Q2 2024 CSG Systems International Inc Earnings Call

August 7, 2024

one

Eric: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSG Second Quarter 2024 Earnings. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to John Rea, Head of Investor Relations and Treasurer.

Operator: Thank you for standing by. My name is Eric, and I will be your conference operator. At this time, I would like to welcome everyone to the CSG Second Quarter 2024 Earnings. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to John Rea, Head of Investor Relations and Treasurer.

Eric: Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the CSG's second quarter 2024 earnings call.

All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.

I would now like to turn the call over to John Rea, Head of Investor Relations and Treasury.

John Rea: 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 in 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.

Please go ahead.

John Rea: 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.

John Rea: 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.

Speaker Change: Today's discussion will contain a number of forward-looking statements.

Speaker Change: 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.

John Rea: 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.

Speaker Change: While these risks reflect our best current judgment, they are subject to risks and uncertainties that could cause our actual results to differ materially.

Speaker Change: 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.

Speaker Change: 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.

John Rea: 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.

Speaker Change: Also, we will discuss certain financial information that is not prepared in accordance with GAAP.

Speaker Change: 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.

Speaker Change: 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 eight-k

Speaker Change: 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: Thanks, John. Hi everyone.

Brian: Thanks, John . Hi, everyone. Welcome to the call today as we begin on slide four.

Brian Shepherd: Welcome to the call today, as we begin on slide four. We are excited to share that, based on the strength of our Q2 performance, we are raising both profitability and non-GAAP EPS guidance targets for 2024. The exciting new logo sales wins and deal expansions closed in the quarter also give us confidence that we will continue to deliver organic revenue growth for the full year in line with our 2% to 6% long-term target range. However, we are likely to come in at the lower end of the organic revenue growth range for full year 2024, which Hai will cover in more detail during his financial update.

Speaker Change: We are excited to share that based on the strength of our Q2 performance, we are raising both profitability and non-GAP EPS guidance targets for 2024.

Speaker Change: The exciting new logo sales wins and deal expansions closed in the quarter also give us confidence that we will continue to deliver organic revenue growth for the full year in line with our 2% to 6% long-term target range.

Speaker Change: Albeit, we are likely to come in at the lower end of the organic revenue growth range for full year 2024, which Hai will cover in more detail during his financial update.

Brian Shepherd: Overall, we really like what we see in our business, so we want to simplify for every investor the three key value creation commitments that the CSG leadership team and board of directors will hold themselves accountable to deliver over the next several years. As a reminder, since January 1, 2021, CSG has added nearly $160 million worth of new organic revenue through Q2 2024. Second, we aspire to expand non-GAAP operating margin from our previous long-term range of 16% to 18% to our new long-term range of 18% to 20% with free cash flow growing faster than revenue growth and to achieve this higher operating profit without impeding our ability to get back to the 5% or higher annual organic revenue growth that we achieved from 2021 through 2023 once we get past some of the smallest near-term headwinds.

Speaker Change: Overall, we really like what we see in our business, so we want to simplify for every investor the three key value creation commitments that the CSG leadership team and board of directors will hold ourselves accountable to deliver over the next several years.

Brian Shepherd: Third, we will continue to return significant capital to shareholders as our board of directors authorized an additional $100 million share buyback program this month. This enhanced share repurchase program is in addition to our inorganic growth strategy that will be focused on highly disciplined value creation for our shareholders. This new $100 million buyback authorization is on top of the approximately $76 million in buybacks remaining on the previous board authorization.

Hai Tran: First, even as we grow through some smallish near-term headwinds on organic revenue growth, we aspire to consistently deliver 2% to 6%.

Speaker Change: Pure Organic Revenue Growth, and to diversify revenue from exciting new industry verticals to greater than 35% of total CSG revenue.

Brian Shepherd: As a reminder, since January 1, 2021, CSG has added nearly $160 million worth of new organic revenue through Q2 2024. Second, we aspire to expand non-GAAP operating margin from our previous long-term range of 16% to 18% to our new long-term range of 18% to 20% with free cash flow growing faster than revenue growth and to achieve this higher operating profit without impeding our ability to get back to the 5% or higher annual organic revenue growth that we achieved from 2021 through 2023 once we get past some of the smallest near-term headwinds.

Speaker Change: As a reminder, since January 1, 2021, CSG has added nearly $160 million worth of new organic revenue through Q2 2024.

Speaker Change: Second, we aspire to expand non-GAAP operating margin from our previous long-term range of 16% to 18% to our new long-term range of 18% to 20%.

Speaker Change: with free cash flow growing faster than revenue growth.

Speaker Change: and to achieve this higher operating profit without impeding our ability to get back to the 5% or higher annual organic revenue growth that we achieved from 2021 through 2023 once we get past some of the smallest near-term headwinds.

Speaker Change: Third, we will continue to return significant capital to shareholders as our Board of Directors authorized an additional $100 million share buyback program this month.

Speaker Change: This enhanced share repurchase program is in addition to our inorganic growth strategy that will be focused on highly disciplined value creation for our shareholders.

Speaker Change: This new $100 million buyback authorization is on top of the approximately $76 million in buybacks remaining on the previous board authorization.

Brian Shepherd: As a reminder, the combined $176 million in remaining authorized buybacks is on top of the nearly $480 million that CSG has returned to shareholders in dividends and buybacks since 2020. We are now in our 11th consecutive year of increasing our dividend, a key tenet of the CSG investment thesis. Turning to slide five, since we have a number of new investors in our story, we wanted to connect the dots on how Team CSG is setting itself apart in the market as a leading provider of mission-critical enterprise SaaS solutions to global brands in a wide variety of industry verticals. With the record-setting revenue diversification results we keep reporting each quarter, many investors ask us how we determine which industry verticals we target. The answer is quite simple.

Speaker Change: As a reminder, the combined $176 million in remaining authorized buybacks is on top of the nearly $480 million that CSG has returned to shareholders in dividends and buybacks since 2020.

Speaker Change: we are now in our eleventh consecutive year of increasing our dividend a key tenant of the csg investment thesis

Speaker Change: Turning to slide five, since we have a number of new investors to our story, we wanted to connect the dots on how Team CSG is setting ourselves apart in the market as a leading provider of mission-critical enterprise SaaS solutions to global brands in a wide variety of industry verticals.

Speaker Change: With the record-setting revenue diversification results we keep reporting each quarter, many investors ask us how we determine which industry verticals that we target.

Brian Shepherd: We target industry verticals that have highly recurring relationships with their end customers, powered by complex subscription and consumption-based business models. This is why we've expanded so quickly beyond our traditional telecom and cable broadband customer base into exciting industry verticals like media, financial services, healthcare, pharmacy retail, technology, government, and more. We help great brands like JP Morgan Chase, NRC Health, and Formula One solve similar customer engagement and monetization business challenges, just like we help Comcast, Charter, MTN, and Telstra in these same areas. While the industries are different, the customer pain points and business needs are surprisingly similar.

Speaker Change: The answer is simple. We target industry verticals that have highly recurring relationships with their end customers powered by complex subscription and consumption-based business models.

Speaker Change: this is why we've expanded so quickly beyond our traditional telecom and cable broadband customer base into exciting industry verticals like media financial services health care pharmacy retail technology government and bo

Speaker Change: We help great brands like JPMorgan Chase, NRC Health, and Formula One solve similar customer engagement and monetization business challenges, just like we help Comcast, Charter, MTN, and Telstra in these same areas.

Brian Shepherd: While the industries are different, the customer pain points and business needs are surprisingly similar. This explains why we've been able to sell our industry-leading cloud-native SaaS platform Ascendant to one of the largest banks in Australia, and why Formula One and other big content providers have selected Ascendant to monetize their media and digital content businesses. And it's also why leading global telecom operators like Clara Brazil, M1 in Singapore, Telenor Denmark, and Lise in Norway have all selected Ascendant in the wireless and telecom industry vertical. Many investors also ask us about our value proposition and what business problems we solve for customers in different industry verticals.

Speaker Change: While the industries are different, the customer pain points and business needs are surprisingly similar.

Brian Shepherd: This explains why we've been able to sell our industry-leading cloud-native SaaS ascendant platform to one of the largest banks in Australia, and why Formula One and other big content providers have selected Ascendant to monetize their media and digital content businesses. And it's also why leading global telecom operators like Clara Brazil, M1 in Singapore, Telenor Denmark, and Lise in Norway have all selected Ascendant in These common business needs across industry verticals also explain why we've been able to sell our data-driven CX and payment SaaS solutions to so many big customers in faster-growing industry verticals. Many investors also ask us about our value proposition and what business problems we solve for customers in different industry verticals.

Speaker Change: This explains why we've been able to sell our industry-leading cloud-native SAS system and platform.

Speaker Change: to one of the largest banks in Australia, and why Formula One and other big content providers have a selected ascendant.

Speaker Change: to monetize their media and digital content businesses. And it's also why leading global telecom operators like Clara Brazil, M1 in Singapore, Telenor Denmark, and Lise in Norway have all selected Ascendant in the wireless and telecom industry vertical.

Speaker Change: These common business needs across industry verticals also explain why we've been able to sell our data-driven CX and payment SaaS solutions to so many big customers in faster-growing industry verticals.

Speaker Change: many investors also ask us about our value proposition and what business problems we solve for customers in different industry verticals

Brian Shepherd: The answer to this question also explains why CSG has been able to grow organic revenue over 5% on a compound annual growth rate basis since 2021. Every large customer in all these bigger, faster-growing recurring revenue verticals have similar business challenges related to their post-acquisition or post-purchase customer engagement. They all need to lower the cost and effort to activate, onboard, and educate new customers.

Speaker Change: The answer to this question also explains why CSG has been able to grow organic revenue over 5% on a compound annual growth rate basis since 2021.

Speaker Change: Every large customer in all these bigger, faster-growing, recurring revenue verticals have similar business challenges related to their post-acquisition or post-purchase customer engagement.

Speaker Change: They all need to lower the cost and effort to activate, onboard, and educate new customers. They all need to give their customers the power and flexibility to upgrade and downgrade their services more seamlessly through digital self-serve channels. They all need to harness their data to more proactively upsell, cross-sell, and retain their most valuable customers with real-time data-driven promotional offers. And they all need to make it easier to bill, collect, and resolve payment disputes on a timely basis.

Brian Shepherd: They all need to give their customers the power and flexibility to upgrade and downgrade their services more seamlessly through digital self-serve channels. They all need to harness their data to more proactively upsell, cross-sell, and retain their most valuable customers with real-time, data-driven promotional offers. And they all need to make it easier to bill, collect, and resolve payment disputes on a timely basis.

Brian Shepherd: An important point that is often misunderstood by investors is that CSG is not just a billing company. Our comprehensive workflow engines are foundational to how our customers holistically serve their end customers and make money. Our investors also routinely ask us why we win against bigger competitors.

Speaker Change: An important point that is often misunderstood by investors is that CSG is not just a billing company. Our comprehensive workflow engines are foundational to how our customers holistically serve their end customers and make money.

Speaker Change: Our investors also routinely ask us why we win against bigger competitors.

Brian Shepherd: The answer is because we relentlessly focus and prioritize our R&D, sales, and marketing, and disciplined inorganic M&A to constantly strengthen our industry-leading, future-ready SaaS portfolio so we can grow faster and simultaneously expand our operating margins and profitability. As a reminder, CSG is ranked in the leaders' quadrant in the Gartner integrated revenue and customer management category. And CSG is also ranked in the leaders' quadrant in Forrester's customer journey orchestration category, ahead of almost all other competitors.

Speaker Change: The answer is because we relentlessly focus and prioritize our R&D, sales and marketing, and disciplined inorganic M&A to constantly strengthen our industry-leading, future-ready SAS portfolio so we can grow faster and simultaneously expand our operating margins and profitability.

Brian Shepherd: As a reminder, CSG is ranked in the leaders' quadrant in Gartner's integrated revenue and customer management category, and it is also ranked in Forrester's customer journey orchestration category, ahead of almost all other competitors. And CSG also routinely wins industry leadership awards in the payment space. We never take our customer relationships for granted, and we constantly push ourselves to be more future-ready, more innovative, and easier to do business with than our competitors. Is doing all this easy? No, it isn't.

Speaker Change: As a reminder, CSG is ranked in the Leaders' Quadrant in the Gardeners' Integrated Revenue and Customer Management category. And CSG is also ranked in the Leaders' Quadrant in Forrester's Customer Journey Orchestration category, ahead of almost all other competitors.

Brian Shepherd: And CSG also routinely wins industry leadership awards in the payment space. We never take our customer relationships for granted, and we constantly push ourselves to be more future-ready, more innovative, and easier to do business with than our competitors. Is doing all this easy? No, it isn't.

Speaker Change: and CSG also routinely wins industry leadership awards in the payment space. We never take our customer relationships for granted, and we constantly push ourselves to be more future ready, more innovative, and easier to do business with than our competitors.

Brian Shepherd: Being as mission critical as it gets for giant customers all around the world in a wide variety of industry verticals is never easy. And yet, being a critical provider to help our customers lower their costs, retain and upsell their most valuable end customers, grow revenue faster, and make more money is precisely why our customer relationships are so sticky, often lasting three decades or longer. And it also explains why we've continued to grow organic revenue and close exciting new sales wins, even in tough economic conditions, because our SaaS workflow solutions deliver faster ROI payback. On slide six, you can see the success we have had in increasing our organic revenue growth since 2021 and the industry vertical revenue diversification success we have had since 2017.

Speaker Change: Is doing all this easy? No, it isn't.

Speaker Change: Being as mission-critical as it gets for giant customers all around the world in a wide variety of industry verticals is never easy.

Speaker Change: and yet being a critical provider to help our customers lower their cost

Speaker Change: retain and upsell their most valuable end customers, grow revenue faster and make more money.

Speaker Change: is precisely why our customer relationships are so sticky, often lasting three decades or longer.

Speaker Change: And it also explains why we've continued to grow organic revenue and close exciting new sales winds even in tough economic conditions because our SaaS workflow solutions deliver faster ROI paybacks.

Brian Shepherd: On slide six, you can see the success we have had in increasing our organic revenue growth since 2021 and the industry vertical revenue diversification success we have had since 2017. The truly exciting part for us, notwithstanding some near-term market choppiness, is that even as we grow 2024 organic revenue in line with the lower end of our 2% to 6% organic growth range for the near-term quarters, CSG's profitability will continue to expand at its fastest clip in many years.

Speaker Change: On slide 6, you can see the success we have had in increasing our organic revenue growth since 2021 and the industry vertical revenue diversification success we have had since 2017.

Brian Shepherd: The truly exciting part for us, notwithstanding some near-term market choppiness, is that even as we grow 2024 organic revenue in line with the lower end of our 2% to 6% organic growth range for the near-term quarters, CSG's profitability will continue to expand at its fastest clip in many years. This exciting business momentum is powered by the fact that CSG continues to close big, exciting new sales wins quarter in, quarter out, like many Q2 wins that we'll talk about momentarily.

Speaker Change: It's a truly exciting part for us.

Speaker Change: notwithstanding some near-term market shoppiness.

Speaker Change: is that even as we grow two thousand and twenty-four organic revenue in line with the lower end of our two percent to six percent organic growth range for the near-term quarters

Speaker Change: CSG's profitability will continue to expand at its fastest clip in many years. This exciting business momentum is powered by the fact that CSG continues to close big exciting new sales wins, quarter in, quarter out, like many Q2 wins that we'll talk about momentarily.

Brian Shepherd: This exciting business momentum is powered by the fact that CSG continues to close big, exciting new sales wins quarter in, quarter out, like many Q2 wins that we'll talk about momentarily. One positive highlight in Q2 was the revenue growth we saw at our top two customers, Charter and Comcast, even as their businesses faced slight broadband subscriber headwinds. We grew Q2 revenue from Comcast and Charter combined by over 1% both sequentially and year over year.

Speaker Change: One positive highlight in Q2 was the revenue growth we saw at our top two customers, Charter and Comcast, even as their businesses faced slight broadband subscriber headwinds.

Speaker Change: We group Q2 revenue from Comcast and Charter combined by over 1% both sequentially and year-over-year.

