Good day, ladies and gentlemen. Thank you for standing by. Welcome to the CSG Systems Second Quarter 2012 Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, August 7, 2012. I would now like to turn the conference over to Liz Bauer, Investor Relations. Please go ahead.

Thank you, Alisha, and thanks to everyone for joining us. Today's discussion will contain a number of forward-looking statements. These will 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 statements 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 on 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 measure, we refer you to today's earning release and non-GAAP reconciliation tables on our website, which will also be furnished to the SEC in our Form 8-K. With me today, on the phone are Peter Kalan, our Chief Executive Officer; and Randy Wiese, our Chief Financial Officer. With that, I'd like to now turn the call over to Peter.

Thank you, Liz and thanks to everyone joining us on the call today. I'm pleased to report that we had another solid quarter of execution, generating revenues of $184 million and non-GAAP earnings per share of $0.56. Our strong start in the first half of the year provides us with continued confidence in our ability to achieve the mid to high end of our 2012 financial guidance. In addition to our solid financial performance this quarter, I'm extremely pleased with our continued ability to get deeper into our clients' businesses by finding new ways to help them be successful and more efficient in their operations. Our investment in our people and our clients' businesses has positioned us as a trusted partner during these challenging times, and we believe that this will pay dividends in the long run. Helping our clients do more with less and be even more competitive is the driving focus of our company. Let me give you a couple of examples of what I mean by this. This quarter, Charter Communications, North America's fourth largest cable operator, implemented our product catalog to help them launch their new triple play pricing and packaging of cable high-speed Internet and phone services. Our product catalog called Enhanced Cells Edition helps providers maximize their investment in their networks and increase their average revenue per subscriber by upselling different packages of products and services to new and existing customers. This easy-to-use advanced product catalog solution takes the guesswork out of how to package and price offers for the customer service rep by controlling the data, the rules and processes for implementing products, services and bundles across the entire product set. As a result, not only does it drive increased revenues, it also helps improve the overall customer experience. Agents can more quickly…

Thank you, Peter, and welcome to all of you on the call today to discuss our financial results for the second quarter 2012 and the guidance for the remainder of the year. Overall, we executed well in the quarter and are pleased with the results as we enter the second half of the year. Total revenues for the quarter were $184 million, up 1% over the same quarter last year. As we expected, our second quarter revenues were sequentially down by $1 million or 1% from the first quarter. Breaking down revenues further, during the quarter, we had 3 material clients that each individually generated revenues over 10% of our total revenues: Comcast, DISH Network and Time Warner. Together, they were 43% of our revenues for the quarter. Additionally, in the second quarter, we generated 8% of our revenues from the Europe, Middle East and Africa region and 4% of our revenues from the Asia Pacific region. Our non-GAAP operating income for the second quarter was $33 million with a margin of 18%, consistent with those amounts for the same period last year. As anticipated, our second quarter non-GAAP operating margin declined sequentially from the first quarter due to the expected decrease in revenues and the increase in our data processing and employee expenses. GAAP operating income for the quarter was $24 million or a margin of 13%. For the second quarter, our adjusted EBITDA was $44 million or 24% of our total revenues. Non-GAAP EPS for the second quarter was $0.56, which compares to $0.49 for the second quarter of the prior year. Our estimated non-GAAP effective income tax rate was 39% for the quarter, which was lower than our expectations, providing an unexpected benefit of $0.04 per share for the quarter. This lower tax rate was driven in…

[Operator Instructions] Our first question is from the line of Julio Quinteros with Goldman Sachs.

This is Paul Summers for Julio. I guess first on the increasing guidance, can you talk about how much of that has come from new contracts signed versus existing ones being extended?

I'd say it's couple of different things. We signed several contacts early in the year so we're seeing the benefit of those coming through. But also the delay in the Comcast subscribers not coming off our system is also a benefit, as I mentioned in my comments.

And then with the increase in the operating margin guidance, I mean how should we think about sustainability of that sort of ending this year into next year?

As I mentioned in my comments and our previous expectations, we still expect the margin to come down in the latter part of the year, coming off in Q2, mainly because of additional professional services staff being added as we start to fulfill some of those contracts that we have signed already in the year.

