CSG Systems International(CSGS) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2022, the company reported revenue of $527 million, representing a year-over-year growth of 3.6% [39] - Non-GAAP adjusted operating margin decreased to 15.1% in Q2 from 16.8% in the prior year period [40] - Non-GAAP EPS for the first half of 2022 was $1.71, a 3.6% increase compared to $1.65 in the prior year [44] Business Line Data and Key Metrics Changes - Annual contract value (ACV) sales bookings grew more than 10% year-over-year in the first half of 2022 [5] - Revenue management solutions continued to drive growth, particularly in high-growth industry verticals such as healthcare, retail, and financial services [39] - Approximately 26% of Q2 revenue came from new industry verticals, up from 24% at the end of 2021 [25] Market Data and Key Metrics Changes - The company reported strong demand in both North American and global markets, with significant wins in Latin America and Sub-Saharan Africa [22][24] - The cable market remains a stronghold, with long-term contracts with major U.S. cable companies [22] - The company is expanding its presence in EMEA, with successful sales in South Africa and Saudi Arabia [56] Company Strategy and Development Direction - The company aims for long-term organic revenue growth of 2% to 6% and plans to reach at least $1.5 billion in revenue by 2025 [17] - A disciplined approach to M&A is emphasized, focusing on value-enhancing acquisitions to complement organic growth [18] - The company is committed to improving its ESG initiatives and has received recognition for its efforts in this area [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macro inflationary challenges but remains confident in the company's ability to deliver strong results [5][35] - The company is implementing margin improvement initiatives to counteract inflationary pressures and expects to achieve operating margins at or above the mid to upper end of its guidance in Q3 and Q4 [6][12] - Management believes that the current economic environment benefits the company's high recurring revenue model and strong balance sheet [20] Other Important Information - The company returned $55 million to shareholders through dividends and stock buybacks in the first half of 2022 [48] - Adjusted EBITDA for the first half of 2022 was $106 million, or 21.7% of non-GAAP adjusted revenue [44] - The company is facing higher tax obligations due to changes in R&D spending amortization rules, impacting free cash flow guidance [13][49] Q&A Session Summary Question: How does the pipeline for new business look in terms of industry vertical? - The company continues to see a strong sales pipeline with significant growth in digital payment and customer engagement solutions, particularly in faster-growing verticals like financial services and healthcare [53][54] Question: Can you share information on expansion progress in EMEA? - The company has experienced good growth in EMEA, with notable wins in South Africa and Saudi Arabia, and plans to leverage channel partners for further expansion [56][57] Question: Is there a particular acquisition causing margin problems? - Margin pressure is attributed to a combination of factors, including acquisitions and increased hiring to support new sales wins, but these are viewed as temporary challenges [59] Question: Was there any area of weakness in revenue? - The company noted that Q2 is typically a softer quarter, and the slight revenue decline was attributed to timing rather than specific weaknesses in any business area [60] Question: Was the win in Latin America a net new logo? - Yes, the win in Latin America was a significant new contract across the company's suite of solutions, marking a major achievement in the telecom space [61] Question: How has the strategy in the telecom market evolved? - The company has shifted focus from merely converting existing customers to actively pursuing market share gains, emphasizing a product-based approach to improve agility and reduce costs [64][66]