CSG Systems International, Inc.

Good day and welcome to the second quarter 2022 CSG Systems International Inc. Earnings Conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the 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 1 on your telephone keypad. If you would like to withdraw your question, you can press star 1 again. I would now like to turn the call over to John Ray, Head of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us.

Like last quarter, we will be working from a slide deck, which can be found on the investor relations section of our website. Please take a moment to locate these slides. Today's discussion will contain a number of forward-looking statements. These include, but are not limited to, statements regarding our projected financial results, our ability to meet our clients' needs through our products, services, and performance, 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 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. Also, we will discuss certain financial information that is not prepared in accordance with GAAP. We believe that these non-GAAP financial measures, when reviewed in conjunction with our GAAP financial measures, provide investors with greater transparency to the information used by our management team in our financial and operational decision making. For more information regarding our use of non-GAAP financial measures, we refer you to today's earnings release and non-GAAP reconciliation tables on our website, which will also be furnished to the SEC on Form 8-K. With me today on the phone are Brian Shepherd, Chief Executive Officer, and Hai Tran, Chief Financial Officer. With that, I'd like to now turn the call over to Brian.

Thanks, John. Good afternoon, everyone. For those using slides today, please join us on slide four. Q2 was a tale of two very different trends that we saw in the quarter. First, on the positive side, we continued to see stronger than ever market demand for CSG's industry-leading solutions with a healthy growing sales pipeline that consistently leads to exciting big new sales wins each quarter. In the first half of the year, our closed and won sales bookings as measured by annual contract value grew more than 10% year over year when compared to our record setting 2021. On the back of these very good sales results, we are reiterating our full year 2022 revenue and non-GAAP EPS guidance. On the less positive side, we felt some of the same macro inflationary challenges in Q2 that most global businesses are facing right now. A combination of increased labor and supply chain costs to staff and deliver some of the exciting new sales wins we announced in recent quarters were key drivers in the erosion of our non-GAAP adjusted operating margin by over one percentage point, coming in at 15.1% in Q2, and 15.7% for the first half 2022. In order to quickly reverse the margin erosion we experienced this quarter and to combat future macro pressures, the CSG management team has already begun implementing a meaningful margin improvement initiative in Q2 across all aspects of our business to ensure we deliver both Q3 and Q4 at or even above the mid to upper end of our original target of 16.5% to 17% non-GAAP adjusted operating margin range. This margin improvement initiative will help us capitalize on the strong market demand and ensure we consistently operate at or above our historically strong profitability levels by relentlessly prioritizing every resource and every dollar of investment towards delivering on the significant new customer expansions and market share opportunities that we see in front of us. We anticipate that the timely actions we are taking to offset any inflationary headwinds will enable us to quickly capture millions of dollars in margin improvement across our business in Q3 and Q4 2022, so we deliver at or above our target non-GAAP operating margin ranges in both quarters during the second half of the year. We believe that the winners of the future will be the companies who can most quickly adjust how they lead and grow in an inflationary business environment by embracing a scarcity mindset as a way to develop competitive advantages based on agility, creativity, and innovation. And most importantly to us at CSG, we believe that a disciplined growth mindset unleashed in a culture that puts our people and our customers first requires us to constantly improve how we prioritize and how we measure return on investments organically and inorganically to ensure that Team CSG delivers fantastic results in both the short and longer terms. Turning to highlights for Q2 in the first half on slide five, we are energized to see CSG's business momentum continue as demonstrated by the fact that ACB annual contract value sales bookings grew more than 10% year over year. These sales wins will contribute to good revenue growth in the second half of the year and for years to come. As the sales wins generate more second half revenue, it will further benefit our non-GAAP adjusted operating margin in both Q3 and Q4. Financially, we grew both revenue and non-GAAP EPS by 3.6% year over year in the first half. We improved our industry-leading market share in the cable industry and won several fantastic new deals that I will talk about shortly. And we continue to give money back to our shareholders in the form of $55 million spent on share buybacks and dividends through the first half of the year. With the historically large sales wins we have consistently announced over the last three to four quarters, come increased front-loaded expenses needed to deploy our cutting-edge solutions to our new customers. These costs, which primarily come