Good day, and welcome to the CSG Systems International Second Quarter 2016 Earnings Announcement Conference Call. All participants are in a listen-only mode. A question-and-answer session will follow today's presentation and instructions will be provided at that time. At this time, I would like to turn the conference over to Liz Bauer, Senior Vice President, Chief Communications and Investor Relations Officer. Please go ahead ma'am.

Thank you Lynn, 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 convert the backlog of customers onto our solutions in a timely manner. 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 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 Bret Griess, our Chief Executive Officer, and Randy Wiese, our Chief Financial Officer.

Thank you, Liz, and thank you all for joining us today. Today I'll review our second-quarter results, share with you what we are seeing in the market as we meet with service providers around the globe, discuss the actions we are taking to position us for continued success, and then turn it over to Randy to review our financial results in more detail. So with that, let's move on to our financial results. For the second quarter of 2016, we grew revenues 4% over last year's second-quarter results to $190 million, grew our non-GAAP earnings per share 15% over the same period last year to $0.70 per share, and maintained our industry-leading non-GAAP operating margins. These solid results are driven by continued market share gains in our broadband, cable, and satellite business and solid expense management across our entire business. Our teams converted over 600,000 customers off of competitors' legacy billing systems and onto our Advanced Convergent Platform. Our successful conversion record and domain expertise is unmatched in our industry, something we take great pride in. Our strong execution really positions us well for further investments in our business to drive future topline growth opportunities. And it should be noted that we delivered non-GAAP earnings of $0.70 per share without the benefit of buying back stock this quarter, a topic I will address later in my remarks. Next, I'd like to share observations from recent meetings with our clients who range from well-established communication service providers all the way to new entrants. First, there seems to be a significant shift in what operators are being asked to do to compete and thrive in today's consumer driven world. Many of these providers have grown through acquisitions, and as a result have a variety of legacy back-office systems, software products, customized solutions…

Thank you Bret, and welcome to all of you on the call today to discuss our financial results for the second quarter as well as our outlook for the remainder of 2016. We are pleased with our continued solid results for this year as well as the progress we are making to strengthen our business for the long term. Now, I'd like to walk you through our financial results in more detail. Total revenues for the second quarter were $190 million, an increase of 4% over the same period last year. Sequentially, revenues for the quarter increased 2%. Our cloud related solutions grew 6% from last year's second quarter, which was driven largely by the continued conversion of new customer accounts onto our cloud solutions. This strength helped to offset the headwinds we continue to experience in our software and services revenues. Moving on, our non-GAAP operating income for the second quarter was $42 million with a margin of approximately 22%. Our current strong operating margin profile reflects the benefits of the scale we have achieved as we have grown the number of customers on our cloud solutions, the benefits from the disciplined management of our cost structure, and investment allocations we have made over the last year or so. The strength of our business model leaves us well-positioned to make the long-term investments necessary to grow our business in the future. I will address this point later in my guidance comments. GAAP operating income for the quarter was $29 million, or a margin of 15%. For the second quarter, our non-GAAP adjusted EBITDA was $50 million, or 26% of total revenues. Non-GAAP EPS for the second quarter was $0.70, which compares to $0.61 for the same period last year with a non-GAAP effective income tax rate of 37% for…

[Operator Instructions] We'll go ahead and take our first question from Tom Roderick with Stifel. Please go ahead. Your line is open.

Hey, guys. Good afternoon. Thanks for taking my questions. So nice improvement in terms of the guided range kind of tightening up like you said on the low end, sort of $10 million higher on the revenue range. Can you just walk through a couple of the different impacts of that? And maybe the three I'm thinking about here is existing conversions from Comcast, the later closing and the impact associated than you might have earlier expected with Time Warner and Charter. And then just it looks from my perspective, even though you mentioned some headwinds, the software and services businesses seems like it did a little bit better than expected in the quarter. So maybe you can address those three or other elements that are encouraging you to raise the range?

I'll take that one, Tom. On the conversions, nothing has really changed from the beginning of the year when we established our guidance. We had said we expected to do $1 million to $2 million conversions for the year, and we are on track for that. So that hasn't changed. As it relates to Charter Time Warner, it closed about midyear, which was pretty close to our expectations, so, again, no big movements really as a result of that event. And on the software and services side, that's probably the primary reason why you see the bottom end come up as we see greater visibility into the projects, how we are completing those projects, how those are going through the sales cycle. That's probably the one I would point to as the main reason why the bottom line - or the bottom end came up on the range.

Good. Let me address software and services then with my second question here. Just MTN is kind of an interesting case study as a really nice managed services contract that you guys have now expanded. I would love to hear what the competitive area looks like out there, period, if there's any change to that, any change to pricing pressures. But now that you're getting sort of better referenceability under your belts with some of these larger customers that you've been implementing, how is that helping you out in the field? How did it play out in the extension there at MTN?