Brian Shepherd: This growth is coming from several areas, including our expansion into new areas of their businesses that we have historically not served, like Team CSG being selected and signing a new standalone contract with Comcast to power a new strategic growth area for them. Turning to slide seven, we wanted to provide more detail on the many exciting new logo sales wins and deal expansions we have delivered over the last few months. These wins are underpinned by our strong global sales teams that continue to perform well and deliver meaningful new wins like clockwork. First, we won a fantastic new telecom logo at Telenor Denmark, the second-largest mobile operator in Denmark.

Speaker Change: This growth is coming from several areas, including our expansion into new areas of their businesses that we have historically not served, like Team CSG being selected and signing a new standalone contract with Comcast to power a new strategic growth area for them.

Speaker Change: Turning to slide seven, we wanted to provide more detail on the many exciting new logo sales wins and deal expansions we have delivered over the last few months. These wins are underpinned by our strong global sales teams that continue to perform well and deliver meaningful new wins like clockwork.

Brian Shepherd: We will be deploying both our cloud-native SAS Ascendant and CSG Exponent solutions. This win highlights our ability to cross-sell our cutting-edge digital customer experience suite of solutions together with our cloud monetization offering. With CSG's help, Telenor Denmark will deliver enhanced digital experiences across all touchpoints, enhance omni-channel support for all business segments, and win new revenue-generating opportunities. Second, we expanded our relationship with One New Zealand, formerly Vodafone New Zealand.

Speaker Change: First, we want a fantastic new telecom logo at Telenor Denmark.

Speaker Change: the second largest mobile operator in Denmark.

Speaker Change: We will be deploying both our cloud-native SaaS Ascendant and CSG Exponent solutions. This win highlights our ability to cross-sell our cutting-edge digital customer experience suite of solutions together with our cloud monetization offerings.

Brian Shepherd: With CSG's help, Telenor Denmark will deliver enhanced digital experiences across all touchpoints, enhance omni-channel support for all business segments, and win new revenue-generating opportunities. We also won another fantastic CSG Ascendant and Exponent joint cross-sell new logo deal with Lise, a leading telecom and utility provider in Norway. Lise selected CSG for a full digital BSS transformation.

Speaker Change: With CSG's help, Telenor Denmark will deliver enhanced digital experiences across all touchpoints, enhance omni-channel support for all business segments, and win new revenue-generating opportunities.

Brian Shepherd: Specifically, we are deploying our CSG quote and order suite of catalog-driven solutions to provide a seamless experience between the quoting of new products and the monetization of their offers. Our solution provides a consolidated BSS stack that will modernize the digital quotation experience and help the One New Zealand sales team reduce the launch and selling of new product offers while improving the overall customer experience. We also won another fantastic CSG Ascendant and Exponent Joint Cross-Sell New Logo Deal with Lise, a leading telecom and utility provider in Norway. Lise selected CSG for a full digital BSS transformation.

Speaker Change: Second, we expanded our relationship with One New Zealand, formerly Vodafone New Zealand.

Speaker Change: specifically we are deploying our csg quo in order suite of catalogue driven solutions to provide a seamless experience between the quoting of new products

Speaker Change: and the monetization of their offers. Our solution provides a consolidated BSS stack that will modernize the digital quotation experience and help the One New Zealand sales team shrink the launch and selling of new product offers while improving the overall customer experience.

Speaker Change: We also won another fantastic CSG Ascendant and Exponent joint cross-sell new logo deal with Lise, a leading telecom and utility provider in Norway.

Speaker Change: Lisa H. selected CSG for a full digital BSS transformation. Specifically, this customer will leverage our cloud-based Ascendant billing solution and our digital wholesale product to manage and monetize their subscriber relationships.

Brian Shepherd: Specifically, this customer will leverage our cloud-based Ascendant billing solution and our digital wholesale product to manage and monetize their subscriber relationship. Additionally, Lise has selected CSG's Exponent Solution to automate and personalize the post-acquisition customer journey for its subscribers. This excellent deal highlights the power that our customers get when they buy both our digital monetization and data-rich CX solutions together. After a recent data center outage, Zain Sudan trusted CSG to drive the disaster recovery of its wireless business and keep the people of Sudan connected while preserving its market leadership. Through a CSG-powered gateway rebuild, this customer quickly relaunched essential services so that customers across the country could regain their wireless connectivity.

Brian Shepherd: Specifically, this customer will leverage our cloud-based Ascendant billing solution and our digital wholesale product to manage and monetize their subscriber relationship. Additionally, Lise has selected CSG's Exponent Solution to automate and personalize the post-acquisition customer journey for their subscribers. This excellent deal highlights the power that our customers get when they buy both our digital monetization and data-rich CX solutions together. Team CSG had a great digital BSS transformation win with Mascom Botswana, a leading telecom operator in Africa.

Speaker Change: Additionally, Lise also selected CSG's Exponent solution to automate and personalize the post-acquisition customer journey for their subscribers.

Speaker Change: This excellent deal highlights the power that our customers get when they buy both our digital monetization and data-rich CX solutions together.

Speaker Change: am csg had a great digital bs transformation when with masscom botsjuana and leading telecom operator in africa

Brian Shepherd: Specifically, our solutions will help manage their prepaid and postpaid charging and billing for subscribers to allow Mastcom to focus on its day-to-day business operations while CSG handles the complex back-end billing processes for its customers. Another exciting telecom win during the quarter was with Zain Sudan, part of the Zain Group and a leading wireless operator in the Middle East and North Africa.

Speaker Change: Specifically, our solutions will help manage their prepaid and postpaid charging and billing for subscribers to allow Mastcom to focus on their day-to-day business operations while CSG handles the complex back-end billing processes for their customers.

Speaker Change: Another exciting telecom win during the quarter was with Zain Sudan, part of the Zain Group and the leading wireless operator in the Middle East and North Africa.

Brian Shepherd: After a recent data center outage, Zain Sudan trusted CSG to drive the disaster recovery of its wireless business and keep the people of Sudan connected while preserving its market leadership. Through a CSG-powered gateway rebuild, this customer quickly relaunched essential services so that customers across the country could regain their wireless connectivity. We are also pleased to announce that we have signed a fantastic deal extension and expansion with Telstra, a 20-plus year customer of ours.

Speaker Change: After a recent data center outage, Zain Sudan trusted CSG to drive the disaster recovery of its wireless business and keep the people of Sudan connected while preserving its market leadership.

Speaker Change: Through a CSG-powered gateway rebuild, this customer quickly relaunched essential services so that customers across the country could regain their wireless connectivity.

Brian Shepherd: We are also pleased to announce that we signed a fantastic deal extension and expansion with Telstra, a 20-plus-year customer of ours. Telstra chose CSG to help transform its enterprise, wholesale, and international business. This multi-year deal extends a longstanding relationship where CSG and Compass Solutions Suite will help Telstra explore new business models and expand into new verticals as we manage their most complex enterprise B2B customers.

Speaker Change: We are also pleased to announce that we signed a fantastic deal extension and expansion with Telstra, a 20 plus year customer of ours.

Brian Shepherd: Telstra chose CSG to help transform its enterprise, wholesale, and international business. This multi-year deal extends a longstanding relationship where CSG and Compass Solutions Suite will help Telstra explore new business models and expand into new verticals as we manage their most complex enterprise B2B customers. This is another great example of a longstanding customer extending their relationship with us.

Speaker Change: CalSTRS chose CSG to help transform its enterprise, wholesale, and international businesses.

Speaker Change: This multi-year deal extends a longstanding relationship where CSG and Compass Solutions Suite will help Telstra explore new business models and expand into new verticals as we manage their most complex enterprise B2B customers.

Speaker Change: This is another great example of a longstanding customer extending their relationship with us.

Brian Shepherd: And on the North American broadband front, we are thrilled to have won a meaningful new standalone billing deal in a new growth area for Comcast, which should reinforce to our investors the positive position we're in with our second-largest customer. On a related note, many investors and analysts routinely ask us how the bigger renewal with Comcast is going. What we can share is that we are as well positioned as CSG has been with Comcast for nearly three decades, and we are highly confident that we will sign an exciting new long-term agreement when Comcast is ready to sign that renewal. We don't say this because we take this renewal for granted. In fact, the exact opposite is the case.

Speaker Change: And on the North American broadband front, we are thrilled to have won a meaningful new standalone billing deal in a new growth area for Comcast, which should reinforce to our investors the positive position we're in with our second largest customer.

Speaker Change: On a related note, many investors and analysts routinely ask us how the bigger renewal with Comcast is going.

Speaker Change: What we can share is that we are as well-positioned as CSG has been with Comcast for nearly three decades, and we are highly confident that we will sign an exciting new long-term agreement when Comcast is ready to sign that renewal.

Speaker Change: We don't say this because we take this renewal for granted. In fact, the exact opposite is the case.

Brian Shepherd: The reason we are extremely well-positioned with Comcast and our other biggest customers is because we never, ever take their businesses for granted. We know how mission-critical our end-to-end workflow platforms are to all aspects of how they operate well beyond just billing, so we constantly push our solutions to be more resilient, more value-adding, and more future-forward so that CSG always brings them greater value and is easier to do business with than any of our competitors.

Speaker Change: The reason we are extremely well positioned with Comcast and our other biggest customers is because we never, ever take their businesses for granted.

Speaker Change: We know how mission-critical our end-to-end workflow platforms are to all aspects of how they operate well beyond just billing.

Speaker Change: So we constantly push our solutions to be more resilient, more value-adding, and more future-forward so that CSG always brings them greater value and is easier to do business with than any of our competitors.

Brian Shepherd: Is it possible that Comcast could sign an excellent renewal with CSG that is great for both companies this year? Yes, it is possible we'll be in a position to announce an exciting Comcast renewal sometime in 2024. Turning to slide 9, we will touch on our third value creation priority, our commitment to shareholder returns, and our ability to execute varied value-creating accretive M&A. Today, our board authorized a new $100 million share repurchase program that demonstrates CSG's commitment to disciplined capital allocation and a dedication to returning capital to our shareholders.

Brian Shepherd: Is it possible that Comcast could sign an excellent renewal with CSG that is great for both companies this year? Yes, it is possible we'll be in a position to announce an exciting Comcast renewal sometime in 2024. Is it also possible that Comcast and CSG announce an exciting, mutually beneficial long-term renewal next year if Comcast decides that is better timing for them? The answer is also yes.

Speaker Change: Is it possible that Comcast could sign an excellent renewal with CSG that is great for both companies this year? Yes, it is possible we'll be in a position to announce an exciting Comcast renewal sometime in 2024.

Speaker Change: Is it also possible that Comcast and CSG announce an exciting, mutually beneficial long-term renewal next year if Comcast decides that is better timing for them? The answer is also yes. It is possible that a great renewal would be signed next year.

Brian Shepherd: It is possible that a great renewal will be signed next year. But regardless of whatever timing Comcast decides is best for them, Team CSG will stay fixated on delivering fantastic value as we continue to help Comcast solve their toughest business challenges. Moving on to other TQ2 sales wins outside of the communication service provider space, we expanded our relationship with NRC Health, one of the nation's largest healthcare experience management firms, supporting over half the healthcare systems in the U.S. We are partnering with NRC to execute a digital multi-channel communication strategy in a streamlined, effective, and scalable manner.

Speaker Change: But regardless of whatever timing Comcast decides is best for them, Team CSG will stay fixated on delivering fantastic value as we continue to help Comcast solve their toughest business challenges.

Speaker Change: Moving on to other TQ2 sales wins outside of the communication service provider space, we expanded our relationship with NRC Health, one of the nation's largest healthcare experience management firms, supporting over half the healthcare systems in the U.S.

Speaker Change: We are partnering with NRC to execute a digital multi-channel communication strategy in a streamlined, effective, and scalable manner.

Brian Shepherd: And finally, I will wrap up with a good sales win we had in the payments arena with a leading regional bank in the U.S. selecting CSG to power its payments needs. Specifically, CSG's payment solutions allow this bank to reduce transactional costs and modernize its online payment portal with our BillPay product. We believe there are many domestic banks that could benefit by similarly leveraging our solutions for their payments needs.

Speaker Change: And finally, I will wrap up with a good sales win we had in the payments arena with the leading regional bank in the U.S. selecting CSG to power their payments needs.

Speaker Change: Specifically, CSG's payment solutions allow this bank to reduce transactional costs and modernize their online payment portal with our BillPay product. We believe there are many domestic banks that could benefit by similarly leveraging our solutions for their payments needs.

Brian Shepherd: And while most of these great sales wins signed over the last few months won't immediately impact our revenue in 2024, we expect them to contribute to good organic revenue growth in 2025 and beyond. Which is exactly why, over the medium to longer term, we fully expect that CSG will be able to grow revenue at the midpoint or higher of our 2% to 6% range. Moving to slide eight, we would like to provide more color on our second value creation priority, our commitment to consistently expanding CSG's profitability.

Speaker Change: And while most of these great sales wins signed over the last few months,

Speaker Change: won't immediately impact our revenue in 2024.

Speaker Change: We expect them to contribute to good organic revenue growth in 2025 and beyond, which is exactly why over the medium to longer term, we fully expect that CSG will be able to grow revenue at the midpoint or higher of our 2% to 6% range.

Speaker Change: moving to slideeight we would like to provide more color on our second value creation priority our commitment to consistently expand cg's profitability

Brian Shepherd: One of the most meaningful Q2 highlights is the high confidence we have in CSG's ability to continue to significantly expand our profitability and operating leverage in the quarters and years ahead. We have shown very good continuous improvement in our non-gap adjusted operating margin as it grew from 16.6% in 2022 to 17.2% in 2023. And as our enhanced profitability guidance targets announced today indicate, we believe that 2024 will continue this trend. Looking ahead, we absolutely believe there is a clear pathway for CSG to consistently achieve 18% to 20% non-gap adjusted operating income in 2025 and beyond. And it's important to note that this enhanced profitability is not coming at the expense of slower revenue growth in the medium to longer term.

Speaker Change: One of the most meaningful Q2 highlights is the high confidence we have in CSG's ability to continue to significantly expand our profitability and operating leverage in the quarters and years ahead.

Speaker Change: We have shown very good continuous improvement in our non-gap adjusted operating margin as it grew from 16.6% in 2022 to 17.2% in 2023.

Speaker Change: And as our Enhanced Profitability Guidance targets announced today indicate, we believe that 2024 will continue this trend.

Speaker Change: Looking ahead, we absolutely believe there is a clear pathway for CSG to consistently achieve 18% to 20% non-GAAP-adjusted operating income in 2025 and beyond.

Speaker Change: And it's important to note that this enhanced profitability is not coming at the expense of slower revenue growth in the medium to longer term.

Brian Shepherd: We continue to expect our business to generate 2% to 6% organic revenue growth with an aspiration to be at the midpoint or higher in most years. Our continuously expanding profitability stems from our improved operating leverage at scale, ongoing cost efficiencies unrelated to sales and marketing, and growing higher gross margin revenue from SAS faster than the rest of CSG. And as we generate higher non-gap operating margins in the quarters and years ahead, this should also result in free cash flow growing faster than revenue.

Speaker Change: We continue to expect our business to generate 2% to 6% organic revenue growth with an aspiration to be at the midpoint or higher in most years.

Speaker Change: Our continuously expanding profitability stems from our improved operating leverage at scale, ongoing cost efficiencies unrelated to sales and marketing, and growing higher gross margin SAS revenue faster than the rest of CSG.

Operator: Thank you for standing by.

Eric: My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the CSG's second quarter, 2024 earnings 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.

Speaker Change: And as we generate higher non-GAAP operating margin in the quarters and years ahead, this should also result in free cash flow growing faster than revenue growth.

Brian Shepherd: Turning to slide nine, we will touch on our third value creation priority, our commitment to shareholder returns and our ability to execute varied value-creating or creative M&A. Today, our board authorized a new $100 million share repurchase program that demonstrates CSG's commitment to disciplined capital allocation and a dedication to returning capital to our shareholders.

Speaker Change: Turning to slide nine, we will touch on our third value creation priority, our commitment to shareholder returns and our ability to execute varied value creating accretive M&A.

John Wright: I would now like to turn the call over to John Wright, Head of Investor Relations and Treasury. 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.