in the form of hiring new employees in advance of large deployments, but could then smooth out over the life of the project, along with higher labor costs to staff these projects, impacted our margins during the quarter. Additionally, we saw margin pressure from a couple other areas, which I will share more detail on shortly. We remain extremely confident in our business and our ability to deliver strong CSG-like financial results, even in today's current business environment. As such, we are reaffirming our full-year guidance of $1.07 billion to $1.11 billion in adjusted revenue guidance of $1 billion to $1.03 billion. We are adjusting slightly downward our full year 2022 adjusted operating margin percentage to a range of 16.2% to 16.7%. Given our lower margin in the first half of the year, this means we expect to perform at or above the mid to upper end of our guidance of 16.5% to 17% in both Q3 and Q4 as we start to see the benefits from our recent sales wins, customer conversions, and meaningful margin improvement initiatives that began in Q2. We are modifying our adjusted EBITDA target to range from $220 million to $230 million. We are reiterating our non-GAAP EPS expectations of between $3.44 to $3.68 per share. We now expect our free cash flow for 2022 to range from $80 to $90 million. The primary drivers for the decrease in our free cash flow guidance is related to higher tax obligations, primarily driven by Section 174 of the 2017 Tax Cuts and Job Acts, which deals with the amortization of R&D spending beginning in 2022. As a result of this, CSG did not get the anticipated tax deduction benefit related to our R&D investments that we anticipated when we set the original 2022 four-year guidance. Additionally, we are seeing significant timing differences in our accrued employee-related costs as planned in our original guidance targets in February, which I will discuss next. In addition to elevating every part of CSG and improving our quarterly financial results, we are committed to make a more lasting impact in the communities and the industries in which we operate, across the wider environmental, social, and governmental spectrum. While we still have much important work to do, we are very proud that leading organizations are beginning to recognize the meaningful commitment CSG has and will continue to make on the ESG and diversity, equity, and inclusion fronts. Last quarter, we mentioned that we received our first prime ESG rating from Institutional Shareholder Services, one of the leading ESG rating agencies in the world. And we continued our momentum on the ESG front by releasing our inaugural Sustainability Accounting Standards Board report, which you can find on the ESG section of the Investor Relations tab on our website. We are fully committed to providing investors, business partners, and customers with access to reliable ESG data and making meaningful progress in this important area. From a technology and innovation perspective, earlier this year, we launched CSG Exponent, our bold and innovative multi-vertical market offering in the digital customer engagement space. We are delighted to announce that we have received multiple industry accolades from top analyst research firms like Forrester Wave and Spark Matrix. Specifically, we are viewed as a leader in providing intelligent automation that delivers personalized, relevant, and interactive experiences in real time across the entire customer lifecycle. Our best-in-class, end-to-end suite of omnichannel solutions are helping great customer brands win big in the market by delivering extraordinary customer experiences and exciting new industry verticals. Turning to slide six, I will revisit the five strategic objectives that form the foundation of CSG's long-term future success. These objectives have not changed and should be familiar to everyone who has followed our progress. CSG aspires to deliver long-term organic revenue growth rate in the 2% to 6% range. We aim to add operating scale and expand our operating leverage by growing to at least $1.5 billion in revenue by year-end 2025, with a stretch goal of $2 billion in revenue. We strive to be the number one SaaS provider of choice for global communication service providers by providing the most value-adding technology solution and by being easier to do business with than our competitors. We plan to diversify our revenue even more as we expand in big, faster growth industry verticals with more direct sales and channel partner success in retail, government, financial services, healthcare, technology, and more. And finally, we will complement our accelerated organic growth with disciplined value-enhancing M&A to turbocharge the value we bring our customers and our shareholders. While higher interest rates and higher cost of capital require us to be even more disciplined as we execute our M&A strategy, the reduction in valuation multiples across many companies also means that we believe there will likely be attractive and accretive inorganic growth opportunities for us to execute against in the coming quarters and years. Moving to slide seven, you can see that we performed well in the first half of the year against these five strategic objectives. First on revenue growth, we reported $527 million in total first half revenue, resulting in 3.6% year-over-year growth, despite giving 3% to 5% discounts to two out of our three largest customers on the backs of the good renewals we signed late last year. For those who have known CSG for some time, think about how much stronger CSG is today. Even in the face of renewal discounts and macroeconomic headwinds, CSG grew revenue 3.6%, and we consider this