Good day ladies and gentlemen and welcome to the CSG Systems International Second Quarter 2017 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. Today's conference is being recorded. At this time, I would like to turn the conference over to Liz Bauer, Senior Vice President, Chief Communication and Investor Relations Officer. Please go ahead, ma'am.

Thank you, and thanks 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 customer accounts 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 risks 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 Web site. 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 Web site, 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. With that, I will turn the call over to Bret.

Thank you, Liz, and thank you all for joining us. I am pleased to report that for the second quarter of 2017, we continue to execute according to plan. For the second quarter, we grew revenues to $193 million, generated non-GAAP earnings of $0.62 per share and produced cash flow from operations of $35 million. Importantly, for the first six months of the year, we have grown revenues 2% and generated cash flows from operations of $64 million and free cash flow of $46 million. We have a very wealthy business, that is growing as a result of our continued investments. Our market share gains and growth in our managed services clients. Randy will review our financial performance in more details later in the call. Before I discuss some highlights from our second quarter activities, I want to remind our investors of the four key initiatives that we laid out at the beginning of the year, all aimed at increasing shareholder value. These include, first, continuing to drive revenue growth, in particular, through our cloud based and managed services offerings. Second, expanding our broadband and cable footprint globally, and gaining broader and deeper in our international client's operations by helping them solve their business challenges. Third, investing in our platforms and go-to-market strategies, like our next generation Ascendon cloud-based solution a highly cost competitive and effective platform, that allows operators launch and generate revenues of digital services quickly. And fourth, continue our relentless focus on executing extremely well on behalf of our clients. Our proven reputation for doing what we say has served us and our clients extremely well. Let me share with you how we are doing on those initiatives. First, we extended and expanded our contract with Charter Communications, the nation's second largest cable and broadband operator, through…

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 2017. We are pleased with our continued solid results for this year, and the progress we are making on our strategic initiatives. Now I'd like to walk you through our financial results in more detail. Total revenues for the second quarter were $193 million, an increase of 1% from the same period last year, and sequentially, consistent with the first quarter. For the first half of the year, our total revenues were up 2% and our cloud and related solutions revenue grew 6% over last year. This growth was driven largely by the conversion of new customer accounts on to our cloud solutions and the increased revenues from our recurring managed services offerings. This strength helped offset our anticipated decrease in software and services revenues, as we continue to transition this part of our business, into a more predictable, recurring revenue model. Our second quarter non-GAAP operating income was $35 million with a margin of 18%, which is in line with our expectations. GAAP operating income for the second quarter was $24 million or a margin of 13%. Our non-GAAP adjusted EBITDA was $43 million for the second quarter or 22% of our total revenues. Our non-GAAP EPS for the second quarter was $0.62 compared to last year's $0.70. Our non-GAAP effective income tax rate was in line with our expectations at 34% for the current quarter. And finally, our GAAP EPS for the second quarter was $0.35, compared to $0.33 for the same period last year. In summary, our financial results for the second quarter and the first half of 2017, reflect our continued solid execution, with the…

[Operator Instructions]. And we will take our first question from Tom Roderick with Stifel. Please go ahead.

Yes hi, thanks for taking my call. It's Matt VanVliet on for Tom. So another good quarter here. I guess digging in straight off, you talked about managed services, you have been able to double that business over the last 12 months, just curious where you see sort of the continued growth there, how much more investment in the business do you feel like you need to continue to scale that, and maybe where the targets are, three-five years down the road here?

Matt, we don't see any big investments on the international managed service business at this point in time, because it's usually a joint effort with our clients to help them solve problems, and we work collectively to get a win-win deal for them. So I wouldn't see it as a major capital investment or anything along those lines, as we go. As far as opportunities, we got some incredible high end customers in MTN South Africa and Telstra, who continue to work with us or allow us to work with them, is a better way to say it, to extend and increase the relationships with them. Those have been really good markets for us. With the pipeline is as full now as it has ever been in that space, I hate to commit to a doubling year-over-year, because these deals, they are usually pretty good size deals in their material and complexity and amount. So timing them and getting that right isn't as simple as flipping a coin. There is a lot of work that goes into them. If you go back five years, we had no revenue in that front. Now we have got, what's moving in on a material amount on that front, and a pipeline that's larger, richer, and healthier than it has ever been. So we just see great opportunity in that, and whenever we see an engine growing, we are going to feed that engine.

And then, looking at the growth of the Ascendon platform and the investments you have made there and product development, and now, moving it to AWS, where do you feel like you are in sort of the, maybe looking back a couple of years, the product roadmap of where you wanted to get that to be an effective go-to-market for not just your sort of existing cable Pay-TV providers as an over the top and additional revenue source. But being able to utilize some of the newer go-to-market, maybe less traditional customers for CSG's perspective, in terms of the product development. So where you are now, and maybe how much more you need to invest to continue to grow that business?

