Good day and welcome to the Second Quarter 2022 CSG Systems International Inc. Earnings Conference Call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. I would now like to turn the call over to John Rea 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 in 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 a 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. Good afternoon, everyone. For those using slides today please join us on slide 4. Q2 was a tale of two very different trends that we saw on the quarter. First, on the positive side, we continue to stay stronger than ever market demand for CSG's industry leading solutions with a healthy growing sales pipeline that consistently leads to exciting big new sales wins each quarter. In the first half of the year our closed in one sales bookings, as measured by annual contract value grew more than 10% year-over-year when compared to our record setting 2021. On the back of these very good sales results we are reiterating our full year 2022 revenue and non-GAAP EPS guidance. On the less positive side, we felt some of the same macro inflationary challenges in Q2 that most global businesses are facing right now. A combination of increased labor and supply chain costs to staff and deliver some of the exciting new sales winds we announced in recent quarters were key drivers the erosion of our non-GAAP adjusted operating margin by over one percentage point coming in at 15.1% in Q2, and 15.7% for the first half, 2022. In order to quickly reverse the margin erosion we experienced this quarter into combat future macro pressures to CSG management team has already begun implementing a meaningful margin improvement initiative in Q2 across all aspects of our business to ensure we deliver both Q3 and Q4 at or even above the mid to upper end of our original target of 16.5% to 17% non-GAAP adjusted operating margin range. This margin improvement initiative will help us capitalize on the strong market demand and ensure we consistently operate at or above our historically strong profitability levels by relentlessly prioritizing every resource and every dollar of…

Thanks, Brian. Let's walk through our second quarter and first half financial results. And then I'll wrap it up with some key conclusions. Starting on slide 12. we generated $527 million of revenue and $490 million non-GAAP adjusted revenue during the first half of 2022. These results represent 3.6% and 3.1% year-over-year growth respectively. Over half of this year-to-date increase can be attributed to organic revenue growth. For the first half of the year, our increase in revenue and non-GAAP adjusted revenue was primarily driven by the continued growth of our revenue management solution, where we serve many of the largest communication service providers in the world. In addition, we are seeing nice growth in our non-CSG offerings, where we serve customers in large high growth industry verticals, such as healthcare, retail, financial services and government. As Brian mentioned, this growth is in the face of 3% to 5% discount headwinds for two of our three largest customers. Our first half non-GAAP operating income was $77 million, or 15.7% of non-GAAP adjusted revenue as compared to $80 million or 16.8% in the same prior year period. In addition to increase expenses related to the key sales Brian highlighted earlier, we also sell pressure on our adjusted operating margin from the SAS businesses we acquired in 2021 as we integrate them and launch new products with their capability that we believe will contribute to CSG revenue growth in the quarters and years ahead. General wage inflation for existing and new hires to excite and retain the best talent, headcount increases year-over-year to deliver on many of the new sales wins closed in prior quarters, and to build a stronger CSG, increase travel and entertainment expenses to build deeper relationships with current customers, executives that recently won new logo and new sales…

Thank you. We'll take our first question from Maggie Nolan with William Blair.

Hi, guys, this is Jesse on for Maggie. First, can we talk about how the pipeline for new business looks in terms of maybe industry vertical? And what would be your expectations heading into this tougher economic environment?

Yes, hi, Jesse. Thanks for the question. Thanks for joining. Maybe I'll give you a little bit of color and difference. So first, the overall before I break it out by some degree industry vertical. First, we continue to see the biggest sales pipeline in terms of both total contract value TCV and ACV that we've had. It continues to grow. The shape of the pipeline is strong and healthy with more we have a six stage sales pipeline. And we love what we see in it. And it continues to kick out a high win rate as supported by the double digit sales wins that we had year-on-year in the first half of 2022, even over a strong 2021. Overall, we like it I'd say if we break it out and you think about what we do in those new verticals like financial services, healthcare, retail tech, government, etc that tends to be more of our digital payment offer and more of our digital customer engagement solutions. And both those businesses are operating at or close to double digit. So that then reflects the shape of the pipeline, the size of the pipeline, and the number of deals that we have in. We love what we're seeing there. And when we think about then more of our core telecom and cable base, we can see good things in both those businesses. They're larger, they're still growing, even with the renewals, but at a slower rate than we would see in some of those other industry verticals. That's why we've also gone up to 26% of our revenue in those other verticals because they're just faster growing even though it's a smaller percentage today of our overall revenue.

Got it. That's helpful. And then my one follow-up. You guys provided some color on your activity in Latin America in the quarter. But could you share any information on your expansion progress in EMEA maybe talking about the competitive environment there and signs that you're winning market share?

Yes, if you go back over the last couple years, it actually been continued to be a good growth rate for us. We have announced a lot of wins in South Africa, in sub-Saharan Africa, we had another one this quarter. We announced the big win in Saudi Arabia in the Middle East, we see a lot of good deal flow, that same thing in Central Europe. So we like what we're seeing in EMEA a lot. I would say the competitive intensity is pretty much the same in all regions of the world. You got to work hard, and you got to perform well to win these deals in every region. So I wouldn't describe one is more intense or less. But we like what we see in the EMEA market, both in terms of selling our monetization revenue management solutions. But the other thing we're really gearing up for, that's part of the investment in sales and marketing we've been making more of our digital customer engagement wins have come in North America. And you've seen some of those announcements, like the bigger AARP, when we had this quarter. But there's no reason that we can serve large banks, large insurance companies, large governments, large retailers in EMEA, or other regions of the world. So we're looking really looking at accelerating sales both through direct sales but also getting more leverage with a channel partner pull through strategy by expanding that offer multi vertical into EMEA and also South America, and Asia-Pacific.

