10-K: CSG Systems to Merge with NEC, Reports Mixed 2025 Results

CSG Systems International, Inc. reported a 2.2% revenue increase to $1.22 billion in 2025, but operating income and diluted EPS declined due to merger-related costs and higher stock-based compensation, as it moves towards a $80.70 per share cash merger with NEC Corporation.

Summary

• CSG Systems International, Inc. (CSG) will merge with NEC Corporation, becoming a wholly-owned subsidiary of NEC, with shareholders receiving $80.70 per share in cash.
• The merger agreement was unanimously approved by CSG's Board of Directors and adopted by stockholders on January 30, 2026, with closing expected in 2026.
• Revenue for 2025 increased by 2.2% to $1,223.3 million from $1,197.2 million in 2024, driven by growth in SaaS and related solutions.
• Operating income decreased by 9.7% to $118.7 million in 2025 from $131.3 million in 2024, with the operating margin falling to 9.7% from 11.0%.
• Diluted EPS for 2025 was $1.98, a significant decrease from $3.03 in 2024.
• The decrease in operating income and EPS is primarily attributed to higher acquisition-related costs ($41.5 million in 2025 vs $20.0 million in 2024) and increased stock-based compensation ($45.3 million in 2025 vs $33.6 million in 2024), including accelerated vesting due to the merger.
• Cash and cash equivalents increased to $180.0 million at year-end 2025 from $161.8 million in 2024.
• Cash flows from operating activities improved to $155.9 million in 2025 from $135.7 million in 2024.
• The effective income tax rate rose to 38% in 2025 from 23% in 2024, mainly due to the tax impact of accelerated stock vesting, disallowance of merger transaction costs, and a valuation allowance for DGIT earn-out compensation.
• CSG extended its contractual relationship with Charter through September 30, 2031, including reduced price escalators for a portion of 2025 and annual fixed-price escalators from 2026.
• A Master Services Agreement for a Latin America implementation project was terminated on July 5, 2025, with $18.1 million in accounts receivable outstanding.
• Restructuring activities in 2025 included a global workforce reduction of approximately 280 employees and the closure of a design and delivery center in Crawfordville, Florida, incurring $19.8 million in charges.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a neutral-to-slightly-positive development for shareholders, as the company is being acquired at a fixed cash price, providing certainty amidst declining profitability metrics. The strategic acquisition by NEC offers a clear exit for investors, despite the underlying operational challenges reflected in the 2025 financial performance.

Positives

• Revenue increased by 2.2% to $1,223.3 million in 2025, driven by continued growth in SaaS and related solutions.
• Cash and cash equivalents grew to $180.0 million at year-end 2025, up from $161.8 million in 2024.
• Cash flows from operating activities increased by 14.9% to $155.9 million in 2025.
• The contractual relationship with Charter, a significant customer, was extended through September 30, 2031, providing long-term revenue stability.
• The company successfully secured a new $600.0 million five-year revolving loan facility (2025 Credit Agreement), replacing the previous one, with $474.8 million available as of December 31, 2025.
• CSG's Board unanimously approved the merger with NEC, and stockholders adopted the agreement, indicating strong internal alignment on the strategic direction.

Negatives

• Operating income decreased by 9.7% to $118.7 million in 2025, leading to a lower operating margin of 9.7% compared to 11.0% in 2024.
• Diluted EPS significantly declined to $1.98 in 2025 from $3.03 in 2024, a 34.6% decrease.
• Acquisition-related costs increased substantially to $41.5 million in 2025 from $20.0 million in 2024, impacting profitability.
• Stock-based compensation increased by $11.7 million to $45.3 million in 2025, partly due to accelerated vesting related to the merger.
• The effective income tax rate rose to 38% in 2025 from 23% in 2024, reducing net income.
• Interest income decreased by $3.5 million to $5.2 million in 2025 due to lower cash balances swept into money market accounts.
• The company incurred a $0.5 million loss on extinguishment of debt in March 2025.
• Foreign currency transaction losses resulted in a $3.8 million other expense in 2025, a $6.5 million negative swing from 2024.
• A Master Services Agreement for an implementation project in Latin America was terminated, leaving $18.1 million in accounts receivable outstanding, with recovery uncertain.
• Restructuring and reorganization charges increased to $19.8 million in 2025, including costs for workforce reductions and facility closures.