Speaker Change: Today, our board authorized a new $100 million share repurchase program that demonstrates CSG's commitment to disciplined capital allocation and a dedication to returning capital to our shareholders.

Brian Shepherd: Regarding our $1.5 billion revenue ambitions by year-end 2025, it is possible that this goal may take us a little longer to achieve, depending on the size of the excellent and extremely value-creating M&A deals that we find in the market over the next four to six quarters. We believe that CSG's stock price represents an excellent value-creating buy for investors and for us, so we will stay balanced, disciplined, and focused on any strategic or financial move that the Board of Directors and management believe will deliver the most value for our shareholders.

Speaker Change: Regarding our $1.5 billion revenue ambitions by year-end 2025, it is possible that this goal may take us a little longer to achieve, depending on the size of excellent and extremely valued creating M&A deals that we find in the market over the next four to six quarters.

John Wright: 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 risk 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.

Speaker Change: we believe that cg stock price represents an excellent value prating bu for investors and for us so we will stay balanced disciplined and focused on any strategic or financial move that the board of directors and management believe will deliver the most value for our shareholders

Brian Shepherd: When we set the $1.5 billion goal in 2020, we knew about half of the revenue expansion would need to come from disciplined and accretive M&A. While we continue to assess qualified M&A opportunities, when our share price trades lower, the hurdle rate for good M&A deals gets that much higher. We are very pleased with the two smaller, highly accretive acquisitions that we've closed so far in 2024. We were able to acquire both companies at highly attractive multiples. Both of these small tuck-in deals add very sticky, highly profitable revenue for CSG.

Speaker Change: When we set the $1.5 billion goal in 2020, we knew about half of the revenue expansion would need to come from disciplined and accretive M&A. While we continue to assess qualified M&A opportunities, when our share price trades lower, the hurdle rate for good M&A deals gets that much higher.

John Wright: 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 10K and 10Q 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 GAP.

Brian Shepherd: We are very pleased with the two smaller, highly accretive acquisitions that we've closed so far in 2024. We were able to acquire both companies at highly attractive multiples. Both of these small tuck-in deals add very sticky, highly profitable revenue for CSG. And with respect to integration, both deals remain well on track to deliver the value we expected in our M&A business case. And on the organic revenue growth side, we have delivered on our commitment of approximately 5% annual organic revenue growth from 2021 to 2023, with significantly expanding profitability at the corporate level.

Speaker Change: We are very pleased with the two smaller, highly accretive acquisitions that we've closed so far in 2024. We were able to acquire both companies at highly attractive multiples.

Speaker Change: Both of these small tuck-in deals add very sticky, highly profitable revenue for CSG. And with respect to integration, both deals remain well on track to deliver the value we expected in our M&A business cases.

Brian Shepherd: And with respect to integration, both deals remain well on track to deliver the value we expected in our M&A business case. And on the organic revenue growth side, we have delivered on our commitment of approximately 5% annual organic revenue growth from 2021 to 2023, with significantly expanding profitability at the corporate level. Given all this exciting business momentum, I hope you see why we absolutely believe that CSG's best days and biggest breakthroughs are still ahead of us.

John Wright: We believe that these non-GAP financial measures when reviewed in conjunction with our GAP 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-GAP financial measures, we refer you to today's earnings release and non-GAP reconciliation tables on our website which will also be furnished to the SEC on Form 8K.

Speaker Change: And on the organic revenue growth side, we have delivered on our commitment of approximately 5% annual organic revenue growth from 2021 to 2023, with significantly expanding profitability at the corporate level.

Brian Shepard: With me today on the phone are Brian Shepard, Chief Executive Officer and High-Tran Chief Financial Officer.

Speaker Change: Given all this exciting business momentum, I hope you see why we absolutely believe that CSG's best days and biggest breakthroughs are still ahead of us.

Brian Shepherd: This is also why CSGers all around the world stay hungry and customer-obsessed because we know this relentless focus is what is required to lead the industries where we operate. And it is also essential to creating significant shareholder value in the quarters and years ahead, regardless of any near-term challenge standing in the way of Team CSG. With that, I will provide more detail on our financial highlights and updated guidance range.

Brian Shepard: With that, I'd like to now turn the call over to Brian. Thanks, John.

Speaker Change: This is also why CSGers all around the world stay hungry and customer-obsessed, because we know this relentless focus is what is required to lead the industries where we operate.

Brian Shepard: Hi, everyone. Welcome to the call today as we begin on slide four. We are excited to share that based on the strength of our Q2 performance, we are raising both profitability and non-GAP DPS guidance targets for 2024. The exciting new logo sales wins and deal expansions closed in the quarter also give us confidence that we will continue to deliver organic revenue growth for the full year in line with our 2% to 6% long-term target range albeit we are likely to come in at the lower end of the organic revenue growth range for full year 2024, which I will cover in more detail during this financial update.

Speaker Change: And it is also essential to creating significant shareholder value in the quarters and years ahead, regardless of any near-term challenge standing in the way of Team CSG.

Speaker Change: With that, I will provide more detail on our financial highlights and updated guidance ranges.

Hai Tran: Thanks, Brian. Let's walk through our Q2 2024 financial results, and then I'll wrap up with some key conclusions. Starting on slide 11, we generated $290 million of revenue in Q2 versus $286 million in the same prior year period. The increase in revenue can be attributed to the continued growth of our cloud revenue in addition to revenue generated from the acquired businesses, which offset lower software and services revenue for the quarter.

Hai Tran: Thanks, Brian. Let's walk through our Q2 2024 financial results, and then I'll wrap up with some key conclusions. The increase in revenue can be attributed to the continued growth of our cloud revenue in addition to revenue generated from the acquired businesses, which offset lower software and services revenue for the quarter. This big increase in non-GAAP EPS is mainly due to higher operating income and the benefit from our share repurchase activity over the last 12 months.

Speaker Change: thanks brian let' walk through our q two thousand and twenty-four financial results and then i'll wrap up with some key conclusions

Speaker Change: Starting on slide 11, we generated $290 million of revenue in Q2 versus $286 million in the same prior year period.

Brian Shepard: Overall, we really like what we see in our business, so we want to simplify for every investor the 3 key value creation commitments that the CSG leadership team and Board of Directors will hold ourselves accountable to deliver over the next several years. First, even as we grow through some small-ish near-term headwinds on organic revenue growth, we aspire to consistently deliver 2% to 6%, pure organic revenue growth, and to diversify revenue from exciting new industry verticals to greater than 35% of total CSG revenue.

Speaker Change: The increase in revenue can be attributed to the continued growth of our cloud revenue, in addition to revenue generated from the acquired businesses, which offset lower software and services revenue for the quarter.

Hai Tran: Our Q2 2024 non-GAAP operating income was $46 million, or a non-GAAP adjusted operating margin of 17.3%, as compared to $43 million, or 16.2%, in the prior year. We are very pleased with this approximately 110 basis point year over year improvement in our Q2 non-GAAP adjusted operating income. Similarly, our non-GAAP-adjusted EBITDA was $60 million for Q2 2024, or 22.6% of revenue excluding transaction fees, as compared to $57 million, or 21.4%, in Q2 2023.

Speaker Change: Our Q2 2024 non-GAAP operating income was $46 million, or a non-GAAP adjusted operating margin of 17.3%, as compared to $43 million, or 16.2% in the prior year.

Speaker Change: We are very pleased with this approximately 110 basis point year-over-year improvement in our Q2 non-GAAP adjusted operating income.

Brian Shepard: As a reminder, since January 1, 2021, CSG has added nearly $160 million of new organic revenue through Q2 2024. Second, we aspire to expand non-gap operating margin from our previous long-term range of 16% to 18% to our new long-term range of 18% to 20% with free cash flow growing faster than revenue growth, and to achieve this higher operating profit without impeding our ability to get back to the 5% or higher annual organic revenue growth that we achieve from 2021 through 2023 once we get past some of the smallest near-term headwinds.

Speaker Change: Similarly, our non-GAAP-adjusted EBITDA was $60 million for Q2 2024, or 22.6% of revenue excluding transaction fees, as compared to $57 million, or 21.4% in Q2 2023.

Hai Tran: Looking ahead, we expect our profitability metrics to further improve as we take significant cost efficiency actions in the first half of 2024 to optimize our capacity and better align CSG resources to areas of our business that have higher growth profiles. Lastly, our Q2 2024 non-GAF EPS grew almost 28% year-over-year to $1.02, as compared to $0.80 in Q2 2023. This big increase in non-GAP EPS is mainly due to higher operating income and the benefit from our share repurchase activity over the last 12 months.

Speaker Change: Looking ahead, we expect our profitability metrics to further improve as we took significant cost-efficiency actions in the first half of 2024 to optimize our capacity and better align CSG resources to areas of our business that have higher growth profiles.

Speaker Change: lastly our q two two thousand andtwenty four nine gaap e p f grew almost twenty eight percent year over year to a dollar in two centsas compared to eighty cents in q two two thousand and twenty three

Brian Shepard: Third, we will continue to return significant capital to shareholders as our Board of Directors authorized an additional $100 million share buyback program this month. This enhanced share repurchase program is in addition to our inorganic growth strategy that will be focused on highly disciplined value creation for our shareholders. This new $100 million buyback authorization is on top of the approximately $76 million in buybacks remaining on the previous Board authorization. As a reminder, the combined $176 million in remaining authorized buybacks is on top of the nearly $480 million that CSG has returned to shareholders in dividends and buybacks since 2020. We are now in our 11th consecutive year of increasing our dividend, a key tenant of the CSG investment thesis.

Speaker Change: this big increase in non-gaap eps is mainly due to higher operating income and the benefit from our share repurchase activity over the last twelve months

Hai Tran: Turning to slide 12, I will go through the balance sheet, our cash flow performance, and shareholder returns. We had non-GAAP free cash flow of $39 million in Q2 2024 as compared to $5 million of non-GAAP free cash flow in Q2 2023. Our strong Q2 2024 cash flow performance was better than anticipated due to the timing of certain working capital items, including improvement in accounts receivables and unbilled revenue. Moving on, we ended the second quarter of 2024 with $110 million of cash and cash equivalents. That, along with our outstanding debt at June 30, 2024, results in $444 million in net debt. And our net debt leverage ratio is just that 1.9 times the DPI.

Hai Tran: Turning to slide 12, I will go through the balance sheet, our cash flow performance, and shareholder returns. We had non-GAAP free cash flow of $39 million in Q2 2024 as compared to $5 million of non-GAAP free cash flow in Q2 2023. Our strong Q2 2024 cash flow performance was better than anticipated due to the timing of certain working capital items, including improvement in accounts receivables and unbilled revenue. Moving on, we ended the second quarter of 2024 with $110 million of cash and cash equivalents. That, along with our outstanding debt at June 30, 2024, results in $440 million in net debt, and our net debt leverage ratio sits at 1.9 times adjusted EBITDA.

Speaker Change: Turning to slide 12, I will go through the balance sheet, our cash flow performance, and shareholder returns.

Speaker Change: We had non-GAAP free cash flow of $39 million in Q2 2024 as compared to $5 million of non-GAAP free cash flow in Q2 2023.

Speaker Change: our strong q two two thousand and twentyfour cashf performance was better than anticipated due to the timing of certain working capital items including improvement in accounts receivables and unbillt revenue

Brian Shepard: Turning to slide five, since we have a number of new investors to our story, we wanted to connect the dots on how Team CSG is setting ourselves apart in the market and the leading provider of mission-critical enterprise-ass solutions to global brands and a wide variety of industry verticals. With the record setting, revenue diversification results, we keep reporting each quarter. Many investors ask us how we determine which industry verticals that we target.

Speaker Change: Moving on, we ended the second quarter of 2024 with $110 million of cash and cash equivalents.

Speaker Change: That, along with our outstanding debt by June 30, 2024, results in $444 million in net debt. And our net debt leverage ratio sits at 1.9 times adjusted EBITDA.

Hai Tran: In addition, we have $558 million in liquidity as of the end of the quarter. And on the bottom right of the slide, you can see we have returned $46 million in dividends and share repurchases to shareholders in the first half of 2020. Turning the page, I'll revisit our 2024 guidance target. As Brian highlighted, we are pleased to be increasing certain 2024 guidance targets, including non-GAAP-adjusted operating margins, non-GAAP-adjusted EBITDA, and non-GAAP EPS. We are also excited to reiterate all other guidance targets for the full year 2024.

Speaker Change: Further, we have $558 million in liquidity as of the end of the quarter.

Hai Tran: And on the bottom right of the slide, you can see we have returned $46 million in dividends and share repurchases to shareholders in the first half of 2020. Turning the page, I'll revisit our 2024 guidance target. As Brian highlighted, we are pleased to be increasing certain 2024 guidance targets, including non-GAAP-adjusted operating margins, non-GAAP-adjusted EBITDA, and non-GAAP EPS. We are also excited to reiterate all other guidance targets for full year 2024.

Brian Shepard: The answer is simple. We target industry verticals that have highly recurring relationships with their end customers powered by complex subscription and consumption based business models. This is why we've expanded so quickly beyond our traditional telecom and cable broadband customer base into exciting industry verticals like media, financial services, healthcare, pharmacy retail, technology government and more. We help great brands like JPMorgan Chase in our C-HELF and Formula One solve similar customer engagement and monetization business challenges just like we help Comcast, Charter, MTN, and Telstra in these same areas.

Speaker Change: and on the bond right of the slide you can see we have returned forty-six million dollars in dividends and share repurchases to shareholders in the first half of two thousandandtwenty-four

Speaker Change: Turning the page, I'll revisit our 2024 guidance targets.

Speaker Change: As Brian highlighted, we are pleased to be increasing certain 2024 guidance targets, including non-GAAP-adjusted operating margins, non-GAAP-adjusted EBITDA, and non-GAAP EPS.

Speaker Change: We are also excited to reiterate all other guidance targets for full year 2024.

Hai Tran: Specifically, on our enhanced non-gap profitability targets, we continue to take disciplined cost reduction actions that will optimize and streamline our business while still investing in higher growth activities that we believe will enable us to get back to mid-single-digit non-gap adjusted operating profit in the quarters ahead. We believe these cost efficiency moves will not only boost CSG's profitability in 2024 but will also create a meaningful tailwind to steadily improve our profitability next year and beyond.

Speaker Change: specifically on our enhanced non-gap profitability targets.

Brian Shepard: Well, the industries are different. The customer pain points and business needs are surprisingly similar. This explains why we've been able to sell our industry leading cloud-native, sassist and in platform to one of the largest banks in Australia and why Formula One and other big content providers have selected Ascendin to monetize their media and digital content businesses. And it's also why leading global telecom operators like Clara Brazil, M1 in Singapore, Telon or Denmark, and Lisa in Norway have all selected Ascendin in the wireless and telecom industry verticals.

Speaker Change: We continue to take disciplined cost-reduction actions.

Speaker Change: that will optimize and streamline our business while still investing in higher-growth activities that we believe will enable us to get back to mid-single-digit, non-GAAP-adjusted operating profit in the quarters ahead.

Speaker Change: We believe these cost-efficiency moves will not only boost CSG's profitability in 2024, but will also create a meaningful tailwind to steadily improve our profitability next year and beyond.

Hai Tran: With that said, the cost-reduction steps we have and continue to take will result in some short-term impacts on our cash flows in 2024 due to restructuring expenses related to these initiatives. At this point, the cash impact from our restructuring activities in the first half of 2024 has been approximately $14 million.

Speaker Change: With that said, the cost reduction steps we have and continue to take will result in some short-term impacts to our cash flows in 2024 due to restructuring expenses related to these initiatives.

Brian Shepard: These common business needs across industry verticals also explain why we've been able to sell our data driven CX and payments past solutions to so many big customers and faster growing industry verticals. Many investors also ask us about our value proposition and what business problems we solve for customers in different industry verticals. The answer to this question also explains why CSG has been able to grow organic revenue over 5 percent on a compound annual growth rate basis since 2021.

Speaker Change: At this point, the cash impact from our restructuring activities in the first half of 2024 has been approximately $14 million.

Hai Tran: And with respect to our original 1.2 to 1.24 billion revenue guidance range, as Brian mentioned, we are reiterating our original guidance. But we will likely end up towards the low end of the range, as the amount of revenue we expect to generate from our acquired assets in 2024 is anticipated to be more than offset by lower revenue expectations in our core business when compared to our original guidance expectations in February. Some of the main drivers of this include one, we are seeing a little belt tightening with our current and prospective customers.