to be softer than expected results. We absolutely believe that we can and will deliver stronger results in the quarters ahead. On the right-hand side of slide seven, we believe that the current economic environment benefits CSG's high recurring revenue SaaS business model and our strong, healthy balance sheet, creating attractive organic and inter-organic market opportunities that are marched to $2 billion and beyond. As a reminder, by 2025, we aspire to gain scale in the markets where we compete to exceed $1.5 billion to $2 billion in annual revenue. We aspire to expand CSG's operating leverage and use our strong, healthy balance sheet to deliver EPS growth that meets or exceeds revenue growth exactly as we did in Q2, even with the margin erosion faced in the quarter. In our base case, we aspire to exceed $1.5 billion in revenue, which means even if we come up short against our stretch case ambitions, CSG will still grow revenue by over 50% and add over $500 million in profitable recurring revenue by 2025. To reach the $2 billion stretch case revenue aspiration, We will continue to allocate capital to its most value-adding use and to eventually close bigger scale acquisitions that become even more transformational for CSG and for the industry. On this last point, I will continually reinforce a key message shared on almost every analyst and investor call. This management team is laser focused on creating shareholder value and growing profitable revenue, not building empires. we will remain disciplined and open to a wide range of strategic moves to unlock greater shareholder value. Turning to slide eight, we had good success in Q2 on our goal to become the number one technology provider of choice for communication service providers globally, and our continued success with both North American and global CSPs proved that we are executing well against the strategic priority. In the cable market, we have long-term guaranteed contracts to be the revenue management or monetization provider of choice for many of the largest U.S. cable companies, including Comcast and Charter, the two largest. And we are pleased that working hand in hand with Charter, the migration of subscribers from a competitor's billing system is continuing as expected, with approximately 75% of the new subscribers having been migrated to our platform, with the remaining subscribers expected to be migrated over the next nine months. And our success is not limited to North America. In the global telecom market, we continue to grow with exciting new wins and contract extensions with leading telecom operators all around the world. In Q2, we signed one of our largest telecom wins in our history with a leading telecom operator in Latin America and the Caribbean. In addition to being a fantastic new telco win, this deal also highlights the power of our holistic offering for global CSPs. This deal includes our leading revenue management solution, CSG Encompass product catalog, and our CSG Exponent customer engagement offering. It is a powerful example of how we are truly helping the world's largest CSPs solve not only their back-end BSS needs, but also their front-end needs to ensure they deliver fantastic customer experiences. We look forward to sharing more details as we fully deploy our suite of products in the 25 countries where this customer operates in the quarters ahead. In Sub-Saharan Africa, we also extended our contract to enable the digital transformation of a leading telecom operator. Our solutions now serve over 90% of the entire Namibian mobile market. Turning to slide nine, since 2017, CSG has grown revenue from exciting new industry verticals like retail, government, financial services, and healthcare, from 7% of total 2017 CSG revenue to over 24% of total revenue at year end 2021. And while this metric can vary a little bit from quarter to quarter, it is extremely encouraging to see approximately 26% of our Q2 and first half of the year 2022 revenue come from new industry verticals. Being a partner of choice for some of the biggest brands and higher growth industry verticals where CSG helps them digitize and modernize their customer engagement and cloud payments continues to be a big game changer for us and our customers. During the quarter, we landed a new digital engagement contract with AARP, a major U.S. nonprofit organization which serves people ages 50 years and older through advocacy, information, insurance, and other resources. We are thrilled that AARP will use CSG Exponent to improve the onboarding and support experience for its 38 million members by connecting channels and personalizing all communications specific to each member's individual needs. AARP chose CSG because of the open nature of our systems. AARP wanted to integrate our solutions in a broader ecosystem with solutions for the likes of Salesforce and Adobe. Our real-time and omni-channel digital engagement offerings will enable AARP to enhance their digital engagement capabilities. Another great industry vertical win in Q2 was with a leader in the recreational camping industry who specializes in selling recreational vehicles, recreational auto parts, and camping supplies. CSG Ascendant's SaaS platform was chosen to revolutionize their digital presence and help categorize, track, and sell additional value-added services such as trailer insurance, camping ground discounts, and camping equipment accessories. In the payments market, last quarter I highlighted how we returned to double-digit revenue growth in the last two months of Q1, and I'm delighted that this momentum continued into Q2 as we delivered meaningful double-digit revenue growth for the quarter. Our