Okay, and then just lastly just on the buyback. You still have quite a bit left in your authorization there. I mean, how should we think about buybacks going forward?

I think you -- I'd be consistent in our comments is we'll look at those opportunistically to evaluate that as well as the other opportunities for use of our cash and make decisions each quarter.

The next question is from the line of Daniel Meron with RBC Capital Markets.

So first off, Randy, can you break down the delta between the new guidance to the old one? I think it's about, if I do the math, like $7 million give or take, in revenue and about, I think, $0.15 in the EPS. How much of that is coming from, on the top line, from the acquisition of Ascade? How much of that from having the extra contract from Comcast and then those costumers that are not transferring to Amdocs? And on the EPS same thing, what's the breakdown between the various entitlements, as well as the tax impact in the delta?

Sure. On the revenue side, that's pretty easy. The movement in the guidance was entirely attributed to the Ascade inclusion. The Ascade is slightly dilutive so the Ascade acquisition did not really do anything to the operating performance guidance, slightly dilutive. So think of it as somewhat neutral. The benefit on the guidance improvement on both the operating margin EPS really is almost equally split between improvement in our operating margin, which is driven in large part by the Comcast customer accounts being on our system for the entire year and the other half really comes from the income tax rate.

And I may have missed it on the renewal with Comcast, did you comment on that or in Time Warner or was it just related to the movement to Amdocs?

Daniel, I didn't provide any comment specifically around the renewal discussions but I did provide the comment that the 800,000 subs were not looking to be moved off of us and that conversion is payable for the time being. But as it relates to the discussions, we are continuing in our discussions both with Comcast and Time Warner. The relationships are strong and solid in both of those client relationships. And we continue to be very confident that we'll have long-lasting relationships and continue growing relationships with both Comcast and Time Warner. Once we have some contracts actually executed, we'll be sure to update you.

And then last from me before I yield the floor. I noticed that the Software business did pick up this quarter. Is that indicative of anything? How much of that is really attributable to recent wins, either in North America or other regions? And then also on the regional that came down [ph]. Can you just provide a little bit more color around that? That will be helpful.

Sure, Daniel. Well, we talked about for 2012 this is a year that we start -- that we needed to start executing on our sales activities, especially around the acquired products from the Intec acquisition. And we started successfully having wins early and are now bringing those forward into solutions that are being delivered on behalf of our clients, getting those systems implemented. And we continue to have some success in the second quarter getting more contracts signed. So it's executing on our acquired software assets is the bulk of where you see that success coming through. From a regional perspective, I can share with you that we continue to see very strong success in North America and Latin America and South America. From the EMEA market, it's hard. It's -- the economic conditions there and the financial crisis that's been going on has really broken up that market, so it's not an exceptionally strong market for us right now. And from our -- the financial results show that we're fairly constant period-to-period on Asia Pacific for our revenue streams, but I'll tell you were starting to see strengthening of the pipelines and the rebuild that we had to do, and that the leadership and sales organization is starting to pay benefits as we, I think, have a really stronger pipeline with more realizability likely to come out of that pipeline.

The next question is from the line of Tom Roderick with Stifel Nicolaus.

This is Chris in for Tom. So just to make sure I'm interpreting your guidance correctly, I mean based on what Daniel said, there kind of seems like I think you mentioned that $5 million was what you expected to come off revenue this year for Comcast. And you're only raising it by $7 million, which is the rough amount of Ascade. So that $5 million delta in terms of I guess would kind of be an organic guide down. Is that due to their European commentary that you just said? Or are there some other factors that are maybe making you a little bit more cautious on the top line?

Chris, this is Peter. I would tell you that we had a range of revenue and there's multiple ways that we had to achieve that. And right now, we're seeing the benefit of Comcast coming along gives us a means to hit the high end of our range and it's also why we're talking about greater confidence from the midpoint up. It is not reflective of any specific thing in our business, though there are some pockets, as we talked about EMEA, that are softer. But we have not gone through and say this offsets what's happening in other parts of the world. We gave a range because there's multiple things that have to happen and this is one of the things that's as a benefit falling to us this year and it's bringing good profits with it, as Randy referenced.