Speaker Change: And with respect to our original 1.2 to 1.24 billion revenue guidance range, as Brian mentioned, we are reiterating our original guidance range.

Hai Tran: But we will likely end up towards the low end of the range, as the amount of revenue we expect to generate from our acquired assets in 2024 is anticipated to be more than offset by lower revenue expectations in our core business when compared to our original guidance expectations in February. Some of the main drivers of this include, one. We are seeing a little belt tightening with our current and prospective customers. CSG is extremely well-positioned with a strong sales pipeline and a high-quality recurring revenue customer base that we believe will enable us to return closer to the approximately 5% year-over-year organic growth that we achieved from 2021 through 2023 once we work through some of the smallest headwinds to grow in the next several quarters. We believe this approach, combined with our consistent capital contribution, will serve our shareholders.

Speaker Change: But we will likely end up towards the low end of the range, as the amount of revenue we expect to generate from our acquired assets in 2024 is anticipated to be more than offset by lower revenue expectations in our core business when compared to our original guidance expectations in February .

Brian Shepard: Every large customer and all these bigger, faster growing, recurring revenue verticals have similar business challenges related to their post-acquisition or post-purchase customer engagement. They all need to lower the cost and effort to activate onboard and educate new customers. They all need to give their customers the power and flexibility to upgrade and downgrade their services more seamlessly through digital self-served channels. They all need to harness their data to more proactively upsell, cross-sell, and retain their most valuable customers with real-time data-driven promotional offers and they all need to make it easier to build, collect, and resolve payment disputes on a timely basis.

Speaker Change: Some of the main drivers of this include, one, we are seeing a little belt tightening with our current and prospective customers.

Hai Tran: Two, we are experiencing smallish headwinds in the North American broadband market, and three, there are some services-based revenue recognition timing-related headwinds surrounding a couple of the larger global telecommunications deployments as we continue to implement these important projects. Because of this, we expect our 2024 organic revenue growth to be towards the low end of our 2 to 6% rate.

Speaker Change: Two, we are experiencing smallish headwinds in the North American broadband market.

Speaker Change: And three, there are some services-based revenue recognition timing-related headwinds surrounding a couple of the larger global telecommunications deployments as we continue to implement these important projects.

Speaker Change: Because of this, we expect our 2024 organic revenue growth to be towards the low end of our 2 to 6 percent range.

Brian Shepard: An important point that is often misunderstood by investors is that CSG is not just a building company. Our comprehensive workflow engines are foundational to our customers holistically served during customers and make money. Our investors also routinely ask us why we win against bigger competitors. The answer is because we relentlessly focus and prioritize our R&D sales and marketing and discipline in organic M&A to constantly strengthen our industry leading future ready SaaS portfolio so we can grow faster and simultaneously expand our operating margins and profitability.

Hai Tran: Wrapping up, 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 adherence to a risk-reward framework with continuous learning, are key cornerstones of how we have and will continue to manage our business. CSG is extremely well-positioned with a strong sales pipeline and a high-quality recurring revenue customer base that we believe will enable us to return closer to the approximately 5% year-over-year organic growth that we achieved from 2021 through 2023 once we work through some of the smallest headwinds to grow in the next several quarters.

Speaker Change: Wrapping up, CSG will continue to relentlessly prioritize every investment we make and stay very disciplined in the allocation of resources and the use of capital.

Speaker Change: Innovation, including how we leverage the transformative power of AI across CSG and adherence to a risk-reward framework with continuous learning, are key cornerstones of how we have and will continue to manage our business.

Speaker Change: CSG is extremely well positioned with a strong sales pipeline.

Speaker Change: and a high-quality recurring revenue customer base.

Brian Shepard: As a reminder, CSG has ranked in the leaders quadrant and the gardeners integrated revenue and customer management category. And CSG has also ranked in the leaders quadrant and foresters customer journey orchestration category ahead of almost all other competitors. And CSG also routinely wins industry leadership awards in the payment space. We never take our customer relationships for granted and we constantly push ourselves to be more future ready, more innovative, and easier to do business with than our competitors.

Speaker Change: that we believe will enable us to return closer to the approximately 5% year-over-year organic growth that we achieved from 2021 through 2023, once we work through some of the smallest headwinds to grow in the next several quarters.

Hai Tran: We remain committed to accelerating and diversifying our revenue growth, which may include closing and integrating value-adding acquisitions in the quarters ahead. We believe this approach, combined with our consistent capital contribution, will serve our shareholders. With that information, I will turn it over to the operator to facilitate the question and answer session.

Speaker Change: We remain committed to accelerating and diversifying our revenue growth, which may include closing and integrating discipline, value-adding acquisitions in the quarters ahead.

We believe this approach, combined with our consistent capital contributions, will serve our shareholders well.

Speaker Change: With that, I will turn it over to the operator to facilitate the question and answer session.

Brian Shepard: Is doing all this easy? No it isn't. Being as mission critical as a guess for giant customers all around the world in a wide variety of industry verticals is never easy. And yet being a critical provider can help our customers lower their cost, retain and upsell their most valuable customers grow revenue faster and make more money is precisely why our customer relationships are so sticky often lasting three decades or longer. And it also explains why we've continued to grow organic revenue and close exciting new sales wins even in tough economic conditions because our SaaS workflow solutions deliver faster ROI paybacks.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone key. Your first question comes from the line of Maggie Nolan with William Blair. Please go ahead.

Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad.

Maggie Nolan: Your first question comes from the line of Maggie Nolan with William Blair. Please go ahead.

Speaker Change: Your first question comes from the line of Maggie Nolan with William Blair. Please go ahead.

Brian Shepherd: Hi, thank you. I had a question about the near-term headwinds that you called out, in particular on some of your top client accounts. Have those headwinds gotten incrementally worse than you expected last quarter? You know, what is the impact on Q2 versus what you're expecting maybe in Q3 or Q4, and how long do you expect these headwinds to persist?

Maggie Nolan: hi thank you know

Maggie Nolan: I had a question about the near-term headwinds that you called out, in particular on some of your top client accounts.

Maggie Nolan: Have those headwinds gotten incrementally worse than you expected last quarter? What is the impact to Q2 versus what you're expecting maybe in Q3 or Q4? And how long do you expect these headwinds to persist?

Brian Shepard: On slide six you can see the success we have had in increasing our organic revenue growth since 2021 and the industry vertical revenue diversification success we have had since 2017. The truly exciting part for us, notwithstanding some near-term market shoppiness, is that even as we grow 2024 organic revenue in line with the lower end of our 2% to 6% organic growth range for the near-term quarters, CSG's profitability will continue to expand at its fastest clip in many years.

Brian Shepherd: Yeah, hey, Maggie. Thanks for joining the call today. You know, when we look at this, I wouldn't say it's gotten worse in terms of some of those headwinds. If anything, what we saw coming from the North American cable space with some of the broadband numbers they reported this quarter, it was actually better than we anticipated. So I'd say relative to where we were a quarter ago, probably about the same. What we see, if you look at our long-term guidance for this year and being at the lower end, call it the low twos to low threes, that actually implies a Q3 and Q4 that would actually be midpoint or higher of our 4% or higher range.

Speaker Change: Yeah, hey Maggie, thanks for joining the call today. You know, when we look at this, I wouldn't say it's gotten worse in terms of some of those headwinds. If anything, what we saw coming from the North American cable space with some of the broadband numbers they reported this quarter, it was actually better than we anticipated. So I'd say relative to where we were a quarter ago, probably about the same. What we see, if you look at our long-term guidance,

Brian Shepard: This exciting business momentum is powered by the fact that CSG continues to close big exciting new sales wins quarter-ing quarter-out like many Q2 wins they will talk about momentarily. One positive highlight in Q2 was the revenue growth we saw in our top two customers, Charter and Comcast, even as their businesses face slight broadband subscriber headwinds. We grew Q2 revenue from Comcast and Charter combined by over 1% both sequentially and year over year.

Maggie Nolan: for this year and being at the lower end, call it the low twos to low threes.

Maggie Nolan: That actually implies a Q3 and Q4 that would actually be midpoint or higher of our 4% or higher range. So we actually love the sales booking wins we've closed in the last couple of months.

Brian Shepherd: So we actually love the sales booking wins we closed in the last couple months. It gives us a lot of excitement and confidence that we have a strong second half of the year coming, and we just have to continue to kind of work through, I think, the choppiness that a lot of providers are facing in the market right now, but it's not worse than what we saw a quarter ago. But it's something that we just have to sell through as we get back to that 5% or higher that we delivered for a few years in a row now.

Brian Shepard: This growth is coming from several areas, including our expansion into new areas of their businesses that we have historically not served, like Team CSG being selected and signing a new standalone contract with Comcast to power a new strategic growth area for them.

Speaker Change: gives us a lot of excitement and confidence that we have a strong second half of the year coming, and we just have to continue to kind of work through, I think, what the choppiness that a lot of, you know, providers are facing in the market right now, but it's not worse than what we saw a quarter ago, but it's something that we just have to sell through as we get back to that five percent or higher that we've delivered for a few years in a row now.

Hai Tran: Got it. Thank you. And then as you think about your, you know, near-term aspiration of getting to an 18% to 20% margin, is there additional investment in cost savings programs or optimization that needs to happen in the near term before you start to see, you know, some benefit that would get you to that level? Or how are you thinking about the main levers to get you there over a, you know, maybe two-year period?

Speaker Change: Got it, thank you. And then as you think about your, you know, near-term aspiration of getting to an 18 to 20 percent,

Brian Shepard: Turning to slide seven, we wanted to provide more detail on the many exciting new logo sales wins and deal expansions we have delivered over the last few months. These wins are underpinned by our strong global sales teams that continue to perform well and deliver meaningful new wins like clockwork.

Speaker Change: Margin.

Speaker Change: Is there additional investment in cost-savings programs or optimization that needs to happen in the near term before you start to see some benefit that would get you to that level? Or how are you thinking about the main levers to get you there over a maybe two-year period?

Brian Shepard: First, we want a fantastic new telecom logo at Telonor Denmark, the second largest mobile operator in Denmark. We will be deploying both our cloud native SaaS and S7 and CSG exponent solutions. This win highlights our ability to cross sell our cutting edge digital customer experience suite of solutions together with our cloud monetization offerings. Where CSG's help Telonor Denmark will deliver enhanced digital experiences across all touch points, enhanced on the channel support for all business segments, and win new revenue generating opportunities.

Hai Tran: Yeah, I think it's less about investments, but it's the restructuring charges that we call out, you know, because obviously as we're making some of those difficult choices that are in the near term that will yield some meaningful benefits in the longer term, that's where you'll see the impact on the business. Investments that we're looking to make to drive, you know, not improve processes, greater automation, improve tooling, that's all going to be baked into, you know, our guidance and how we prioritize and allocate our resources.

Speaker Change: Yeah, I think it's less about investments, but it's the restructuring charges that we call out.

Speaker Change: you know, because obviously as we're making some of those difficult choices.

Speaker Change: that are in the near term, you know, that will yield some meaningful benefits in the longer term. That's where you'll see the impact to the business.

Speaker Change: The investments that we're looking to make to drive, you know, not improve processes, greater automation, improve tooling, that's all going to be baked into, you know, our guidance and how we prioritize and allocate our resources.

Brian Shepard: Second, we expanded our relationship with one New Zealand, formerly Vodafone New Zealand. Specifically, we are deploying our CSG quote in order suite of catalog driven solutions to provide a seamless experience between the quoting of new products and the monetization of their offers. Our solution provides a consolidated BSS stack that will modernize the digital quotation experience and help the one New Zealand sales team shrink the launch and selling of new product offers while improving the overall customer experience.

Brian Shepherd: Hey Maggie, the only thing I would add on top of that is it's not going to take us two years to get to the 18 to 20 percent range. We absolutely expect that we'll be operational by 2025. We're not giving next year's guidance yet, but I can tell you with this discipline and focus on margin improvement that we've been driving these quarters terms of the wrench that we often talk about. We absolutely do expect that the business will operate above 18 percent starting next year.

Speaker Change: Hey Maggie, the only thing I would add on top of that is it's not going to take us two years to get to the 18 to 20 percent range. We absolutely expect that we'll operate 2025. We're not giving next year's guidance yet, but I can tell you with this discipline

Speaker Change: focus on margin improvement that we've been driving these quarter terms of the wrench that we often talk about. We absolutely do expect that the business will operate above 18% starting next year.

Brian Shepherd: That's helpful. Thank you both. Thanks for having me. The next question comes from the line of George Notter.

Brian Shepard: We also want another fantastic CSG Ascendant and Exponent joint cross sell new logo deal with Lisa a leading telecom and utility provider in Norway. Lisa selected CSG for a full digital BSS transformation. Specifically, this customer will leverage our cloud-based Ascendant billing solution and our digital wholesale product to manage and monetize their subscriber relationships. Additionally, Lisa also selected CSG's Exponent solution to automate and personalize the post-acquisition customer journey for their subscribers. This excellent deal highlights the power that our customers get when they buy both our digital monetization and data rich CX solutions together.

Maggie Nolan: That's helpful. Thank you both.

Operator: Your next question comes from the line of George Notter with Jeffries. Please go ahead. Hi guys. This is Taranon for George.

George Notter: Your next question comes from the line of George Notter.

George Notter: thanks might be tainking

The next question comes from the line of George Notter with Jeffries.

Speaker Change: Please go ahead.

Speaker Change: Hi guys, this is Taranon for George. Just a quick question regarding M&A. Any changes relative to last quarter in terms of the environment or plans and how you plan to approach that?

Brian Shepherd: No, thanks for the question. I think it's pretty similar to what we talked about last quarter and what we talked about in the script. We expect to be highly disciplined. We're constantly evaluating lots of opportunities. We've closed two small tuck-ins.

Speaker Change: No, thanks for the question. I think it's pretty similar to what we talked about last quarter and what we talked about in the in the script.

George Notter: We expect to be highly disciplined. We're constantly evaluating lots of opportunities. We've closed two small tuck-ins. We love those deals and what we're seeing, even though they're on the smaller side. And we're continuing to look at a range of deals. But as we talked...

Brian Shepherd: We love those deals and what we're seeing, even though they're on the smaller side. And we're continuing to look at a range of deals. But as we talked, with a higher cost of capital, with a higher hurdle rate, and with our stock being on the lower end, we're being even more disciplined. So therefore, that balance of strong capital return, the new $100 million share buyback that was authorized by the board, we expect to continue to return a lot of capital to shareholders.

Brian Shepard: Team CSG had a great digital BSS transformation win with mask on Botswana and leading telecom operator in Africa. Specifically, our solutions will help manage their prepaid and post-paid charging and billing for subscribers to allow mask on to focus on their day-to-day business operations while CSG handles the complex back-end billing processes for their customers.

Speaker Change: with a higher st and capital with the higher hdle rate and with our sock being on the lower end we being even more disciplinine so therefore that balance of strong capital return the new one hundred billion dollars share by back that was authorized by the board we expect to continue to return a lot of capital to shareholders and when there's a great in an a it comes at the right price the rights strategic fit can unlock a lot of value and we know we can execute and deliver on the investment then though they aggre away that will be great for shareholders you ll also he ris announced

Brian Shepherd: And when there's a great M&A that comes at the right price, the right strategic fit that can unlock a lot of value, and we know we can execute and deliver on the investment memo in a way that will be great for shareholders, you'll also hear us announce and execute those M&A deals as well.

Brian Shepard: Another exciting telecom win during the quarter was with Zane Sudon, part of the Zane Group and the leading wireless operator in the Middle East in North Africa. Africa.

Brian Shepard: After a recent data center outage, Zane Sudon trusted CSG to drive the disaster recovery of its wireless business and keep the people of Sudon connected while preserving its market leadership. Through a CSG-powered gateway rebuild, this customer quickly relaunched essential services to the customers across the country, could regain their wireless connectivity.

Speaker Change: execute those M&A deals as well.

Operator: Thank you.

George Notter: Awesome. Great. Thank you.