growth in the payments market is a testament to our industry-leading recurring revenue SaaS integrated payment platform. CSG Forte provides award-winning payment platforms to over 90,000 active merchants, and ISV partners who need ACH credit, payment gateway, and payment processing capabilities, serving a wide range of recurring revenue industry verticals. As a leader in ACH processing, we continue to add scale by signing ISV partners in fast-growing industry verticals like property management. And we're thrilled to be recognized for the second consecutive year by the Straw Hacker Group and their best-of-breed API assessments. This annual report ranks payment gateways for overall API experience, and receiving this honor reinforces that our team's dedication, work ethic, and expertise are continuing to make a difference for our current and future customers. Looking ahead, we've built an exciting sales pipeline in our payments business across multiple verticals that are contributing to our double-digit revenue growth. Moving to the right-hand side of slide nine, We continue to execute against our discipline, value creation, M&A playbook. Late last year, we expanded our offering in the digital customer engagement market with the purchase of Kitewheel, a SaaS-based recurring revenue company that supports real-time interaction management through omni-channel journey orchestration and analytics. This transaction formed the foundation of our new CSV exponent launch, our bold and innovative multi-vertical market offering in the digital engagement space. And you've heard us talk about the acquisitions of Tango Telecom and Digit last year that are included in our innovative CSG and Compass market offering. This quarter, we wanted to provide a little more color on how we think about M&A. In short, we look at several different factors when evaluating if an M&A target is a good strategic and value-adding acquisition for us to move forward with. First, we invest significant time and due diligence to ensure each acquisition has a strong strategic fit. financial fit, and cultural fit, all combined with a healthy risk-return profile. Secondly, we believe that several different types of M&A deals can create long-term value for CSG, our customers, and our shareholders. Scale acquisitions are one type of M&A that can unlock shareholder value for the company. For us to move forward with a scale consolidation deal, it must bring CSG sticky customer revenue, high-cost energy, and be quickly accretive with an attractive purchase price. New higher growth SaaS capability acquisitions are a second type of deal we look for to expand our CSG product suite. The three largest deals we did last year, Kitewheel, Tango Telecom, and Digit, all fall into this category, which focus on CSG bringing greater value to the global customers we serve to expand our addressable markets. New verticals and geographic market expansion is the third area where we look to acquire higher growth SaaS companies that can expand how CSG helps great brands monetize and deliver exceptional customer experiences across a wide range of industry verticals. As I wrap up on slide 10, CSG is building meaningful momentum and elevating every part of our business that we fully expect will fuel our continued long-term growth and transformation. We are making timely decisions that we believe will help us achieve both our short and long-term objectives. As we close for us what was a very un-CSG-like Q2 and build momentum for a much stronger second half of 2022, we asked ourselves two key questions to see where we could more quickly adjust to deliver the results we and our shareholders expect of CSG each and every quarter. Question one, are we seeing any softness in market demand for our industry-leading solutions. Fortunately, the data and our ongoing sales wins prove that the answer to this question is an emphatic no. The market demand combined with our sales progress and revenue growth are all as strong and healthy as ever. Question two, are the softer Q2-adjusted non-GAAP operating margin and cash flow results in Q2 anomalies, or are they the new normal for CSGs? Fortunately for us and our investors, we believe that our softer Q2 operating margin was an anomaly that we can quickly correct with ongoing good revenue growth and the timely implementation of our meaningful margin improvement plan that we anticipate will enable us to deliver at or above the mid to upper end of our prior 16.5% to 17% range. CSG is laser focused on delivering much better results in Q3, Q4, and in 2023 and beyond. We will continue to prioritize and invest operating costs that deliver more customer value, accelerate our growth, and ensure that we deliver strong operating profit and cash flow in the quarters and years ahead. As a result of all this, we hope you see the same things that we do when we analyze our business. CSG's growth and innovation are clearly resonating in the market with existing and new customers all around the world, including in many exciting new industry verticals. Our strategic vision and agile execution position as well to adjust quickly and weather the current macro inflationary environment. And our customers continue to tell us that our people and our customer first culture are what differentiate us and our technology in the market. I couldn't be more grateful to CSG employees and leaders all around the world who every day turn market challenges into fantastic new wins on our march to build a bigger, faster growing and more purpose-driven CSG. With that, I will turn it over to Hayek to provide more detail on our Q2 results and our full-year outlook for fiscal year 2022.