It does help out quite a bit as we work to build that referenceability. That's directly aligned with our strategy in the lines of moving that software business to the recurring revenue, and also the recurring relationship, I would call it, because the longer we are embedded, the more we become partners with our customers in that environment. So that one was highly competitive as we worked our way through it, but the history of what we had built with the smaller agreement with them in advance helped to build upon that because, as we traditionally say, we like to say what we do then do what we say. And that helps to add value. So when you look at Telstra, when you look at MTN, when you look at some of the others, our strategy is starting to play out there and the referenceability gives us more credibility when we are talking to other customers in other parts of the world. It is a very dynamic market now, as you are aware, and everyone is aware, with the business climate that's out there. But that dynamic market is leading to a lot of activity, and we like how we are positioned, both with the domain knowledge of running the managed services. And then when you put the leading future platform with Ascendon on top of it, we can bring a great deal of value. So we won't get too far out over our skis, but we saw that as a very big win aligning to our strategy and helping us to take that lumpy business and turn it into the true value business that CSG likes to bear.

Great, so good job on that. Bret, let me throw the last one at you here again. I apologize. I was kind of writing fast and furiously. But I want to make sure I've got your comments straight with respect to the share buyback program and your desire to sort of deploy that capital in an investment platform a little bit differently. So, can you go through your comments again from the standpoint of your desire to invest perhaps more aggressively in the business, what you see are the areas with the underlying opportunity to accelerate growth and where you would like to put those dollars?

I figured that would be a question. The thing that I will tell you first and foremost, we are committed to driving shareholder value. 100% that will be a focus as we move forward. That being said, we have seen a 60% appreciation over the last 18 months in our share price. We still think that there's great opportunities, and not only do we think there's great opportunities, but we've built a world-class leadership team here. And by bringing a couple of people to the table that are new, we are getting some different perspectives. And so we want to vet those fully so that we are sure we are looking at how best to use those capital dollars for R&D, for M&A, and for share buybacks. So we are not stepping away from any of them. We are just committed to the fact that we are going to drive shareholder value and we are going to be thoughtful in our decision-making for where we put those dollars, and we are going to work to be sure we are driving long-term shareholder value when we invest them.

Got you, very helpful. Thank you, guys. Nice job.

Thanks, Tom.

[Operator Instructions] We'll take our next question from Howard Smith with First Analysis. Your line is open. Please go ahead.

Yes. Good afternoon. Thank you for taking my question. Let me start, I just want to clarify on the capital allocation, you went through some of the rationale of things. I just want to make sure, you had $84 million left on an accelerated program. And it sounds like, with the result of re-thinking the deployment, that is not going to take place, that is not anticipated to take place. But is it still the intent to repurchase shares to offset the growth in shares from stock-based comp, or is that also kind of -

I would reiterate that again and try to - we are 100% committed to that, that we will continue to work to do that to remove any dilution in the process.

Okay. So kind of - and then the dividends, so similar to where it was before the accelerated program, and then maybe a question for Randy. I'm trying to understand some of the movement in the cost of services. Some of those lines for example, processing related, jumped sequentially more than it has in many quarters, and just a phenomenal job of reducing the cost of software and services despite the strength in the revenue. So is there an allocation between those that has changed a little bit or moved around or maybe you could help me with some of the puts and takes?

No, I think you look at it kind of as what I would call somewhat normal quarterly movements. If you look at the margin, I think the margin on the cloud services probably still is close to 53% or 54%, probably down a couple of percentage points from the previous quarter. I would really just look at those as kind of the mix of revenues going through the timing and conversion, so nothing unusual that I would call out there at all. On the software and services, the margin on that can gravitate in the 30%s to 35% to 40%. I think you saw a little pop this quarter, probably 45% margin is what you're referring to. Think of that again just as timing of various projects as they come through the cycle and nothing of great significance. You can see we've done a pretty good job. If you look at the cost of goods sold as it relates to software and services has come down pretty well over the last 18 months generally, just because of some very, very targeted improvements in that area once we brought Phil Yoo on about a year or so ago.

I was going to say I appreciate you calling that out, Howard, because it was phenomenal, the team effort and the focus and the approach that they all to get us to that point. So I appreciate you seeing that, recognizing it.

Just as a closing point, it's nothing I would call out as something that you should look at from a trend. It's just some good trending I think over time as the performance and nothing I would call out that you should consider the second half of the year.

Okay. That's very helpful. I'll leave it there for now. Thank you.

We have no further questions at this time. I would like to turn the program back over.

Just one last thank you to everybody for being on the call today, and to our customers, because they are what make our business in combination with the phenomenal employees we have, so thank you, everybody, for being here and we'll talk to you next quarter.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.