Operator: Your next question comes from the line of Dan Bergstrom with RBC Capital Markets. Please go ahead. Your next question comes from the line by Shlomo Rosenbaum with Stiefel. Please.

George Notter: Thank you.

Speaker Change: Your next question comes from the line of Dan Bergstrom with RBC Capital Markets.

Speaker Change: Please go ahead.

Brian Shepard: We are also pleased to announce that we signed a fantastic deal extension and expansion with Telstra, a 20-plus year customer of ours. Telstra chose CSG to help transform its enterprise, wholesale, and international businesses. This multi-year deal extends a long-standing relationship where CSG and Compass Solutions suite will help Telstra explore new business models and expand into new verticals as we manage their most complex enterprise B2B customers. This is another great example of a long-standing customer extending their relationship with us.

George Notter: that

Speaker Change: Your next question comes from the line of Shlomo Rosenbaum with Stiefel. Please go ahead.

George Notter: Hi. Thank you very much for taking the time to answer my questions. I do have two questions, really. One, the margin expansion is going pretty well and faster than planned, and you have that target. I just want to follow up on the question that I started off with, which is, what is driving the margin expansion? And, you know, can you point out some, you know, maybe some specific examples of how you're going to get to that 18 to 20?

Operator: Hi. Thank you very much for taking the time to answer my questions. I do have two questions, really. One, the margin expansion is going pretty well and faster than planned, and you have that target. I just want to follow up on the question that I started off with, which is, what is driving the margin expansion? And, you know, can you point out some, you know, maybe some specific examples of how you're going to get to that 18 to 20?

George Notter: Hi, thank you very much for taking my questions. I do have two questions really. One, the margin expansion is going pretty well and faster than planned, and you have that target.

George Notter: I just want to follow up back on the question that was started off with, which is...

Speaker Change: What is driving the margin expansion and, you know, can you point out some, you know, maybe more some specific examples of how you're going to get to that 18 to 20? It's a nice target. It's decently above where you've been only several years ago, and you're not, you know, the leverage, you know, you should get some operating leverage, but it sounds like there's a lot more of an efficiency focus and maybe you could just give us some examples so that we can understand exactly what's going on.

George Notter: It's a nice target. It's decently above where you were only several years ago, and you're not, you know, the leverage, you know, you should get some operating leverage, but it sounds like there's a lot more of an efficiency focus, and maybe you could just give us some examples so that we can understand exactly what's going on.

Operator: It's a nice target. It's decently above where you were only several years ago. And you're not, you know, the leverage, you know, you should get some operating leverage, but it sounds like there's a lot more of an efficiency focus. And maybe you could just give us some examples so that we can understand exactly what's going on.

Brian Shepard: And on the North American broadband front, we are thrilled to have won a meaningful new standalone billing deal in a new growth area for Compass, which should reinforce to our investors the positive position we are in with our second largest customer. On a related note, many investors and analysts routinely ask us how the bigger renewal with Compass is going. What we can share is that we are as well positioned as CSG has been with Compass for nearly three decades, and we are highly confident that we will sign an exciting, new, long-term agreement when Compass is ready to sign that renewal.

Hai Tran: Yeah. Hey, Shlomo.

Speaker Change: Yeah. Hey, Shlomo and Tyke. Thanks for being with us today. It's a great question. I think for us, like most of our initiatives, it isn't single-threaded. It's multi-threaded.

Hai Tran: Thanks for being with us today. It's a great question. I think for us, like most of our initiatives, it isn't single-threaded. It's multi-pronged in nature. Obviously, you hit on one of them, which is just driving greater efficiencies. And so we're taking a hard look at all of our businesses, our processes, and trying to figure out what's going to yield the best return on capital, and then making some difficult decisions to drive those efficiencies. I think the second thing is to look at the mix of revenue. One of the things that you saw in our announcement and in the prepared remarks was the kind of great new logo wins we've had.

Speaker Change: of Nature. Obviously you hit on one of them which is just driving greater efficiencies.

Brian Shepard: We don't say this because we take this renewal for granted. In fact, the exact opposite is the case. The reason we are extremely well positioned with Compass and our other biggest customers is because we never ever take their businesses for granted. We know how mission-critical our end-to-end workflow platforms are to all aspects of how they operate well beyond just billing. So we constantly push our solutions to be more resilient, more value-adding, and more future forwards so that CSG always brings them greater value and is easier to do business with than any of our competitors.

Speaker Change: And so we're taking a hard look at kind of...

Speaker Change: all of our businesses, our processes.

Speaker Change: and try to figure out what's going to yield the best return on capital, and then making some difficult decisions to drive those efficiencies.

Speaker Change: I think the second thing is to look at mix of revenue.

Speaker Change: One of the things that you saw on that announcement and in the prepared remarks was

Hai Tran: As you notice, many of those are actually related to our SaaS platform products, right? And so as we think about our growth in the future, you're going to see a shifting of the mix of revenue to higher-margin SaaS revenue that's going to help us expand our gross margins even further. And then the third is operating leverage, right? You know, it's just managing our expenses. So as we continue to grow the business from a revenue perspective, our operating expenses are growing at a much lower pace. So those are the three things that we focus on internally and give us great confidence in terms of tailwinds to margin expansion over a multiyear period.

Speaker Change: kind of the great new loer ind we've had as you noticed many of those actually related to our saas platform products and so as we think about our growth in the future periods you're going to see a shifting of them mix

Hai Tran: Okay, great. Thanks.

Brian Shepard: Is it possible that Compass could sign an excellent renewal with CSG? It is great for both companies this year. Yes, it is possible we will be in a position to announce an exciting Compass renewal sometime in 2024. Is it also possible that Compass and CSG announce an exciting, mutually beneficial, long-term renewal next year? If Compass decides that is better timing for them, the answer is also yes. It is possible that a great renewal would be signed next year. But regardless of whatever timing Compass decides is best for them, Team CSG will stay fixated on delivering fantastic value as we continue to help Compass solve their toughest business challenges.

Speaker Change: of revenue to a higher margin SAAS revenue. That's going to help us expand our gross margins even further. And then the third is operating leverage, right? You know, it's just managing our expenses. So as we continue to grow the business from a revenue perspective.

Speaker Change: our operating expenses are growing at a much lower pace of those are the three thing that we foccus on internal and gives us great confidence in terms of taailwinds to margin expansion over a multiyear period

Operator: And then the domestic business, in terms of revenue, geographically continued to do well. The EMEA revenue declined, you know, a pretty decent amount sequentially. Maybe you could give us a little bit of detail as to what's going on in EMEA. Yeah, it's really interesting.

Speaker Change: Okay, great, thanks. And then the domestic business in terms of revenue geographically continued to do well. The EMEA revenue declined, you know, a pretty decent amount sequentially. Maybe you could give us a little bit of detail as to what's going on in EMEA.

Brian Shepard: Moving on to other TQ2 sales wins outside of the communication service provider space.

Brian Shepard: We expanded our relationship with NRC Health, one of the nation's largest healthcare experience management firms supporting over half the healthcare systems in the U.S. We are partnering with NRC to execute a digital multi-channel communication strategy in a streamlined, effective, and scalable manner.

Brian Shepherd: Yeah, it's really related more to the global telco, as Hai's talked about in the past. And we have these big implementation programs, typically multi-year in nature.

Brian Shepherd: And so that drives more services revenue to get those implementations deployed. So you will see, on the telco side, that kind of move more quarter to quarter and over time. That's one of the things that we were so excited about with the now kind of third quarter in a row, large, exciting new ascendant wins in the cloud and SaaS platforms, those tend to be much less services heavy, and have a much higher gross margin.

Brian Shepherd: Yeah, it's really related more to the global telco, as Heiss talked about in the past. And we have these big implementation programs, typically multi-year in nature. And so that drives more services revenue to get those implementations deployed. So you will see, on the telco side, that kind of move more quarter to quarter and over time. That's one of the things that we were so excited about with this now kind of the third quarter in a row.

Brian Shepherd: Yeah, it's really related more to the global telco as Hai's talked about in the past and we have we have these big Implementation programs typically multi-year in nature and so that drives more services revenue to get those Implementations deployed so you will see then on the telco side that kind of move more Quarter to quarter and over time. That's one of the things that we were so excited about with the now third quarter in a row

Brian Shepard: Center.

Brian Shepard: And finally, I will wrap up with the good sales when we had in the payments arena with a leading regional bank in the U.S, selecting CSG to power their payments needs. Specifically, CSG's payment solutions allowed this bank to reduce transactional costs and modernize their online payment portal with our bill paid product. We believe there are many domestic banks that could benefit by similarly leveraging our solutions for their payments needs.

Brian Shepherd: large exciting new ascend ant windins and in the cloud and saas platforms those tend to be much less services heavy much higher gross margin so that's a trend that we're seeing if we go back totwo or three years ago a lot of telecom companies were' not willing to run their core in the cloud and we're seeing that fundamentally shift with the six eight biggest sendin wins that we've announced and two more of this quarter with the cross sell with exonent it's super exciting to see but it really is driven by that

Brian Shepherd: So that's a trend that we're seeing. If we go back two or three years ago, a lot of telecom companies were not willing to run their core in the cloud. And we're seeing that fundamentally shift with the six to eight biggest ascendant wins that we've announced, and two more this quarter with the cross-sell with Exponent. It's super exciting to see, but it really is driven by that services revenue with the more on-premise telco solutions that we've sold in prior years.

Brian Shepard: And while most of these great sales when signed over the last few months won't immediately impact our revenue in 2024, we expect them to contribute to good organic revenue growth in 2025 and beyond, which is exactly why over the mediums longer term, we fully expect that CSG will be able to grow revenue at the mid-point or higher of our 2% to 6% range. Moving to slide 8, we would like to provide more color on our second value creation priority, our commitment to consistently expand CSG's profitability.

Brian Shepherd: services revenue with the more on-prem telco solutions that we've sold in prior years.

Speaker Change: Got it. Thank you.

Dan Bergstrom: Your next question comes from the line of Dan Bergstrom with RBC Capital Markets.

Operator: Your next question comes from the line of Dan Bergstrom with RBC Capital Markets.

Dan Bergstrom: Thanks, Shlomo.

Speaker Change: Your next question comes from the line of Dan Bergstrom with RBC Capital Markets. Please go ahead.

Brian Shepherd: Hey, thanks for taking my question. So it's nice to see the new industry verticals at 31% of revenue versus 30% last year and last quarter. You mentioned aspiring to 35% at the start of the prepared remarks. Any thoughts around timing of that 30% target seem like, you know, the percentage is moving up about 100 bps a quarter. Is that a realistic way to think around timing and progression to that 35% number?

Brian Shepherd: Hey, thanks for taking my question. So it's nice to see the new industry verticals at 31% of revenue versus 30% last quarter. You mentioned aspiring to 35% at the start of the prepared remarks. Any thoughts around timing of that 30% target? It seems like, you know, the percentage is moving up about 100 bps a quarter. Is that a realistic way to figure out timing and progression to that 35% number?

Brian Shepard: One of the most meaningful Q2 highlights is the high confidence we have in CSG's ability to continue to significantly expand our profitability and operating leverage in the quarters and years ahead. We have shown very good continuous improvement in our non-GAP-adjusted operating margin as it grew from 16.6% in 2022 to 17.2% in 2023. And as our enhanced profitability guidance targets announced today indicate, we believe the 2024 will continue this trend. Looking ahead, we absolutely believe there is a clear pathway for CSG to consistently achieve 18% to 20% non-GAP-adjusted operating income in 2025 and beyond.

Brian Shepherd: Hey, thanks for taking my question.

Brian Shepherd: So it's nice to see the new industry verticals at 31% of revenue versus 30% last quarter.

Brian Shepherd: You mentioned aspiring to 35% at the start of the prepared remarks. Any thoughts around timing of that 30% target? It seems like the percentage is moving up about 100 bps a quarter. Is that a realistic way to think around timing and progression to that 35% number?

Brian Shepherd: Yes, hi Dan. Thanks for joining us.

Speaker Change: Yes, hi Dan. Thanks for joining. I think that's a good way to look at it. If you just kind of model what it's been the last...

Brian Shepherd: I think that's a good way to look at it. If you just kind of model what it was the last four or five quarters. It's kind of been that steady step up. And what we see in our CX and our payments business through the first half of the year, each of those businesses has continued to grow revenue on an organic basis at a strong double-digit rate. And so, combined with some of the smaller acquisitions, both will be additive.

Speaker Change: 4 or 5 quarters. It's kind of been that steady step up and what we see in our CX and our payments business

Speaker Change: through the first half of the year, each of those businesses has continued to grow revenue on an organic basis.

Brian Shepard: And it's important to note that this enhanced profitability is not coming at the expense of slower revenue growth in the mediums to longer term. We continue to expect our business to generate 2% to 6% organic revenue growth with an aspiration to be at the mid-point or higher at most years. Our continuously expanding profitability stems from our improved operating leverage at scale, ongoing cost efficiencies unrelated to sales and marketing, and growing higher gross margin, SaaS revenue faster than the rest of CSG. And as we generate higher non-GAP-operating margin in the quarters and years ahead, this should also result in free cash flow growing faster than revenue growth.

Brian Shepherd: So we think it is linear. It may not be 100%. You may see a little bit of movement up or not quite that same 100 basis points, but I think that's a good trend. That's why we felt good saying that that 35% should be achievable in the next two-year planning cycle, if not sooner in that period.

Speaker Change: strong double-digit. And so that, combined with some of the smaller acquisitions, both will be additive. So we think it is linear. It may not be 100 percent. You may see a little bit of movement up or not quite that same 100 basis points, but I think that's a good trend. That's why we felt good saying that that 35 percent should be achievable in the next two-year planning cycle, if not sooner in that period.

Brian Shepherd: That's great. Then, sticking with the verticals, any update on channel partners and those additional verticals? I think we're about a year into investments there. You know, how's the new logo pipeline looking for partners? Yeah, no. We love the channel approach.

Speaker Change: that's great than stickking with the verticals any updator on channel partners in those additional verticals i think we're about a year into investments there you know the new vogo pipeline looking for partners

Brian Shepard: Turning to slide 9, we will touch on our third value creation priority, our commitment to shareholder returns and our ability to execute very value-creating a creative M&A. Today, our board authorized a new $100 million share repurchase program that demonstrates CSG's commitment to discipline capital allocation and a dedication to returning capital to our shareholders. Regarding our $1.5 billion revenue ambitions by year in 2025, it is possible that this goal may take us a little longer to achieve, depending on the size of excellent and extremely value-creating M&A deals that we find in the market over the next four to six quarters.

Brian Shepherd: Yeah, no, we love the channel approach, and I'd say with both our payments, our ascendant, and our CX business, it'll continue to be a combination of channel-driven as well as direct sales. And in many cases, we're actually seeing the benefit of cross-selling into our telco base, which is exciting with a couple of those big cross-sells of exponent at Telenor Denmark and in Lise, We're signing up good partnerships, the pipelines are expanding there, and that's one that really hasn't even started to bear fruit yet.

Brian Shepherd: Yeah, no; we love the channel approach.

Speaker Change: Yeah, no, we love the channel approach. I'd say with both our...

Brian Shepherd: Peyman

Speaker Change: Ascendant, and our CX business. It'll continue to be a combination of channel driven as well as direct sales and in many cases we're actually seeing the benefit of cross-selling into our telco base, which is exciting with a couple of those big cross-sells of exponent at Telenor Denmark and in Lise. But yeah, we like what we're seeing on the channel side. We're signing up good partnerships. The pipelines are expanding in there and that's one that really hasn't even started to bear fruit yet. We think that's going to be part of this.

Brian Shepherd: We think that's going to be part of this growth acceleration in Q3 and Q4 and into next year, back closer to the 3%, 4%, or 5% that we anticipate. That's going to come from some of those investments we've made in the channel, which I think is a big one, even as we've gotten to this margin expansion, it's not coming because we've cut sales and marketing. We're continuing to invest both in differentiated SaaS product R&D, and we're continuing to invest in sales, marketing, and channel partner sales, and that's going to continue, and that's why we really feel good about our ability, over the medium to longer term, to be a mid-single digit organic growth company or higher.