That's a long question, Matt.

Sorry.

No. But the reality is, people like to use the metaphor of a ballgame. And if there is anything, I would say, we are in the second to third inning of this ballgame. We have just started -- over the previous couple of years, we had incrementally been bringing down our R&D. Here of late, we have been bringing it up a couple of percentage points a year. You will see there from a growth perspective, we are starting to see some results from that, some traction from that growth, and even more telling than the specific economics, for me is the sheer number of customers and the times that I am hearing, wow, this is not the CSG we thought it was. And so, we may have been viewed as a very steady-eddy deliverer on your behalf. We still have that, but now what's happening, is they are seeing the innovative approach in how we are driving the next generation digital services platform, that's causing them to look at their other strategies and initiatives and say, hey wait a minute, maybe I'd better take a look at this and go a little bit deeper. Well that being said, we have brought it up incrementally a couple of percentage points, but we are early in the game here. So we are going to keep evaluating that. We may end up investing more in that. We may end up managing it in different ways. But the reality right now is, we see great traction. We see places that are not just in the communications support providers, but we are seeing it from other digital services activities that are gaining interest in it. And as I said earlier, and I repeat again, when an engine is growing, we are going to feed it.

And then, looking at -- you obviously announced the extension with Charter, Time Warner, so the next big contract renewal on the books is going to be Dish Network. Can you talk about maybe where you guys feel like you are in that process? If memory serves me correct, the deal ends at the end of 2017. So where maybe you are in that renewal negotiation?

Well, like a baseball game, it's not over till it's over. But we have a great relationship with Dish, they are a great customer. I'd be remissed, if I didn't say thank you to the team at Charter and our employees that did that one. We feel like we got an incredibly fair extension win for our shareholders, for our employees, and most importantly for them as our customers, an incredibly fair extension and renewal there. We believe, we are in very good standing with Dish. You should take that as a great proof point in the future, if we get that to a conclusion and a commitment to continue our relationships together, but they are an incredible customer, and our teams are doing yeoman's work to make business sense for them and make business sense for us, and we got confidence by bringing the right A game every day. We will continue our relationship with Dish, as we move forward.

And then last one for me, there has been a lot of talk, I guess recently with Comcast, Charter, Sprint, kind of bouncing around different ideas of how we kind of get to the next level or I guess, the next generation of providers and what converging broadband and wireless might look like. Where do you guys, I guess, sort of view that strategic aspect of your market? What are you doing to sort of further improve and differentiate the product to hopefully serve a potential combination service provider that might be a little more end-to-end, at least in the U.S. market?

Yeah. It's an incredibly exciting time in our market and in our space right now, but I also remember, when there were a couple of hundred cable companies across the country, and we are talking about the next generation, we'd have dual play or triple play, now it's quad play and they are competing with the large companies out there in the Amazons and the Apples, pick your poison here. So there's great transformation going on and it's also one of the things that CSG has been really good about, from a strategic investment perspective, getting out in front of. So Ascendon, as much as you are hearing us talk about it in the last 12 to 24 months, the investment basis and the strategic input started eight to 10 years ago, which has positioned us really well with a cloud based, fast time to market, very cost effective solutions that solve these exact digital challenges, that they are going to be facing and are facing day-to-day, which is what is helping to get us deeper and deeper into the conversations as they go through that. And then when you combine with that 30 years of -- do what you say and say what you do, that combination becomes incredibly powerful, because we understand the challenges of going through the transformation. We made the investments, we are prepared for it, and the interactions as they go through a consolidation is a thing that we are a part of and we look forward to continuing to serve them.

All right. Great. Thanks for the time.

Thank you, Matt.

And moving on, we will take our next question from Chris Moore with CJS Securities. Please go ahead.

Good afternoon guys. Thanks for taking my call.

Hi Chris.

Hey, how are you? Field force automation with Time Warner. I am just trying to understand how the pricing works there. Is that something that's kind of -- there is volume discounts that are given when you re-sign a Charter, and then some of that is offset with the additional services such as the field force automation to the Time Warner customers?

Well first of all, I think Bret mentioned it well, this is a great contract that was best for both us and Charter. Our contracts, typically, when we renew with clients, there is an exchange of commitment from their part for term and for new products and in return, we will give discounts, that's the case here. In the case here, the new products that we expect them to roll out very quickly, is the work force express, because they already have it across their -- across part of their footprint, and we expect that to give us an opportunity to more than offset some of those discounts that we provided in the near term.