Risks

• The merger with NEC may not be completed on the anticipated terms or timeline, or at all, which could adversely affect stock price, business, financial condition, and results of operations.
• If the merger is not completed, CSG may be required to pay NEC a termination fee of $82.0 million and incur substantial unrecoverable costs.
• The pendency of the merger could negatively impact business by causing customers, suppliers, and partners to delay decisions or terminate relationships, and may lead to the departure of key personnel.
• Restrictions in the merger agreement limit CSG's ability to enter into certain transactions or pursue business opportunities that might otherwise be beneficial.
• Litigation challenging the merger agreement could delay or prevent its consummation.
• The fixed cash merger consideration of $80.70 per share means stockholders will forego potential long-term value from CSG's strategy or higher acquisition proposals.
• A significant portion of revenue is derived from a limited number of customers (Charter, Comcast, DISH Network), and the loss or reduction of business from any of these could materially impact financials.
• The global communications industry is highly competitive and undergoing consolidation, which could lead to pricing pressures, loss of market share, or customers developing internal solutions.
• A reduction in demand for CSG's revenue management platforms could materially affect financial position and results of operations.
• Dependency on a variety of computing and processing environments and communications networks (including third-party cloud providers) exposes CSG to risks of extended interruptions, outages, or security breaches, including cyber-attacks and ransomware.
• Inefficient or ineffective implementation of new solutions or migration of customers/merchants could damage reputation and impact financial results.
• Failure to respond to rapid technological changes, including the pace of AI development and integration, could impact competitiveness and R&D efforts.
• Challenges with properly managing the use of AI, including cybersecurity, data privacy, ethics, intellectual property, accuracy, and bias risks, could lead to adverse consequences.
• Reliance on a limited number of third-party vendors exposes CSG to supply chain disruptions, cost increases, and cyberattacks.
• Global operations subject CSG to risks such as foreign currency fluctuations, staffing challenges, longer sales/collection cycles, trade barriers, sanctions, and compliance with varied international laws and regulations.
• Failure to deal effectively with fraud, fictitious transactions, and negative experiences could increase loss rates and harm the payments business.
• Use of open source software may subject CSG to intellectual property claims or require re-engineering of software.
• Failure to protect intellectual property rights or claims by others of infringement could substantially harm the business.
• Inability to successfully integrate or achieve financial targets of acquisitions could lead to disruptions and adverse financial effects.
• Alliances with strategic partners could put the business at risk if partners do not perform as expected.
• The occurrence or perception of a security breach or disclosure of confidential personally identifiable information could harm the business and lead to legal and financial penalties.
• Potential enforcement actions or financial penalties related to payments regulation in the U.S. (e.g., money transmitter laws) could impact the payments business.
• Non-compliance with anti-money laundering (AML) and counter-terrorist financing laws and regulations could lead to penalties and business restrictions.
• Geopolitical, global market, and economic conditions (e.g., inflation, tariffs, supply chain disruptions, labor shortages) could adversely affect the business.
• Failure to attract and retain key management and other highly skilled personnel could materially affect the business, especially during the merger pendency.
• Variability of quarterly revenue and failure to meet revenue and earnings expectations would negatively affect the stock price.
• Changes in tax laws and regulations could adversely affect results of operations and financial position.
• A global pandemic could disrupt business operations, impact customer demand, and affect the ability to deliver solutions.
• Failure to meet ESG goals and commitments or unfavorable stakeholder perceptions of ESG efforts could lead to reputational harm or legal liability.
• Substantial impairment of goodwill and long-lived assets in the future is possible, which would impact results of operations.

Future Outlook

The closing of the merger with NEC Corporation is expected to occur in 2026, subject to customary closing conditions and required regulatory approvals. If consummated, CSG will become a privately held company, and its common stock will be delisted from Nasdaq. The company anticipates continued material needs for capital resources but believes current cash, the 2025 Revolver, and future operating cash flows will be sufficient for at least the next twelve months. The company also expects to incur additional costs related to the proposed merger, such as financial advisory, legal, accounting, and retention bonuses.

Management Comments

• Our cloud-first architecture and customer-centric approach empower companies to deliver unforgettable experiences for their B2B, B2C, and B2B2X customers, making it easier for people and businesses to buy, use, and pay for the services they value most.
• CSG manages billions of critical customer interactions annually, and we do it with a singular focus an obsession on our customers success.
• As a global technology leader, we aspire to envision, invent, and shape a better, more future-ready world.
• We believe customer experience is the number one differentiator for businesses today.
• We continue to make meaningful investments in research and development (R&D), incorporating AI and other emerging technologies into our solutions, to ensure that we stay ahead of our customers needs, advancing our customers businesses as well as our own.
• At CSG, many of our significant customer relationships span decades. To earn the right to do business with companies for that length of time, you need to be trusted, dependable, and innovative. You need to be bold, future-forward, relentlessly focused, passionate, customer-obsessed, people-centric, innovative and most importantly you need to deliver.
• We believe the successful execution of our goals will allow us to accelerate our revenue and earnings growth, and therefore, create long-term sustained value for our customers, employees, and stockholders.