Brian Shepard: We believe that CSG stock price represents an excellent value-creating buy for investors and for us. So we will stay balanced, disciplined, and focused on any strategic or financial move that the board of directors and management believe will deliver the most value Golders. When we set the $1.5 billion gold in 2020, we knew about half of the revenue expansion would need to come from discipline and a creative M&A. While we continued to assess qualified M&A opportunities, when our share price trades lower, the hurdle rate for good M&A deals gets that much higher.

Speaker Change: growth acceleration in Q3 and Q4 and into next year, back closer to the 3, 4, 5 percent that we anticipate. That's going to come from some of that investment we've made in channel, which I think is a big one. Even as we've gotten to this margin expansion.

Speaker Change: It's not coming because we've cut sales and marketing. We're continuing to invest both in differentiated SaaS product R&D, and we're continuing to invest in sales and marketing and channel partner sales. And that's going to continue, and that's why we really feel good about our ability over the medium to longer term to be a mid-single-digit organic growth company or higher.

Brian Shepard: We were very pleased with the two smaller, highly creative acquisitions that we've closed so far in 2024. We were able to acquire both companies that highly attractive multiples. Both of these small tucking deals at very sticky, highly profitable revenue for CSG. And with respect to integration, both deals remain well-ontracted, deliver the value we expected in our M&A business cases. And on the organic revenue growth side, we have delivered on our commitment of approximately 5% annual organic revenue growth from 2021 to 2023, with significantly expanding profitability at the corporate level.

Speaker Change: That's great, thank you.

Operator: Your next question comes from the line of Nehal Chokshi, with Northland Capital Market.

Nehal Chokshi: Your next question comes from the line of Nehal Chokshi.

Speaker Change: Thanks so much.

Nehal Chokshi: Your next question comes from the line of Nehal Chokshi with Northland Capital Market.

Hai Tran: Thank you. Big news on the operating margin raise. That's great. And Hai, you mentioned that the mix shift to SAS is a driver of the counter 25 margin expansion being discussed. What is the mature operating margin of your SAS business?

Operator: Thank you. Big news on the operating margin raise. That's great. And, Hai, you mentioned that mixed ship to SAS is a driver of the counter 25 margin expansion being discussed. What is the mature operating margin of your SAS business?

Speaker Change: please go ahead

Hai Tran: Thank you. Big news on the operating margin raise. That's great. And how you mentioned that the mix ship to SAS is a driver to the counter 25 margin expansion being discussed. What is the mature operating margin of your SAS business?

Hai Tran: Yeah, I mean, if you generally look at SAS businesses in general, right, they, you know, most of them have gross margins in the 70 to 80 percent range. I think that's something that we're looking to drive with scaling.

Hai Tran: Yeah, I mean, if you generally look at SAS systems in general, right, they, you know, most of them have gross margins in the 70 to 80 percent. I think that's something that we're looking to drive with scale.

Hai Tran: yeah i mean i think you show ly look at staffbusinesses in general right they know most of them have gross margins in the seventy to eighty percent i think that's something that we're looking to drive with scale as well

Brian Shepard: Given all this exciting business momentum, I hope you see why we absolutely believe that CSG's best days and biggest breakthroughs are still ahead of us. This is also why CSGers all around the world stay hungry and customer obsessed because we know this relentless focus is what is required to lead the industries where we operate. And it is also essential to creating significant shareholder value in the quarters and years ahead, regardless of any near-term challenge standing in the way of Team CSG.

Hai Tran: or What about the operating margin portion? I think the operating margin depends, right? What I mean by that is, you know, I think it depends on what phase of the growth expansion that we're in. Obviously, a lot of SaaS businesses over-invest in sales and marketing and R&D, you know, as they're gaining traction and growing. But I can imagine a scenario at maturity where we're talking about EBITDA that's approaching kind of the mid-20s to the low-30s. Okay, so in that context, then, you know, 18 to 20%. This is more of a milepost as opposed to the long-term potential and long-term expectation. Is that fair?

Speaker Change: And what about the Operating Martian, of course?

Speaker Change: I think the operating margin, I think it depends, right? What I mean by that is, you know, I think it depends on what phase of the growth expansion that we're in. Obviously, a lot of SaaS businesses overinvest.

Speaker Change: in sales and marketing and R&D, you know, as they're gaining traction and growing. But I can imagine the scenario at maturity. We're talking about EBITDA that's approaching kind of mid-20s to low-30s.

Brian Shepard: With that, I will provide more detail in our financial highlights and updated guidance ranges. Thanks, Brian.

Hai Tran: Okay, so in that context, then, you know, 18 to 20%.

Hai Tran: Okay, so in that context then, you know, this 18 to 20 percent...

Hai Tran: Let's walk through our Q2 2024 financial results.

Speaker Change: This is more of a milepost as opposed to the long-term potential long-term expectation. Is that fair?

Hai Tran: And then I'll wrap up with some key conclusions. Starting on slide 11, we generated $290 million of revenue in Q2 versus $286 million in the same prior year period. The increase in revenue can be attributed to the continued growth of our cloud revenue, in addition to revenue generated from the acquired businesses, which offset lower software and services revenue for the quarter. Our Q2 2024 non-gap operating income was $46 million, or a non-gap adjusted operating margin of 17.3%, as compared to $43 million or 16.2% in the prior year.

Hai Tran: Yeah, I think it all always comes down to revenue mix at the end of the day, right? A big chunk of our businesses are still very services-oriented from a revenue perspective and likely will remain so because there are geographies that we serve whereby an on-premises solution will remain kind of the better solution for those customers. So I think that you'll always have a chunk of our revenue that will be lower margin, strategically important for us, but lower margin in nature.

Brian Shepherd: Yeah, I think it all always comes down to revenue mix at the end of the day, right? A big chunk of our...

Brian Shepherd: businesses are still very services oriented from a revenue perspective and likely will remain so because there are geographies that we serve whereby an on-prem solution will remain kind of the better solution for those customers. So I think that you'll always have a

Brian Shepherd: a chunk of our revenue that will be lower margin, strategically important for us, but lower margin in nature.

Brian Shepherd: I think Nehal, I appreciate you joining us. I think the only thing I would add to that is, we'll give more color for 2025, and I think a little more on this 18-20 percent next quarter and the following. But we see that as a two to three-year horizon in terms of how we at least think about and see the business. To your point, as we continue to shift mix, we have a higher percentage of our revenue coming from faster growing SaaS, and we benefit at higher scale. You're exactly right. There's no reason that 18-20 percent should be our medium to longer-term cap, not by any stretch. I think you're exactly right.

Brian Shepherd: I think Nehal, I appreciate you joining us. I think the only thing I would add to that is we'll give more color for 2025, and I think a little more on this 18-20 percent next quarter and the following. But we see that as a two to three-year horizon in terms of how we at least think about and see the business. To your point, as we continue to shift mix, we have a higher percentage of our revenue coming from faster growing SaaS, and we benefit at higher scale. You're exactly right. There's no reason that 18-20 percent should be our medium to longer-term cap, not by any stretch. I think you're exactly right.

Brian Shepherd: I think, Nehal, I appreciate you joining. I think the only thing I would add to that is we'll give more...

Hai Tran: We are very pleased with this approximately 110 basis point year-over-year improvement in our Q2 non-gap adjusted operating income. Similarly, our non-gap adjusted $50 million for Q2 2024, or 22.6% of revenue, excluding transaction fees, as compared to $57 million or 21.4% in Q2 2020 period.

Brian Shepherd: Color for 2025, and I think a little more on this 18 to 20% next quarter and the following. But we kind of see that as a two to three year horizon in terms of how we at least think about and see the business. And to your point, as we continue to shift mix, we have a higher percentage of our revenue coming from faster growing SAS.

Brian Shepherd: and we benefit at higher scale, you're exactly right, there's no reason that 18% to 20% would be our medium to longer term cap, not by any stretch, I think you're exactly right.

Hai Tran: Looking ahead, we expect our profitability metrics to further improve as we took significant cost efficiency actions in the first half of 2024 to optimize our capacity and better align CSU resources to areas of our business that have higher growth profile. Lastly, our Q2 2024 non-gap EPS grew almost 28% year-over-year to $1.2 as compared to $0.80 in Q2 2023. This big increase in non-gap EPS is mainly due to higher operating income and the benefit from my share of referential activity over the last 12 months.

Brian Shepherd: And I do have another question. With the incremental buyback capacity that you've announced, but you did have plenty of capacity left on the existing buyback, are you trying to signal that your projected pace of sharebacks is going to materially hasten here?

Nehal Chokshi: Okay, great. And then I do have another question. With the incremental buyback capacity that you've announced, but you did have plenty of capacity left on existing buyback, are you trying to signal that your projected pace of sharebacks are going to materially hasten here?

Hai Tran: Yeah, I think that what we're trying to say is that we are committed to delivering value back to our shareholders. We understand that at these levels, that is a good use of our capital. And that's really what we're trying to signal at the end of the day, right? Just, you know, because we speak a lot of times about organic growth, about inorganic growth. And sometimes investors have a certain perspective that somehow that inorganic growth is going to trump the value we deliver back to shareholders. And what you heard Brian say is that we're going to be extremely disciplined and continue to be committed to delivering value back to our shareholders through buybacks. Yeah, and I think data, historical data.

Brian Shepherd: Yeah, I think that what we're trying to say is that we are committed to delivering value back to our shareholders. We understand that at these levels, that is a good use of our capital. And that's really what we're trying to signal at the end of the day, right? And because we speak a lot about organic growth, about inorganic growth, and sometimes investors have a certain perspective that somehow, inorganic growth is going to trump the value we deliver back to shareholders. And what you heard Brian say is we're going to be extremely disciplined and continue to be committed to delivering value back to our shareholders through buybacks. Yeah, and I think data, historical

Brian Shepherd: Yeah, I mean, I think that what we're trying to say is that we are committed to delivering value back to our shareholders. We understand that.

Brian Shepherd: at these levels.

Brian Shepherd: that is a good use of our capital and that's really whatwe're trying to sing within the gting rightkid and because we speak a lot of times about organic growth of about organa growth and sometimes as investors have certain perspective to somehow that inorganic growth

Hai Tran: Turning to slide 12, I will go through the balance sheet, our cash flow performance and shareholder returns. We had non-gap free cash flow of $39 million in Q2 2024 as compared to $5 million of non-gap free cash flow in Q2 2023. Our strong Q2 2024 cash flow performance was better than anticipated due to the timing of certain working capital items including improvement in accounts receivables and unbuild revenue. Moving on, we ended the second quarter of Q2 2024 with $110 million of cash and cash equivalence.

Brian Shepherd: is going to trump the value with look-back shareholders. And what you heard Brian say is we're going to be extremely disciplined.

Brian Shepherd: and continue to be committed.

Brian Shepherd: Yeah, and I think historical performance is a great indicator. We've returned $480 million to shareholders since 2020. We've done well over $100 million each of the last two years. We've returned a lot of capital, and there's additional authorization for us to do more in the coming quarter.

Brian Shepherd: to delivering value back to our shareholders through FIPAX. Yeah, and I think historical performance is a great indicator. We've returned $480 million to shareholders since 2020. We've done well over $100 million each of the last two years.

Brian Shepherd: We've returned a lot of capital and there's additional authorization for us to do more in the coming quarters.

Hai Tran: That, along with our outstanding debt at June 30, 2024, results in $444 million in net debt. And our net debt leverage ratio is just at 1.9 times adjusted. Further, we have $558 million in liquidity as of the end of the quarter. And on the bottom right of the slide, you can see we have returned $46 million in dividend and share references to shareholders in the first half of 2024.

Speaker Change: Okay, thank you.

Matthew Harrigan: The next question comes from the line of Matthew Harrigan with Benchmark Company.

Operator: Your next question comes from the line of Matthew Harrigan with Benchmark Company.

Speaker Change: Thanks, everyone.

Matthew Harrigan: The next question comes from the line of Matthew Harrigan with Benchmark Company.

Operator: Thank you. Part of the beauty of Exponent in this environment is you can really show, I think, fairly readily to existing customers and maybe new customers to a somewhat lesser extent really what the quantifiable impacts are on customer retention and cost efficiency on the customer journey and all that. And given that that's a priority, I mean, is this sort of natural inertia on your corporate clients to spend any money, even though you can demonstrate that the ROI is really high, and is that something you think they'll be able to work out over a period of time? What are the real kernels of the selling process for exponents and new customers and then layering in, you know, more capabilities to existing customers? Thank you.

Matthew Harrigan: Thank you. Part of the beauty of the exponent in this environment is you can really show, I think, fairly readily to existing customers and maybe new customers to a somewhat lesser extent, you know, really what the quantifiable impacts are on customer retention and cost efficiency on the customer journey and all that. And given that that's a priority, I mean, is this sort of natural inertia on your corporate clients to spend any money, even though you can demonstrate that the ROI is really high, and is that something you think will be able to work out over a period of time? What are the real kernels of the selling process for exponents and new customers and then layering in, you know, more capabilities to existing customers? Thank you.

Speaker Change: Please go ahead.

Matthew Harrigan: Thank you. Part of the beauty of Exponent in this environment is you can really show, I think, fairly readily to existing customers and maybe new customers to a somewhat lesser extent.

Matthew Harrigan: You know, really what the quantifiable impacts are on customer retention and cost efficiency on the...

Hai Tran: Turning the page, I'll revisit our 2024 guidance targets. As Brian highlighted, we are pleased to be increasing certain 2024 guidance targets including non-gap adjusted operating margins, non-gap adjusted EBITDA, and non-gap EPS. We are also excited to reiterate all other guidance targets for full year 2024. Specifically, on our enhanced non-gap property targets, we continue to take disciplined cost reduction actions that will optimize and streamline our business while still investing in higher growth activities that we believe will enable us to get back to the mid-single digit non-gap adjusted operating profit in the quarters ahead.

Matthew Harrigan: Customer Journey, and all that.

Matthew Harrigan: Given that that's a priority, I mean, is there just sort of natural inertia on your corporate clients to spending any money, even though you can demonstrate that the ROI is really high, and is that something you think they'll be able to work out over a period of time? What are the real

Matthew Harrigan: hurdles on the on the selling process for

Matthew Harrigan: were exponents of new customers and then layering in.

Brian Shepherd: Yeah, no. Hi Matt.

Speaker Change: you know, more capabilities to our existing customers.

Matt: Thank you.

Brian Shepherd: Yeah, no, hi, Matt, thanks. I mean, what we're seeing on the CX exponent side...

Brian Shepherd: Thanks. I mean, what we're seeing on the CX exponent side is almost identical to what you said. We can ring the cash register quickly with a very fast payback for lots of brands and lots of verticals on a wide number of fronts. We see some use cases getting deployed around our BillExplainer.ai platform where they want to reduce the number of calls into their call center and reduce churn during a promotional period. We've got other customers that want to deal with fraud alert notifications, and that's the entry point to make a quick sale.

Brian Shepherd: Thanks. I mean, what we're seeing on the CX exponent side is almost identical to what you said. We can rank the cash register quickly with a very fast payback for lots of brands and lots of verticals on a wide number of fronts. We see some use cases getting deployed around our BillExplainer.ai platform where they want to reduce the number of calls into their call center and reduce churn during a promotional period. We've got other customers that want to deal with fraud alert notifications, and that's the entry point to make a quick sale.

Brian Shepherd: is almost identical to what you said. We can ring the cash register quickly with a very fast payback for lots of brands and lots of verticals on a wide number of fronts. We see some use cases getting deployed around our BillExplainer.ai where they want to reduce the number of calls into their call center and reduce churn during a promotional period.

Hai Tran: We believe these cost efficiency moves will not only boost CSG's profitability in 2024, but will also create a meaningful tailwind to steadily improve our profitability next year and beyond. With that said, the cost reduction steps we have and continue to take will result in some short-term impacts to our cash flow in 2024 due to restructuring expenses related to these initiatives. At this point, the cash impact from our restruction activities in the first half of 2024 has been approximately $14 million.

Brian Shepherd: We've got other customers that want to deal with...

Brian Shepherd: We have other customers that are trying to actually grow revenue faster, and they use it to do proactive offers, try to upsell or cross-sell, and it's more of a revenue driver. And often, what we find with speed is it's use case driven, and then once they deploy for one or two use cases, they realize the power in that platform can actually be used for dozens of use cases. So occasionally we'll sell it more as a pure platform play and a Swiss Army knife to solve any of their needs, but often in this, I'd say, higher hurdle rate payback period, it's just ring the cash register, solve a near-term problem, and then move on.