That's helpful color. Thank you.

Thanks, Jesse.

We'll take our next question from Greg Burns with Sidoti.

Hi there. Was there any one particular acquisition that is causing problems in terms of your margins? Or was it just a handful or the sum total of the ones you've done over the last year or so?

Yes, I mean, I think you, Greg, good to hear you on the call. This is Hai. I think the acquisitions but a part of the contributed to the margin pressure that we saw I think as I mentioned, there's a list of others, including us, hiring in advance of some of the big wins that were announced. And we view that as temporary and transitory pressure on the margins until the revenue comes in. So we have a better matching of costs and revenue at that point in time. But acquisitions in and of itself, was but a small part of the challenge. And from our perspective, it's a timing issue will take some time for us to integrate them, lots of new products and capabilities. And we fundamentally believe they'll contribute to our revenue growth for years to come.

Okay. And then the revenue was down a few million dollars sequentially. Was there any particular part of the business driving that? Is there any area of weakness?

No, we like what we're saying on both the revenue and the sales bookings Greg. Hope you're doing well. Appreciate you joining us. You followed us for quite a while. Historically, Q2 is tends to be the soft part of our four quarters. And I would say it's really more timing, not anything specific to any one part of the business. We really like what we're seeing from revenue. Obviously, we're watching all the macroeconomic things going on that everybody else is, but we look at the cable business, the telecom business, the multi vertical, we look at the regions of the world, we look at the different offerings, we like what we're seeing, and we like the outlook, and the forecast for Q3, and Q4 which is why we reiterated full year guidance kind of across the board on revenue. And we just now have to do with CSG does, which is keep executing the sales pipeline, and deliver the strong Q3 and Q4 and show that growth off of a slightly softer Q2.

Okay and then the win in Latin America, was that a net new logo?

Yes, it was. We've done some very small things with them around digital wholesale, but it was kind of a rounding error, the prior work we had. This is a meaningful big deal across our entire suite of solutions from revenue management, monetization, and including our new CSG Encompass and CSG Xponent. So this is a big new win for us in the telecom space.

Okay, so typically non trivial to replace the incumbent. So why do you think that they were willing to take that step and move on to your platforms?

Yes, it's similar to what we've talked about with the wins at MTN with some of our other really strong Telstra is really strong telecom wins we've had in the last couple of years. Typically what we see is, a lot of these operators, they're under a lot of cost, pressure. Date invoice is to some degree coming under price pressure. Their customers want a improved digital experience, and they're spending too much money on change orders. They're not agile enough. They can improve and make it easier to do business with. And so the solutions we've brought to market, which is let's simplify the business process, let's take costs out of the business, let's enable a more product based platform and wrap that not just with back office monetization but actually significant analytics driven customer engagement to make it easier to do business. It's all those reasons that I would say for all these telco wins we're having. It's kind of across the board. And that would, that's exactly true for this one as well.

Okay. And when I first picked up the company or coverage, the story on the telecom was kind of the conversion of the existing base to manage services. Now, it seems like that's evolved a little bit to where you're all looking at market share, gain opportunities. Can you just talk about kind of the evolution of your strategy or your goals in the telecom market over the last few years and where we're at now in terms of the opportunities you see there?

It's a great question, Greg. You're right. So a couple of things. First, our historical strength for CSG, which is exciting and good news for the long term growth prospects is actually in the enterprise side of telecom. That's where we had a lot of wins. And when we deployed our product based approach, many of our customers MTN and Telstra said, can you take on more and do more managed service, and therefore help us improve both business processing costs wrapped around our products, and so we were doing more, and we'll still do deals like that. But what we're finding increasingly is enterprise is one of the fastest growing most profitable. They are wanting to launch more marketplaces and goods and services. So that's where ascending, that's where CSG Encompass with a configure price quote, order management catalog can get in there and help them drive new revenue. You've seen us announced wins in those spaces. And I think, a real focus that a lot of the industry is on globally, simplify business processing become more agile, lower your cost to serve. And you need to do that with better processes, and a more simplified technology stack that is also focused around digital engagement. And so I think now we're seeing even more of that the B2C wins, in addition to our strength and enterprise, and it is taking more of a product focus. But we still have a lot of services. As we talked about in the quarter, we're adding a lot of people to staff up to do the implementation and the migrations, and that hit our margins on this quarter. So that's just part of it's a combination, but it is not about managed service. It is about a broader play around platforms and lowering cost to serve and improving digital engagement.

Right, great, thanks.

Thanks, Greg.

And that does conclude the question and answer session, I would like to turn the call back over to Brian Shepherd for any additional or closing remarks.

Yes I just say thank you to the global CSG team for working hard every day to deliver value to our customers and deliver on our commitments. We're excited about the growth. We're excited about continuing to execute on our sales wins, and putting these big projects into production. And every quarter, we're focused on delivering CSG like quarters, and we're looking forward to a strong Q3 and Q4 and it's up to the team to execute. That's probably what we expect to do. So thank you for joining us today.

And that concludes today's presentation. Thank you for your participation and you may now disconnect.