Thanks, Brian. Let's walk through our second quarter and first half financial results, and then I'll wrap it up with some key conclusions.

Starting on slide 12, we generated $527 million of revenue and $490 million of non-GAAP adjusted revenue than the first half of 2022.

These results represent 3.6% and 3.1% year-over-year growth, respectively. Over half of this year-to-date increase can be attributed to organic revenue growth.

For the first half of the year, our increase in revenue and non-GAAP adjusted revenue was primarily driven by the continued growth of our revenue management solutions, where we serve many of the largest communication service providers in the world.

In addition, we are seeing nice growth in our non-CST offerings, where we serve customers in large, high-growth industry verticals such as healthcare, retail, financial services, and government. As Brian mentioned, this growth is in the face of 3% to 5% discount headwinds for two of our three largest customers. Our first half non-GAAP operating income was $77 million, or 15.7% of non-GAAP adjusted revenues. as compared to $80 million or 16.8% in the same prior year period.

In addition to increased expenses related to the key sales wins Brian highlighted earlier, we also felt pressure on our adjusted operating margin from the SaaS businesses we acquired in 2021 as we integrate them and launch new products with their capabilities that we believe will contribute to CSG revenue growth in the quarters and years ahead,

General wage inflation for existing and new hires to excite and retain our best talent. Pet count increases year over year to deliver on many of the new sales wins closed in prior quarters and to build a stronger CSG. Increased travel and entertainment expenses to build deeper relationships with our current customers, executives that recently won new logos, and new sales prospects as companies start to meet more in person again. inflationary and supply chain-related cost pressures, and other non-wage inputs to our business, and increased investments in items such as cybersecurity and in our ESG initiatives, including DE&I that makes CSG a strong and better company now and in the future. To address these cost pressures, we began implementing a meaningful margin improvement initiative in the second quarter aimed at driving near-term and longer-term efficiencies. One of the first initiatives to come out of this exercise was the decision to dissolve our controlling interest in mobile cards, a Latin American business that was focused on creating solutions for the underbanked in that region. The current challenging inflationary environment means we must relentlessly prioritize every investment we make and be disciplined in the allocation of our resources, including those around our new business ventures.

Innovation and adherence to a risk-reward framework with continuous learning are two cornerstones of how we run the business. We remain devoted to a disciplined approach to managing our capital and steadfast in driving consistent returns that create shareholder value over the long term.

Moving on, our non-GAAP-adjusted EBITDA was $106 million for the first half, or 21.7% of non-GAAP-adjusted revenues. as compared to $109 million, or 22.9% in the same prior year period.

Lastly, our first half non-GAAP EPS was $1.71, a 3.6% year-over-year increase as compared to $1.65 in the prior year period.

Turning to slide 13, I'll go through the balance sheet, our cash flow generation, and shareholder returns for the first half of the year.

Our first half 2022 cash outflow used in operations was $13 million as compared to cash flow from operations of $42 million in the prior year period. Further, we had non-GAAP free cash outflow of $32 million in the first half of 2022 as compared to $27 million of free cash flow generated in the first half of 2021.