Brian Shepherd: Broad Alert Notifications, and that's the entry point to get a quick sale. We have other customers that are trying to actually grow revenue faster, and they use it to do proactive offers, try to upsell or cross-sell, and it's more of a revenue driver.

Brian Shepherd: And often what we find on speed is it's use case driven, and then once they deploy for one or two use cases, they realize the power in that platform can actually be used for dozens of use cases.

Hai Tran: With respect to our original 1.2 to 1.24 billion revenue guidance range, as Brian mentioned, we are reiterating our original guidance range, but we will likely end up towards the low end of the range. As the amount of revenue we expect to generate from our acquired assets in 2024 is anticipated to be more than offset by lower revenue expectations in our core business when compared to our original guidance expectations in February. Some of the main drivers of this include one, we are seeing a little belt tightening with our current and prospective customers.

Brian Shepherd: So, occasionally we'll sell it more as a pure platform play, and a Swiss Army knife to solve any of their needs, but often in this...

Speaker Change: I say,

Brian Shepherd: higher hurdle rate payback period. Often it's just ring the cash register, solve a near-term problem, and then move on. So we have traditional SAS economic pricing that you would expect with that. Could it become more performance-based over time? Always open to that. It just has to work for us and for our customers, but we're always flexible to just...

Brian Shepherd: So we have traditional SaaS economic pricing that you would expect with that. But could it become more performance-based over time? We're always open to that. It just has to work for us and for our customers, but we're always flexible to just different approaches over time. But we love what we're seeing, and one of the real breakthroughs this quarter on CX was that cross-sell into telco that we saw with Telenor Denmark and Lise getting sold with our monetization SaaS platform as well. That was super exciting for us, and we think we can do a lot more of that.

Hai Tran: 2. We are experiencing smallest headwinds in the North American broadband market and 3. There are some services based revenue recognition timing related headwinds surrounding a couple of the larger global telecommunication deployments as we continue to implement these important projects. Because of this, we expect our 2024 organic revenue growth to be towards the low end of our two to six percent range.

Brian Shepherd: different approaches over time. But we love what we're seeing and one of the real breakthroughs this quarter, quarter on CX, was that cross-sell into telco that we saw with Telenor Denmark and Lise getting sold with our monetization SaaS platform as well. That was super exciting for us and we think we can do a lot more of that.

Brian Shepherd: And then you had a question on M&A earlier, and you also went into it to an extent in your commentary, and certainly I understand the relative hurdle rate compared to buying back your own stock. But are you seeing any loosening of multiples? Are you seeing the likelihood of more forced selling on the part of some smaller entrepreneurial companies who might not have had the access to capital that they had even 12 or 18 months ago?

Speaker Change: And then you had a question on M&A earlier, and you also went into it to an extent on your commentary, and certainly I understand the relative hurdle rate.

Hai Tran: Rapping up. 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 an adherence to a risk rewards framework with continuous learning or key cornerstone of how we have and will continue to manage our business. CSG is extremely well positioned with a strong sales pipeline and a high quality recurrent revenue customer base that we believe will enable us to return closer to the approximately 5% year-to-year organic growth that we achieved from 2021 through 2023, once we worked through some of the smallest headwinds to grow in the next several quarters.

Speaker Change: comparativeto buying debackctor own stock

Speaker Change: But are you seeing any loosening of multiples? Are you seeing...

Speaker Change: the likelihood of more forced selling and part of the smaller

Speaker Change: Entrepreneurial companies who might not have had the access to capital that they had even

Brian Shepherd: Yeah, I think that there are some interesting dynamics in the M&A, but it also relates to a couple other non-M&A related parts. Periods like this actually tend to play to the favor of stronger, larger providers. And we've seen periods like this where customers have made decisions to maybe break some of their long-held beliefs and open up new buying opportunities for CSG. And that's true on the M&A side as well. So in tougher periods, sometimes weaker performers sometimes reevaluate whether they should still be in the business or not in various areas.

Brian Shepherd: Yeah, I think that there are a couple interesting dynamics in the M&A, but also, it relates to a couple other non-M&A related parts. Periods like this actually tend to play to the favor of stronger, larger providers. And we've seen periods like this where customers have made decisions to maybe break some of their long-held beliefs and open up new buying opportunities for CSG. And that's true on the M&A side as well. So in tougher periods, sometimes weaker performers sometimes reevaluate whether they should still be in the business or not in various areas.

Speaker Change: and twelve twelve eight months ago

Brian Shepherd: And it can create opportunities where we can just win more sales organically from them and go take market share. And in some cases, it may create a fantastic opportunity to buy for an extremely attractive price on a multiple of revenue and EBITDA pre-cost synergies that could create opportunities. And so even though I think the macroeconomic environment right now is good for CSG, we'd love it to have a few less single-digit one to 2% headwinds to growth, but we think it's actually gonna be a gift in the longer and medium term for CSG, both on the organic side of our business and potentially on the M&A.

Speaker Change: Yeah, I think that there's a couple interesting dynamics on the M&A, but also it relates to a couple other non-M&A related portions.

Brian Shepherd: I don't have all of them.

Brian Shepherd: Periods like this

Brian Shepherd: actually tend to play to the favor of stronger, larger providers.

Brian Shepherd: And we've seen periods like this where customers have made decisions to maybe break some of their long-held beliefs and open up new buying opportunities for CSG.

Hai Tran: We remain committed to accelerating and diversifying our revenue growth, which may include closing and integrating discipline, value adding acquisition in the quarters ahead. We believe this approach, combined with our consistent capital contribution, will serve our shareholders well.

Brian Shepherd: That's true on the M&A side as well. So in tougher periods, sometimes weaker performers, sometimes

Brian Shepherd: reevaluate whether they should still be in the business or not in various areas and it can create opportunities where we can just win more sales organically from from them and go take ship market share and in some cases it may create a fantastic opportunity to buy an extremely attractive price on a multiple of revenue and EBITDA pre-cost synergies that could create opportunities and so even though I think the macroeconomic environment right now

Operator: With that, I will turn it over to the operator to facilitate the question and answer session. At this time, I would like to remind everyone in order to ask a question for a star, then the number one on your telephone keyboard.

Maggie Nolan: Your first question comes from the line of Maggie Nolan with William Blair. Please go ahead. Hi, thank you.

Maggie Nolan: I had a question about the near-term headwinds that you called out in particular on some of your top client accounts. Have those headwinds gotten incrementally worse than you expected last quarter? What is the impact to Q2 versus what you're expecting maybe in Q3 or Q4 and how long do you expect these headwinds to persist?

Brian Shepherd: We'd love it to be, you know, have a few less single-digit one to two percent headwinds to growth.

Brian Shepherd: But we think it's actually going to be a gift in the longer and medium term for CSG, both on the organic side of our business and potentially on the M&A. And what we just try to do, we just try to stay extremely disciplined on what we know would unlock a ton of value for our shareholders. And if it comes in, if a good M&A, small, mid, or larger comes in, and it fits the criteria,

Brian Shepherd: And what we just try to do, we just try to stay extremely disciplined on what we know would unlock a ton of value for our shareholders. And if it comes in, if a good M&A, small, mid, or larger, comes in, that's the criteria. We have the flexible balance sheet to be able to act on that in a way that could be very attractive for our shareholders. If it doesn't come in, no problem. We'll just keep working and keep driving the organic part of our business. That's how we think about it.

Brian Shepherd: ...

Brian Shepard: Hi, Maggie. Thanks for joining the call today. When we look at this, I wouldn't say it's gotten worse in terms of some of those headwinds. If anything, what we saw coming from the North American cable space was some of the broadband numbers they reported this quarter. It was actually better than we anticipated. I'd say relative to where we were a quarter ago, probably about the same. What we see, if you look at our long-term guidance for this year and being at the lower end, call it the two low 2s to low 3s, that actually applies a Q3 and Q4 that would actually be midpoint or higher of our 4% or higher range.

Brian Shepherd: we have the flexible balance sheet to be able to act on that in a way that could be very attractive for our shareholders. If it doesn't come in, no problem. We'll just keep working and keep driving the organic part of our business. That's how we think about it.

Operator: We still have all those nutcrackers sitting in Dubai now, presumably. Okay, great. Thanks, Brian. Thanks so much, Brett. The next question comes from the line of Michael Berg with Wells Fargo Securities. Please go ahead. Hey, thanks for taking my question. Um, I wanted to double click on

Brian Shepherd: You still have all those Nutcracker engineers sitting in Dubai now, presumably. Okay, great. Thanks, Brian .

Pat: Thanks so much, Pat.

Operator: The next question comes from the line of Michael Berg with Wells Fargo Securities. Please go ahead. Hey, thanks for taking my question.

Speaker Change: Your next question comes from the line of Michael Berg with Wells Fargo Securities. Please go ahead.

Brett Knoblauch: Thanks so much, Brett. Hey, thanks for taking my question. Um, I want to double click on the...

Speaker Change: Hey, thanks for taking my question. I wanted to double click on the dynamics happening within Comcast and Charter. Those are both healthy points in the quarter.

Brian Shepard: We actually love the sales booking winds we closed in the last couple of months. It gives us a lot of excitement and confidence that we have a strong second half of the year coming. We just have to continue to work through what the choppiness that a lot of providers are facing in the market right now. But it's not worse than what we saw a quarter ago, but it's something that we just have to sell through as we get back to that 5% or higher than we delivered for a few years in a row now. But thank you.

Speaker Change: You mentioned specifically expansion in new areas of business and that the Comcast...

Speaker Change: Renewal may get pulled forward here, so maybe if you just help us understand, you know, some more nuance of those new areas of business, what areas of business are still left to capture at both Comcast and Charter, and any more details you can share on the Comcast renewal. Thank you.

Brian Shepherd: No, thanks so much, Mike. Appreciate you joining us. Yeah, as we've talked, I mean, we've talked for a few quarters now. We have high confidence that Comcast Charter, extremely strong brands, industry-leading companies, we believe they will mount a strong, formidable, competitive response to some of the things they see going on in the market. We love what they're doing in the business. We love our three decades plus relationship

Brett Knoblauch: No, thanks so much, Mike. Appreciate you joining. Yeah, as we've talked, I mean, we've talked for a few quarters now.

Brian Shepard: And then as you think about your near-term aspiration of getting to an 18-20% margin, is there additional investment in cost savings programs or optimization that needs to happen in the near-term before you start to see some benefit that would get you to that level or how are you thinking about the main lovers to get you there over a maybe two-year period? Yeah, I think it's less about investments, but it's the restructuring charges that we call out, because obviously we're making some of those difficult choices that are in the near-term, that will yield some meaningful benefits in the longer term.

Speaker Change: We have high confidence that Comcast, Charter, extremely strong brands, industry-leading companies, we believe they will mount a strong, formidable, competitive response to some of the things they see going on in the market. We love what they're doing in the business, we love our three decades plus relationship with both, and we have significant opportunities to expand if they decide that that's good for their business. And so, first, we serve over 63 million subscribers at Comcast and Charter combined, all of their triple place subscribers on both. As a reminder, we moved 11 million subscribers off of Amdocs to us a few years ago, and we moved 14 million off of Netcracker a couple years ago as well. And so we continue to grow.

Brian Shepherd: And we have significant opportunities to expand if they decide that that's good for their business. And so, first, we serve over 63 million subscribers at Comcast and Charter combined, all of their triple play subscribers on both. As a reminder, we moved 11 million subscribers off of Amdocs to us a few years ago, and we moved 14 million off of Netcracker a couple of years ago as well. And so we continue to serve them well.

Brian Shepard: That's where you'll see the impact to the business. Investments that we're looking to make to drive improve processes, greater automation, improve tooling, that's all going to be baked into our guidance and how we prioritize and allocate our resources. Hey, Maggie, the only thing I would add on top of that is it's not going to take us two years to get to the 18-20% range. We absolutely expect that we'll operate 2025. We're not giving next year's guidance yet, but I can tell you with this discipline focus on margin improvement that we've been driving these quarter terms of the rents that we often talk about, we absolutely do expect that the business will operate above 18% starting next year. That's helpful. Thank you both. Thanks, Maggie. Thanks.

Brian Shepherd: It was very exciting to see, you know, 1% growth, and it was exciting to sign a good new billing contract with Comcast in a new growth area for them, unrelated to the 63 million triple play subscribers we already serve with our long-term contracts. So I love what we're seeing.

Speaker Change: continue to serve them well it was very exciting to see you know one percent growth and it was exciting to sign a good new billing contract with comcasting a new growth area for them unrelated to the sixty three million tripleplace subscribers we already served with our long term contracts

Brian Shepherd: We could have opportunities to grow in the CX space if they choose to use us in those areas. Similarly, we could grow in the wireless space. Right now, both of them in their wireless growth are on an Amdocs platform. We could also just help them in other areas of the business, where they might decide to rely on some of our proven technology. And so what we try to do is just always be on and resilient, always be, you know, future ready with our platforms, and just constantly bring them ideas that can help them mount a more formidable response.

Brett Knoblauch: So, love what we're seeing. We could have opportunities to grow in the CX space if they chose to use us in those areas. We could grow in the wireless space. Right now, both of them in their wireless growth are on an Amdocs platform. We could also just help them in other areas of the business where they might decide to rely on some of our proven technology. And so what we try to do is just always be on and resilient.

Speaker Change: always be, you know, future-ready with our platforms and just constantly bring them ideas that can help them mount a more formidable response. And so, that's why we gave the additional color on the Comcast renewal. We've never been better positioned at Comcast, and yet we never take it for granted. And so, what we're, as you can imagine, with...

Brian Shepherd: And so that's why we gave added color on the Comcast renewal. We've never been better positioned at Comcast, and yet we never take it for granted. And so, as you can imagine, with about 18 months left on that contract, we're in active discussions. Maybe something gets signed sooner this year. Maybe Comcast decides to sign the renewal sometime next year. There is going to be a good win-win renewal that brings a lot of value for Comcast and fantastic value for CSG. We're highly confident it's coming, whether it's next quarter, the quarter after, or in 2025. Stay tuned, but we love where we're positioned.

George Notter: The next question comes from the line of George Nauder with Jeffries. Please go ahead. Hi guys, this is Terranon for George. Just a quick question regarding M&A. Any changes relative to the last quarter in terms of the environment or plans and how you plan to pursue that? Thanks.

Speaker Change: About 18 months left on that contract, we're in active discussions.

Brian Shepard: No, thanks for the question. I think it's pretty similar to what we talked about last quarter and what we talked about in the script. We expect to be highly disciplined. We're constantly evaluating lots of opportunities. We've closed two small tuck-ins. We love those deals and what we're seeing even though they're on the smaller side and we're continuing to look at a range of deals. But as we talked with the higher cost of capital, with the higher hurdle rate and with our stock being on the lower end, we're being even more disciplined.

Speaker Change: Maybe something gets signed sooner this year. Maybe Comcast decides to sign the renewal sometime next year. There is going to be a good win-win renewal that brings a lot of value for Comcast and fantastic value for CSG. We're highly confident it's coming.

Brett Knoblauch: Whether it's next quarter, the quarter after, or in 2025, stay tuned, but we love where we're positioned.

Brian Shepherd: I'll now turn the call back over to Brian Shepherd for closing remarks. Please go ahead. No, thanks for joining us everyone.

Brian Shepherd: I'll now turn the call back over to Brian Shepherd for closing remarks. Go ahead. Thanks for joining us, everyone.

Brian Shepard: So therefore that balance of strong capital return, the new $100 billion share buyback that was authorized by the board, we expect to continue to return a lot of capital to shareholders. And when there's a great M&A, it comes at the right price, the right strategic fit that can unlock a lot of value. And we know we can execute and deliver on the investment memo and agree in a way that will be great for shareholders. You'll also hear us announce and execute those M&A deals as well. Awesome. Great. Thank you.

Brian Shepherd: I will now turn the call back over to Brian Shepherd for closing remarks.