And it also gives them the great ability to get more efficient by having a single platform, delivering it across that broader market space. So we try to keep our focus completely on solving their business challenges and improving their operations.

In terms of -- obviously the increased investment, you talked a lot about, long term, it's clearly continued to drive revenue growth. Just internally, how do you measure or how will you measure kind of the success of the expanded investment initiative over the next say, four to six quarters? I just obviously understand the idea behind it. Sometimes it's going to take a while for it to translate, just trying to understand kind of how you see it incrementally moving forward internally?

Yeah Chris, as I mentioned earlier, it is something that we see to be very important, and especially with the very transformational activities happening across our space that Matt had asked the questions about, when we talked about. However, at the same time, we also know we are fiduciary, so we got to keep a good eye on making sure that we are seeing the traction, and we are getting the returns on them. I wish it could be solved in a quarter or two, that's not the reality. The reality is to remain relevant and to make it a sound business. It most likely is a longer term investment, and we are monitoring closely the size of that investment, and we maintain the flexibility to both pull back or go forward faster, as we go through that, and that will be based upon economics, good business, our customer buying into that, a lot of factors come to bear on that. How we can compete in that market space, the relevance and size of that market space, whether we have a differentiated solution, where we think we can gain better returns long term. So there is a lot of factors that go into that. We have got a great board who is helping us with it. We have got a great executive team, and most importantly, we got great customers that are influencing, whether there will be a return on that investment or not, a return on net investment as we move forward. I know that's a long answer. The reality is, we are monitoring closely. We are going to continue the investment for now, and we will continue to monitor for getting the return on that investment.

Yeah. One thing I'd just add Bret also, the thing to keep in mind Chris is, that the sales cycle on these type of deals is quite long. So you have got probably anywhere from 12 to 24 months. These are pretty significant systems that clients put in, as they roll out new digital services. We can get them up and running very quickly, and as quick as 90 days with the sales cycle, this still takes long. This is something to keep in mind.

Got you. Okay. I have some housekeeping stuff I will follow-up with, but thanks so much guys.

Awesome. Thanks.

[Operator Instructions]. We will hear next from Larry Berlin with First Analysis. Please go ahead.

Hey, afternoon guys. How are you doing today?

Good.

How are you?

Good. Hey just couple of quick ones; first, if I [indiscernible] apples-to-apples on subscribers, someone who is not migrating like Charter, how is sub growth or shrinkage looking compared to the way it has been over the last year or two? Does that make sense in English?

I'd say, one way to look at it Larry, I think you have seen a lot of our customers are having pressure on the video side, but they are doing a great job of rolling out other services, in particular, the high speed data has been a very good product for them. So we have actually seen our subs continue to grow on our platform over the last couple of years, from an organic standpoint. And obviously, we have got the 10 million subs that we have converted over from Amdocs on to -- from Comcast, Amdocs on to our platform. But organically, we are still seeing some good growth going on.

Yeah. There is some puts and takes on the line of business, but as a whole, it has been sitting strong and growing.

Okay, then. Besides the obvious one that you just mentioned, what are you guys seeing in the competitive space, especially the new products that you are building here? Are you seeing small guys, big guy, the Oracles of the world coming in or some other form of competition?

I would say, yes, yes, and yes.

Okay. Good answer.

Being in this space, we have got very wise and very well capitalized customers, and who wouldn't want to work with that. And so, what we see, is the big players would love to get further in and do more. We see things international, where other folks want to do things, as there is pressure on their telco business, their other things. They see it as ground we are trying to take. And we also see a lot of small startups, especially in the IoT and OTT space, where they come up with a great idea in their proverbial garage or basement or whatever and they want to compete. And so, we believe that we are in a highly competitive space. But we also have an incredible track record, and have been bringing in -- I guess today I am blessed. I got to sit through our interns final into summer projects and see the value they brought to our company, and we are able to bring in great innovative skill-sets to help to compete there, along with that tradition. So we will continue to honor our past and inspire our future, to fend off those competitors, and keep the long term relevance and growth of this company.

Thank you very much guys.

Thanks Larry.

[Operator Instructions]. And we have no questions at this time.

With no outstanding questions, we look to bring it to a wrap, and as always, during this, if I didn't say thank you to our customers for being our partners, our shareholders for being a part of this great journey, and equally, if not more importantly, employees that are putting their nose to the grindstone day in and day out to solve their customers problems. So with that, we will bring it to a wrap, and hopefully get a chance to talk to you all over the next quarter. Have a great day.

Once again, that does conclude today's conference. Thank you for your participation. You may now disconnect.