Great. And then so just in terms of -- in terms of the transformational deals that you're seeing, so nice couple of wins that you had. Was that pretty much the pace that you were expecting to close in that through the year? Would you say you were ahead of plan? Or in terms of just the sales, in the sales cycle, but in terms of milestones and things like that, is the pipeline moving through as you expected through the second quarter?

I think that's a great question, Chris. So yes, as we mentioned, we had 2 new clients announced for this quarter. I think we probably had 2 clients announced last quarter. We had one that came in at the end of last year that we announced as part of our year-end results. So we're comfortable that the pace is happening like we expected it to, though the deals are a little bit smaller than we originally expected, some of them are being broken up into pieces and we're seeing incremental revenue as we go through step phases. But overall, we're winning the names that we're hoping to win and we continue to look to have a strong pipeline that will set us up as we go into 2013.

And then Randy, just a quick question on the margin and maybe a little bit just in terms of how we're supposed to think about '13. So that second half margin guidance, you guys always have done a very good job on that front and it seems like it's implying something in the, let's call it, mid-15 to mid-16 range. So do you think that, one, is that accurate? And then, two, as we move into '13, do you think you move toward -- more towards the goal of, say, 18 relatively quickly? Or is this something that you expect to be somewhat compressed for a while?

I think your logic on your numbers make sense to me. So that's my comment on that. I think with respect to our ability to expand the margins back up to our target range, I think it's going to take some time. I think the other thing you're seeing here is as we win more of these deals, we're getting a larger percentage of our revenues in software and services, which inherently have a little bit lower gross margin for us, is probably in the 40% range versus the processing, which was probably in the mid-50% range in gross margin. So you see a little bit about going on. I think this becomes a game of scale, like I've always said, as we gain additional scale on the company end of the business. That's our opportunity to expand the margins.

The next question is from the line of Ashwin Shirvaikar with Citigroup.

This is Phil Stiller in for Ashwin. I just want to follow up on that last question on the margins. Can you guys discuss, I guess, what are the major drivers in the sequential decline in the second half margin? How much of that is timing of investments throughout the year and how much is ongoing mix for the business or changes that you guys are seeing?

I think there's a couple of different things. There are some natural expense increases that we anticipated. The data processing costs are going up yet another quarter or 2 as our clients' business are more complex they're using more computing power. But probably the bigger factor going forward is really the additional professional services staff that we had and if you're familiar with professional services staff, you need to have those probably 60 to 90 days advance and when they start to generate revenue. So you have a little bit of timing going on as it relates to the expense ads and also they are just -- inherently just a lower margin revenue stream for us than our typical processing. So that's kind of what I would say is probably what's driving the second half of the year.

So I mean, as we take it out going forward, should look at the full-year margin or the second half margin? And as we think about that, how does the potential contract renewals factor into your margin guidance on a go-forward basis, as we think about the longer-term 18% to 20% range?

Well, first of all, we haven't given any guidance out of 2012. And so the impacts that we'll have on our business as we look at the renewals of our contracts is we're going to wait until we get something in concrete before we bring that forward. Our client relationships when we do contract renewals are interesting, and sitting with our clients and making sure that we match up what their needs versus our needs is an integral part of this and it goes into the economics, as well as everything else. And so for us, we look to manage through and get something. In some cases, we give incentives on clients to make sure we get what we want on the other side. And it's an important part of what we do. And once we have that solidified, we'll be able to share with you what the outlook is for 2013 and beyond.

I think you summarized it well, Peter. I'd add that, as I mentioned in the past is, we work with operators we will look to ways to expand the margin. This is a great business model. We generate a lot of cash flows and I'd say that stay tuned and we'll let you know how it goes after the renewals.

Okay. Just one last question, you guys mentioned some progress in terms of signing non-telecom companies on the Singl.eView product. Can you talk about the difference of economics between telecom and non-telecom customers in terms of contract size, project ramp, margins?

I don't have really anything specific to give you on it, but I would tell you there's not a marked difference based on the size of the contract or what we're seeing as the targeted expectations that we have out of the economics.

[Operator Instructions] The next question is from the line of Scott Sutherland with Wedbush Securities.