Brian Shepherd: We were super excited about the great sales wins we saw in Q2. It gives us confidence that we'll see improved organic revenue growth in Q3 and Q4. We are going to consistently improve our non-gap adjusted operating margin and our EPS, and that is here to stay, and we're going to continue to execute on that like those quarter turns of the wrench. Super grateful to all the CSGers around the world for making this happen.

Brian Shepherd: Thanks for joining us, everyone. We were super excited about the great sales wins we saw in Q2. This gives us confidence that we'll see improved organic revenue growth in Q3 and Q4. We are going to consistently improve our non-gap adjusted operating margin and our EPS, and that is here to stay, and we're going to continue to execute on that, like those core returns of the wrench. Super grateful to all the CSGers around the world for making this happen. Before talking about next quarter, we've got some work to do to deliver fantastic results in Q3.

Speaker Change: Please go ahead. No, thank you.

Brian Shepherd: Thanks for joining, everyone. We were super excited about the great sales wins we saw in Q2. Gives us confidence that we'll see improved organic revenue growth in Q3 and Q4. We are going to consistently improve our non-GAAP adjusted operating margin and our EPS.

Brian Shepherd: and that is here to stay and we're going to continue to execute on that like those quarter turns of the wrench. Super grateful to all the CSGers around the world for making this happen. Before talking next quarter, we've got some work to do to deliver fantastic results in Q3.

Brian Shepherd: I look forward to talking next quarter. We've got some work to do to deliver fantastic results in Q3. Thank you all. Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Dan Bergstrom: The next question comes from the line of Dan Bergstrom with RBC Capital Markets. Please go ahead.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Speaker Change: Thank you all.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Shlomo Rosenbaum: Here next question comes from the line of Shlomo Rosenbaum with Steeple. Please go ahead. Hi, thank you very much for taking my questions. I do have two questions really. One, the margining expansion is going pretty well and faster than planned and you have that target. I just want to fall back on the question that was started off with, which is, what is driving the margin expansion? And, you know, can you point out some, you know, maybe more some specific examples of how you're going to get to that 18 to 20. It's a nice target.

Brian Shepard: It's decently above where you've been only several years ago, and you're not, you know, the leverage, you know, should, you should get some operating leverage, but it sounds like there's a lot more of an efficiency focus, and maybe you could just give us some examples so that we can understand exactly what's going on. Yeah, hi, Shlomo. Thanks for being with us today. That's a great question. I think for us, like the most of our initiatives, it isn't single threat.

Brian Shepard: It's multi-pronged in nature. Obviously, you hit on one of them, which is just driving greater efficiencies. And so we're taking a hard look at kind of all of our businesses, our processes, and trying to figure out what's going to yield the best return on capital, and then making, you know, some some difficult decisions to drive those efficiencies. I think the second thing is to look at mix of revenue. One of the things that you saw on our announcement and in the prepared remarks was kind of the great new logo wins we've had.

Brian Shepard: As you notice, many of those actually related to our SaaS platform products, right? And so as we think about our growth in the future periods, you're going to see a shifting of the mix of revenue to a higher margin SaaS revenue. That's going to help us expand our growth margins even further. And the third is operating levers, right? You know, it's just managing our expenses so as we continue to grow the business funds revenue perspective, our operating expenses are growing at a much slower pace. So this is the three things that we focus on internally and give us great confidence in terms of tailwinds to margin expansion over a multi-year period.

Brian Shepard: Okay, great, thanks. And then the domestic business in terms of revenue geographically continued to do well, the MIA revenue declined, you know, pretty decent amounts sequentially. Maybe you could give us a little bit of detail as to what's going on in the MIA. Yeah, it's really related more to the global telco. As Hayes talked about in the past and we have, we have these big implementation programs, typically multi-year in nature. And so that drives more services revenue to get those implementations deployed.

Brian Shepard: So you will see, then on the telco side, that kind of moved more quarter to quarter and over time. That's one of the things that we were so excited about with the now kind of the third quarter in a row. Large, exciting new ascended winds in the cloud and SaaS platforms. Those tend to be much less services heavy, much higher gross margin. So that's a trend that we're seeing. If we go back two or three years ago, a lot of the telecom companies were not willing to run their core in the cloud.

Brian Shepard: And we're seeing that fundamentally shift with the six to eight biggest ascended winds that we've announced. And two more of this quarter with the cross-cell with exponent. It's super exciting to see, but it really is driven by that services revenue with the more on-prem telco solutions that we've sold in prior years.

Shlomo Rosenbaum: Thank you. Thanks Shlomo.

Dan Bergstrom: Your next question comes from the line of Dan Bergstrom with RBC Capital Markets. Please go ahead. Hey, thanks for taking my question. It was nice to see the new industry verticals at 31% of revenue versus 30% last quarter. You mentioned aspiring to 35% at the start of the preparatory marks. Any thoughts around timing of that 30% target seems like, you know, the percentage is moving up about 100 bits a quarter. Is that a realistic way to figure out timing and progression to that 35% number?

Dan Bergstrom: Yes. Hi, Dan. Thanks for joining. I think that's a good way to look at it. If you just kind of model what it's been the last four or five quarters is kind of been that steady step up. And what we see in our CX and our payments business through the first half of the year, each of those businesses has continued to grow revenue on an organic basis, strong double digit. And so that combined with some of the smaller acquisitions, both will be additive. So we think it is when you're may not be 100% you may see a little bit of movement up or not quite that same 100 basis points. But I think that's a good trend.

Dan Bergstrom: That's why we felt good saying that that 35% should be achievable the next two year planning cycle. If not sooner in that period. That's great. Then sticking with the verticals. Any update around channel partners in those additional verticals. I think we're about a year into investments there, you know, how's the new logo pipeline looking for partners. Yeah, no, we love the channel approach and say with both our payments are ascendant and our CX business.

Dan Bergstrom: It'll continue to be a combination of channel driven as well as direct sales. And in many cases, we're actually seeing the benefit of cross selling into our telco base, which is exciting with a couple of those big cross cells of exponent at telenoir Denmark and in Lisa. But yeah, we like what we're seeing on the channel side. We're signing up good partnerships. The pipelines are expanding in there. And that's one that really hasn't even started to bear fruit yet.

Dan Bergstrom: We think that's going to be part of this growth acceleration and Q3 and Q4 and into next year back closer to the 3, 4, 5% that we anticipate. That's going to come from some of those investment we've made in channel, which I think is a big one. Even as we've gotten to this margin expansion, it's not coming because we've cut sales and marketing. We're continuing to invest both in differentiated SaaS product or indeed, and we're continuing to invest in sales and marketing and channel partner sales.

Dan Bergstrom: And that's going to continue. And that's why we really feel good about our ability over the medium longer term to be a mid single digit, organic growth company or higher. That's great. Thank you. Thanks so much.

Nahal Chokshi: Okay. Your next question comes from the line of Nahal Chalksky with Northland capital market. Please go ahead. Thank you. How you mentioned that the mixed ship to SAS is a driver to the counter-25 margin expansion being discussed. What is the mature operating margin of your SAS business? Yeah, I mean, I think you generally look at SAS businesses in general, right? They, you know, most of them have gross margins in the 70 to 80 percent.

Nahal Chokshi: I think that's something that we're looking to drive with scale as well. What about the operating margin portion? I think that the operating margin, I think it depends on what phase of the gross expansion that we're in. Obviously, a lot of SAS businesses over invest in sales and marketing, R&D, as they're getting traction and growing. But I can imagine the scenario at maturity, we're talking about EBITDA that's approaching kind of mid-20 to low 30s.

Brian Shepard: Okay, so in that context, then, you know, 18 to 20 percent, this is more of a mile post as opposed to the long-term, potential long-term expectation, because that's fair. Yeah, I think it all always comes down to make revenue mix at the end of the day, right? A big chunk of our businesses are still very services oriented from a revenue perspective and likely will remain so because there are geographies that we serve whereby an on-prem solution will remain kind of the better solution for those customers.

Brian Shepard: So I think that you always have a chunk of revenue that will be lower margin strategically important. Yeah, I think they all they only appreciate you joining. I think the only thing I would add to that is we'll give more color for 2025, and I think a little more on this 18 to 20 percent next quarter and the following, but we can't see that as a two to three year horizon in terms of how we at least think about and see the business into your point as we continue to shift mix.

Brian Shepard: We have a higher percentage of our revenue coming from faster growing SaaS, and we benefit at higher scale. You're exactly right. There's no reason that 18 to 18 to 20 percent would be our medium to longer term cap, not by any stretch. I think you're exactly right.

Brian Shepard: Great.

Brian Shepard: And then I do have another question with the incremental buyback capacity that you've announced, but you did have plenty of capacity enough on existing buyback. Are you trying to signal that your projected pace of sharebacks are going to materially face them here? Yeah, I mean, I think that what we're trying to say is that we are committed to delivering value back to our shareholders. We understand that at these levels, that is a good use of our capital.

Brian Shepard: And that's really what we're trying to signal in the day, right? Yes, you know, and because we speak a lot of times about organic growth about organic growth. And sometimes as investors have a certain perspective that somehow that organic growth is going to trump the value we do back shareholders. And what you heard Brian says we're going to be extremely disciplined and continue to be committed to delivering value back to our shareholders to buy back.

Brian Shepard: Yeah, and I think data, historical performance is a great indicator. We've returned $488 million to shareholders since 2020. We've done well over 100 million each of the last two years. We've returned a lot of capital and there's additional authorization for us to do more in the coming quarters.

Matthew Harrigan: Thank you.

Matthew Harrigan: The next question comes in line of Matthew Harrigan with Benchmark Company. Please go ahead. Thank you.

Brian Shepard: Part of the beauty of the excellent in this environment, you can really, I think, thoroughly renovate the existing dust mirrors and maybe new customers and somewhat lesser extent. You know, really what the quantifiable impacts are on customer decantant and cost efficiency on the customer journey and all that. And given that that's a priority, I mean, it's just sort of natural inertia on your corporate clients, spending any money, even though you can demonstrate that the ROI is really high and if that's something you think will be able to work out over a period of time.

Brian Shepard: And what are the real hurdles on that on the selling process for excellent as the new customers and the layering yet, even more capability to adjust the customer. Thank you. Yeah, no, hi, Matt. Thanks. I mean, what we're seeing on the the CX exponent side is almost identical to what you said. We can bring the cash register quickly with a very fast payback for lots of brands and lots of verticals on a wide number of fronts.

Brian Shepard: We see some use cases getting deployed around our bill explainer.ai where they want to reduce the number of calls into their call center and reduce churn during a promotional period. We've got other customers that want to deal with fraud alert notifications. And that's the entry point to get a quick sale. We have other customers that are trying to actually grow revenue faster and they use it to do proactive offers try to upsell or cross sell and it's more of a revenue driver.

Brian Shepard: And often what we find on speed is its use case driven and then once they deploy for one or two use cases, they realize the power power in that platform can actually be used for dozens of use cases. So occasionally we'll sell it more as a pure platform play and a Swiss Army knife to solve any other needs. But often in this, I say higher hurdle rate payback period. Often it's just ring the cash register, solve a near term problem and then move on.

Brian Shepard: So we have traditional SaaS economic pricing that you would expect with that. Could it become more performance based over time? Always open to that. It just has to work for us and for our customers. So we're always flexible to just different approaches over time, but we love what we're saying. And one of the real breakthroughs, this quarter order on CX was that cross sell into telco that we saw with telling our Denmark and Lisa getting sold with our association SaaS platform as well.

Brian Shepard: That was super exciting for us. And we think we can do a lot more of that. And then you have a question on M&A earlier and you also went into it in a commentary and for land or stand the real hurdle rate. It's compared to buying back your own stock. But are you painting loosening a multiple of these things like ahead of more force selling part of smaller entrepreneurial companies, might not have had to access the capital that they had even 12 or 18 months ago.

Brian Shepard: Yeah, I think that there's a couple interesting dynamics on the M&A, but also it relates to a couple other non-M&A-related portions. Periods like this actually tend to play to the favor of stronger, larger providers. And we've seen periods like this where customers have made decisions, should maybe break some of their hard-held, long-held beliefs and open up new buying opportunities for CSG. And that's true on the M&A side as well. So in tougher periods, sometimes weaker performers, sometimes reevaluate whether they should still be in the business or not in various areas.

Brian Shepard: And they can create opportunities where we can just win more sales organically from them and go take ship market share. And in some cases it may create a fantastic opportunity to buy an extremely attractive price on a multiple of revenue and EBITDA pre-cost synergies that could create opportunities. And so even though I think the macro-economic environment right now, we'd love it to be, you know, have a few less single-digit one to two percent headwinds to growth.

Brian Shepard: But we think it's actually to be a gift in the longer and medium-term for CSG both on the organic side of our business and potentially on the M&A. And what we just try to do, we just try to stay extremely disciplined, although we know we don't lack a ton of value for our shareholders. And if it comes in, if a good M&A, small bid or larger comes in, and it's the criteria, we have the flexible balance sheet to be able to act on that in a way that could be very attractive for our shareholders. If it doesn't come in, no problem. We'll just keep working and keep driving the organic part of our business. That's how we think about it.

Brian Shepard: We still have all those nutcrapers into nearest the city and to the city and Dubai, and I'll see you in the way. Okay, great. Thanks, Brian.

Michael Berg: Thanks so much, Matt. The next question comes from the line of Michael Berg with Wells Fargo Securities. Please go ahead.

Michael Berg: Hey, thank you for taking my question. I want to double-click on the dynamics happening within Comcast and Charter. Those are both healthy points in the quarter. You mentioned specifically expansion in new areas of business and that the Comcast will make it pulled forward here. So maybe you just help us understand some more nuance of those new areas of business. What areas of business are still left to capture at both Comcast and Charter and any more details you can share on the Comcast renewal.

Michael Berg: Thank you. No, thanks so much, Mike. Appreciate you joining. Yeah, as we've talked, I mean, we were, we were, we've talked for a few quarters now. We have high confidence that Comcast Charter, extremely strong brands in this relating companies. We believe they will mount a strong, formidable competitive response to some of the things they see going on the market. We love what they're doing in the business. We love our three decades plus relationship with both and we have significant opportunities to expand if they decide that that's good for their business.

Michael Berg: And so first, we serve over 63 million subscribers at Comcast and Charter combined. All of their triple-play subscribers on both. As a reminder, we moved 11 million subscribers off of Amdox to us a few years ago and we moved 14 million off of Netcracker a couple years ago as well. And so we continue to serve them well. It was very exciting to see, you know, 1% growth and it was exciting to sign a good new billing contract with Comcast and a new growth area for them unrelated to the 63 million triple-play subscribers we already serve with our long-term contracts.

Michael Berg: So, love what we're saying. We could have opportunities to grow in the CX space if they chose to use us in those areas. We could grow in the wireless space right now both of them and their wireless growth draw on an Amdox platform. We could also just help them in other areas of the business where they might decide to rely on some of our proven technology. And so what we try to do is just always be on and resilient, always be, you know, future ready with our platforms and just constantly bring them ideas that can help them mount a more formidable response.

Michael Berg: And so, that's why we gave the additional color on the Comcast renewal. We've never been better positioned at Comcast and yet we never take it for granted. And so, what we're, as you can imagine, with about 18 months left on that contract, we're in active discussions. Maybe something gets signed sooner this year. Maybe Comcast decides to sign the renewal sometime next year. There is going to be a good win-win renewal that brings a lot of value for Comcast and fantastic value for CFT. We're highly confident it's coming, whether it's next quarter, the quarter after in 2025, stay tuned, but we love the rule of position.

Brian Shepard: We'll now turn the call back over to Brian Shepherd, the closing remarks. Please go ahead. Thanks for joining everyone. We were super excited about the great sales wins we saw in Q2. It gives us confidence that we'll see improved organic revenue growth in Q3 and Q4. We are going to consistently improve our non-gap adjusted operating margin in our EPS. And that is here to stay. And we're going to continue to execute on that, like those quarter turns of the wrench. Super grateful to all the CSGers around the world for making this happen. Before we're talking next quarter, we've got support to do to deliver fantastic results in Q3.

Operator: Thank you all. Ladies and gentlemen, I conclude today's call. Thank you all for joining and we now disconnect. Thank you all.

Q2 2024 CSG Systems International Inc Earnings Call

Request a DemoDemo

CSGS

CSG Systems International

Earnings