Industry Context

StockSavvy.ai notes that CSG's strategic merger with NEC Corporation reflects a broader trend of consolidation within the technology and telecommunications sectors, where larger entities seek to acquire specialized SaaS platforms to enhance their digital monetization and customer experience offerings. The company's focus on AI integration and expansion into diverse verticals like healthcare and financial services aligns with the industry-wide push for digital transformation and personalized customer engagement, positioning CSG to capitalize on these trends under new ownership. The continued reliance on a few large telecom customers, however, highlights the ongoing impact of industry consolidation on vendor relationships.

Comparison to Industry Standards

• CSG Ascendon was named a Major Player in Subscription Management by IDC, indicating strong performance in a competitive market segment.
• MGI Research recognized CSG Ascendon as a leader in Agile Billing, suggesting its billing solutions are at the forefront of industry innovation.
• Gartner and QKS highlighted CSG Quote & Order for its advanced B2B capabilities, positioning it favorably against competitors like Salesforce and Adobe in enterprise software.
• QKS also positioned CSG Xponent as a leader in journey management, analytics, and communications, competing with established players like Pegasystems and Twilio.
• CSG Xponent won the 2025 Banking Tech Award from FinTech Futures for Best Personalisation and User Experience Solution, demonstrating industry recognition for its customer experience offerings.
• CSG Bill Explainer (part of CSG Xponent) won Gold in the 2025 CMSWire IMPACT Awards for Best Customer Experience Transformation, further validating its leadership in customer-centric innovation.
• CSG was named to CRM Magazine's prestigious CRM Top 100 list, reinforcing its standing among top CRM and customer engagement providers.
• CSG Quote & Order was a finalist in Fierce Networks' 2025 Innovation Awards for Customer Engagement, indicating strong competitive performance in this area.

Management Changes

Corporate Governance

Legal Proceedings

• Not presently a party to any material pending legal proceedings.
• The company was notified by the Internal Revenue Service that its 2023 federal income tax return had been selected for audit, currently in initial stages with no adjustments proposed.

Stakeholder Impact

• Shareholders: Will receive a fixed cash consideration of $80.70 per share upon merger completion, leading to delisting and loss of future equity participation. Subject to potential tax implications.
• Employees: Experience uncertainty regarding future roles due to the merger. Key personnel are subject to retention bonus agreements. Workforce reductions and facility closures impacted approximately 280 employees in 2025.
• Customers: May experience uncertainty or disruptions during the merger pendency. Long-term contracts, like the extended Charter agreement, provide stability. Continued investment in AI and SaaS solutions aims to enhance customer experience.
• Creditors: The 2025 Credit Agreement loans are expected to be repaid, and commitments terminated upon merger closing. 2023 Convertible Notes holders will have a conversion trigger.
• Suppliers/Vendors: May face uncertainty or changes in relationships due to the merger and potential integration efforts.

Next Steps

• Closing of the merger with NEC Corporation is expected in 2026, subject to satisfaction of customary closing conditions and required regulatory approvals.
• If the merger is consummated, CSG common stock will be delisted from Nasdaq and deregistered under the Exchange Act.
• The company will continue to pursue remedies for the terminated Master Services Agreement in Latin America to recover $18.1 million in outstanding accounts receivable.
• The mainframe hardware refresh for the outsourced data center environment is scheduled to be completed during 2026.
• The company will continue to evaluate the impact of ASU No. 2024-03 (Expense Disaggregation Disclosures) and ASU No. 2025-06 (Internal-Use Software) on its financial statements and disclosures.
• The company anticipates making the election to continue capitalizing and amortizing domestic R&D expenditures over a period of 60 months, following the enactment of the One Big Beautiful Bill Act (OBBBA).

Key Dates

Recommendation

The company is subject to a definitive merger agreement with NEC Corporation at a fixed cash price of $80.70 per share. With stockholder approval already secured and closing expected in 2026, the primary investment consideration is the arbitrage spread between the current market price and the offer price. For most investors, holding until the merger closes or selling if the market price exceeds the offer (minus transaction costs) is the appropriate strategy. The declining operating income and EPS in 2025, while notable, are secondary to the merger's certainty for current shareholders.

Keywords

SaaS, Billing, Customer Experience, Payments, Revenue Management, Telecommunications, Broadband, Cable, Merger, Acquisition, NEC Corporation, CSGS, SEC Filing, 10-K, Financial Technology, AI, Digital Monetization