First of all, since you've talked about a couple of times on the Comcast and Time Warner renewals working through that, can you talk about maybe in the first half of the year anything, any part you might've upsold or cross-sold to those clients to show that you're gaining continued traction with them?

I've got to think back over the last 6 to 9 months on that, Scott. We did sell some of our business services solutions to Comcast. We've seen that expand. We've seen our digital or direct express, which is a sales tool. We've had a little bit of early success with our Enhanced Cells addition. We're trying to think through. We've had several product that have gone into both Time Warner and Comcast and with those that I've mentioned are the ones that first come to mind. We are seeing the expansion of our solutions in their hands.

Okay. And on Comcast in particular, can you help us understand that drop a little bit on revenue from Q1 to Q2? Is this kind of -- there's some onetime revenue in Comcast always occurs? Or is there something seasonal that happens in Comcast? Because we saw that last year as well?

Yes, Scott, we mentioned that in the first quarter there were some seasonality in some revenues for Comcast. It was some various marketing type of activities that they undertook in the first quarter. So yes, there was seasonality there.

Okay. Regionally, Europe dropped a line obviously around those -- what's going on over there. Is that still a challenging market or is that part of your execution that you had to improve that you're seeing some deals come back? And what should we expect out of Europe going forward?

Scott, I would say that it's -- I don't view this as specifically an execution issue on our side. I think it's a more macroeconomic and financial market for EMEA and I think we're going to be in for more difficulty in that region than any other region around the world.

Okay. And my last question is, we're seeing some of these evolution share data plans on the wireless side. Machine-to-machine has gained a lot of noise out there. Where do you guys see opportunities to play in that area or driving your business?

I think both of them are areas of interest to us. We've had some early discussions with clients around the shared data plans, as well as the Bill Sharp plans that have to be out there as well, that are kind of a separate but similar type of way, and that's how do you manage consumption so that's more manageable by the family or by the individual. Machine-to-machine is an important part and actually some of our clients are actively involved in that. We support OnStar, which, as you know, effectively Telematics from the car to the network of OnStar and our billing around that is part of it. And then some of our large enterprise commercial clients, telcos that are supporting commercial enterprise, have businesses around machine-to-machine and are building practices around it and our solutions are a part of it as well.

The next question is from the line of Lauren Choi with JPMorgan.

Just a question around, I guess, cash flow for 2013. So I guess given the comments you've made about margins in 2013 and the thoughts around that? Did the cash flow also follow that same thought?

Well, we haven't provided any 2013 guidance yet.

Right. But I guess I meant in terms of gross margins and operating margins, you kind of pulling back to a certain level and that should technically flow to the cash flow. Is that the right way of thinking about it?

That is the right way to think about it. Operations usually drives cash flows for us, yes.

Okay, and then just in terms of pipeline. And again, just wanted to ask in terms of the strength of the pipeline. So relative to last quarter, do you feel that the pipeline has actually become stronger or weaker or is it about the same level? I know that you made comments about the pipeline remains strong.

Sure. Lauren, I'd say overall the pipeline is good. You'll see some areas of the world have gotten stronger, some have gotten weaker. You could expect that EMEA things have gotten drawn out longer there. But APAC seems to be getting stronger, both in numbers and progression of deals and the absolute size of the pipeline. The Americas continue to have a consistent strength to them and it's one that we can -- it's just the sheer percentage of our revenues we look to have strength on as well. So overall, we still see -- strengthen our outlook for what we see as sales to win and then closing those deals.

Okay, great. And then just last question, can you give me an update in terms of the percentage of non-cable revenue now?

I would say it's probably fairly consistent with probably last year. I'd say it's probably 60% still comes from about -- from cable. So if you do the math, it's 40% that's non-cable.

There are no further questions at this time. I will turn it back over to management for any closing remarks.

So just thanks to all that are on the call, both those who are -- asked questions and those who listened in. We appreciate the support. We look forward to our third quarter when we will be continuing to share the successes that we have as a business and help you understand how we do. We are excited about our position, the continued strength that we have with our clients and the things that we're doing in the marketplace and we look forward to catching up with you next time. Bye.

Ladies and gentlemen, this does conclude the conference call. You may now disconnect and thank you for your participation. Have a nice day.