The main drivers of the year-over-year variance are

higher tax obligations, of which the primary negative impact was from Section 174 of the 2017 Tax Cuts and Jobs Act, which deals with the amortization of R&D spending beginning in 2022.

As a result of this, CSG did not get the anticipated deduction benefits related to our R&D investment in 2022.

We had previously expected this legislation to be repealed, But because the legislation was not repealed, we now anticipate higher cash taxes going forward.

The cash tax impact has been included in our refreshed free cash flow guidance we laid out today.

Unfavorable swings on our working capital was the other driver, which we believe are primarily timing related over the medium to long term, including differences in the expected accrual for employee bonus program.

In the first half of 2022, Cash flows generated from operations before changes in working capital were $87 million compared to $92 million in the first half of 2021. Importantly, absent the aforementioned impact in Section 174, we would have shown positive growth in cash flows from operations before changes in working capital during the first half of 2022 on a year-over-year basis.

Further, due to the high visibility and recurring nature of our revenue and cash flows, we continue to expect robust, TSG-like cash flow generation in the second half of 2022. Moving on, we ended the second quarter with $135 million of cash and short-term investments. That, along with our outstanding debt as of June 30, 2022, results in $254 million of net debt.

and our net debt leverage ratio sits at 1.3 times. As we have mentioned before, we are currently reviewing ways to enhance our capital structure and look to execute a thoughtful plan in the coming quarters. Moving to the bottom right of the slide, we declared $17 million in dividends during the first half of the year.

In addition, we repurchased $38 million of common stock under our stock repurchase program.

In total, we returned $55 million to our shareholders in the first half of 2022. On the right-hand side of slide 14, we are showing our refreshed guidance outlook for 2022.

As Brian mentioned, we are reaffirming our revenue guidance of $1.07 billion to $1.11 billion, with the corresponding adjusted revenues to range from $1.0 billion to $1.03 billion. Adjusting our non-GAAP adjusted operating margin percentage to now range between 16.2% and 16.7%, which, as Brian explained, means we expect Q3 and Q4 non-GAAP adjusted operating margins to be at or above the mid to upper end of our prior guidance of 16.5% to 17%.

Adjusting our adjusted EBITDA target to range from $220 million to $230 million, reiterating our non-GAAP EPS, We are now expecting our free cash flow to range from $80 million to $90 million.

The decrease in our free cash flow guidance is related to higher tax obligations that represents approximately half of the change, of which the primary driver is due to the negative impact from Section 174 of the 2017 Tax Cuts and Jobs Act. Also, as previously mentioned, the other primary driver of the change of free cash flow relates to differences

in the expected accrual for our employee bonus program compared to when we laid out our original guidance targets in February.

Specifically, as a result of our lower adjusted operating margin targets for 2022, the year-to-date accrual for our employee bonus program is materially lower than the 130% payout achieved and accrued for last year. We believe the lower bonus accrual thus far is appropriate as it reflects a strong, painful performance alignment of CSG management and its employees with our investors when we fall short of our financial targets.

In closing, our business is well positioned with a strong sales pipeline, robust sales booking momentum, an extremely high quality customer base, and a very high percentage of committed revenue. We remain committed to accelerating our revenue growth and diversifying our industry vertical revenue, which may include closing and integrating discipline, value-adding acquisitions.

Additionally, we expect our margin improvement efforts to have a very favorable impact on our second half of 2022 non-GAAP adjusted operating margin, as we drive increased operating leverage.

We believe this approach, combined with our consistent capital distribution in the form of both dividends and share buybacks, will serve our shareholders well. With that, I'll turn it over to the operator to facilitate the question and answer session.

Thank you. If you would like to ask a question on the phone lines today, you can press star 1 on your telephone keypad. We'll take our first question from Maggie Nolan with William Blair.

Hi, guys. This is Jesse on for Maggie. First, could we talk about how the pipeline for new business looks in terms of,

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

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

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

That's helpful, Keller. Thank you. Thanks, Jesse.

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

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

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

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

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

And then the win in Latin America, was that a new logo? No.

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

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

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

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

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

All right, great. Thanks. Thanks, Greg.

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

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

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