Both companies by obtaining these companies, we can make the large synergy effect, including NEC with customer base, technologies and customer base and DX capabilities to boost product competitiveness and expand into various industries. In the vertical axis shows the segment, and the first one is telecom broadband, and then financial services, healthcare, and logistics and transportation. On the far left, the first synergy is to enhance cross-selling and multi-industry capabilities and to be able to provide BSS type of businesses. Number two is to bolster solutions by utilizing both companies' technology and DX capabilities. The third one is to improve operational efficiency. This is the best synergy and that we can expect good synergies from this acquisition. Also in the NEC Group's technologies, customer base and capital can be fully utilized so we can drive global expansion of software and service from North America alongside DGDF business centered in Europe. And DGDF business -- DGDF business is led by NEC Software Solutions U.K., and Danish KMD in this sector, which can provide these solutions. And from Switzerland, Avaloq, and this is the [ I guess ], management of company. So in the software services, our business are provided by these 3 companies. And in case of CSG, as I've explained, centered in North America and then working with Netcracker is a very good affinity with Netcracker. As you can see in the bottom, in NEC's technology -- with AI technology can be utilized and to be more than 40 countries being deployed using the capital power, the DGDF business and combined with the net crackers and CSG, we can globally lead software and service business and to increase the value of the NEC Group. Next slide. Lastly, I'd like to explain financial impact by this acquisition, even if we include the amortization, we can -- it will immediately impact EPS growth even after deducting amortization and also enables NEC to pursue cash ROIC exceeding WACC. And on the left is the non-GAAP earnings per share. Let me explain on the left, upon closing, immediate EPS growth is anticipated and to be able to achieving via the synergies we can further upside could be achieved. At the left, NEC stand-alone is JPY 173 EPS. With this transaction, even without synergy, you would achieve JPY 186 of EPS, which is approximately 7.7% increase. And then with the -- even with amortization of intangible assets, EPS is to increase by approximately 2.1% to further upside. And then also the double-digit percentage improvement can be expected for sure. And also the right-hand side, the cash ROIC for the acquisition after -- within the 5 years of the acquisition, we can have the cash ROIC could surpass NEC's WACC via realization of synergies, 5.1% in FY 2025, and that was the NEC WACC is between 6% to 7%. So by achieving synergy within a few years, we can have a strong upside and further upside expected. So with that, this was the U.S. CSG Systems International, Inc. is acquired -- will be acquired. Thank you very much for listening.