Good day, and welcome to the CSG Fourth Quarter 2018 Earnings Announcement. All participants are in a listen-only mode. A question-and-answer session will follow today's presentations and instructions will be provided at that time. Today's conference is being recorded. At this time, I'd like to turn the conference over to Liz Bauer, Investor Relations Officer. Please go ahead, ma'am.

Thank you, Lauren. 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 in the Investor Relations section of our website. Also, we will be discussing 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 into 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 Rollie Johns, our Chief Financial Officer. With that, I'd now like to turn the call over to Bret.

Thank you, Liz, and thank you all for joining us today. I'm pleased with the results that we're reporting for the quarter and for the year. We ended the year with a record $875 million in revenues, at the high end of our guidance range and non-GAAP earnings per share of $3.06, beating our guidance. These strong results can be attributed to a very strong fourth quarter in which we executed very well, basically hitting on all cylinders from sales, delivery, and expense management. This quarter, we signed a new multi-year managed services contract with Canadian operator, Freedom Wireless, signed a new Ascendon contract with the largest global movie exhibition company, helping them to extend the movie experience outside of the theater and on the go with a branded subscription service, and helped one of our largest Asian Wireless operators upgrade to our latest version of our on-premise wireless solution. As satisfying as it is to talk about 2018 and the quarter, I can't help, but take a broader view of our business and the industries that we serve. The words disruption, challenging, transformation, consolidation, these are now part of the new normal, we call, business every day. And while I'm proud of our record revenues and earnings that we generated this year, I'm most proud of the work that we have done over the past several years to strongly position ourselves as a trusted, dependable, and reliable partner to our customers around the world today and into the future. Over the past three years, we saw opportunities to make several improvements to continue to be that trusted partner and we took action. First, we increased our investments in those areas that would power our customers' own digital transformation journeys. Next, we managed our own internal operating expenses, so that…

Thanks, Bret, and welcome everyone to the call today to discuss our financial results for the fourth quarter and full-year 2018, as well as our outlook for 2019. We're pleased with our solid performance as we closed out the year and feel well positioned to continue delivering upon our strategic initiatives going forward. With that, I'd like to walk you through our financial results. Overall, revenue came in at the high end of our guidance range. We reported total revenues of $247 million for the fourth quarter and a record $875 million for the full year, an increase of 11% over last year. This increase reflects the combination of organic growth of about 1.5% and the contributions from both Business Ink, which we acquired in February, and Forte Payment Systems, which we acquired in October. Non-GAAP adjusted revenues for the quarter and the full year were $232 million and $859 million, respectively. As a reminder, adjusted revenues represent total revenues excluding transaction fees. These transaction fees are unique to the payment space in which Forte operates and represents fees paid to third-party payment processors and financial institutions for the delivery of services that we in turn charge back to our customers. We believe this presentation of revenues excluding transaction fees provides more transparency and a better understanding of CSG's business performance. Overall, a strong revenue performance as we closed out the year. Moving on, we finished with strong operating results above our expectations. Our fourth quarter non-GAAP operating income was $41 million or 18% of non-GAAP adjusted revenues. Our full-year 2018 non-GAAP operating income was $148 million or 17% of adjusted revenues. Our positive operating results were primarily driven by solid revenues and our scalable business model. Our non-GAAP adjusted EBITDA was $55 million for the fourth quarter. For the…

Thank you. [Operator Instructions] Our first question comes from Greg Burns with Sidoti & Company.

Just want to ask about the software and services revenue in the quarter was up sequentially and year-over-year, that's kind of been trending down over the last few years. I just wonder if there's anything in particular driving the strength in that this quarter?

It's -- I don't say -- want to say it's one time. If you look at our quarters, if you look third quarter to fourth quarter sequentially, year-over-year, you will usually see a little bit of a pop as it relates to software and services. For fourth quarter this year, we had some good implementation work that we have finished up and had a couple of software license uplifts.

And then, when we look at the, I guess, the broader opportunity for you to continue to gain share in the cable market, I know you talked about diversifying beyond that, but as it pertains to kind of some of the larger share gain opportunities out there. I was wondering if you could just talk about, maybe the dynamic in Europe kind of how that market is structured relative to the U.S. and maybe what the opportunity is for you to expand there through Ascendon, particularly, now that Comcast has a footprint in the market? Thanks.

Yes. Thanks, Greg. This is Bret. It is a competitive landscape all over, it's challenging for everyone as we work our way through that, but we think we're very well positioned because of our focus on monetization and on the customer experience. Not everybody is as focused in this area as we go. When we look at it and what's happened in North America over the years, we feel like we've done a very good job of consolidating some of that cable business as it goes forward, but it really does continue to evolve and not many are focused solely in those areas, even though cable is still a key and critical component of the infrastructure. As things continue to go to digitalization and the extension of services, we believe that we're phenomenally well positioned to continue to see that growth, as we showed this quarter and over the course of the year, even with some of the cord-cutting and over-the-top stuff because of our HSD work, our Workforce Express work and everything that we do around monetization, revenue management, digital monetization, we believe that we're very well positioned. If you go back seven years ago, 10 years ago, Europe was a very small to no piece of our business. Now, it's accounting for more of that business. Our Europe and APAC is about 15% all together and we feel that that's very good, because as our revenue has been increasing to keep the percentages the same means that we are growing business there. It's through helping with solutions around managed services and also now with our Ascendon product, as I said. So it's a competitive landscape. Our focus in those spaces makes us believe we're very well positioned to win and we've made the investments. We will continue to help Comcast, all the other providers, Sky and others in Europe if they're dealing with revenue management or digital monetization or customer experience, we feel we can help them to do which is our opportunity to continue our growth.

And just lastly, what are your CapEx plans for this year?

For 2019?

Yes, 2019. Sorry.

Yes, so for 2019, like I said, we're looking at a $30 million spend, that's in line with historical levels. '18 was a little bit of an outlier due to some monetization work that we did within certain facilities. But there's -- of the $30 million, it's normal recurring very encouraged to have.

Our next question comes from Tom Roderick with Stifel.

So, Bret, I'm going to start with the first one with you here. 40% verticals -- vertical revenue exposure outside of cable, so not exactly your father or grandfather CSG, it's come a long way. Wondering if you can kind of shed some light on any particular verticals that you're seeing some real traction on as you gain some of that vertical exposure? And then thinking specifically about both Business Ink and Forte, I know it's early with both of those, but what sort of luck you're having with respect to cross-selling some of your own services and software and maybe even Ascendon into some of the customers and their core installed base and then vice versa, particularly the Forte and the payments side into your installed base?

You bet. Appreciated, Tom, you being here and the questions. Traditionally -- well, when CSG was founded, it stood for Cable Services Group. I challenged our employees all the time and myself that CSG now can and should be considered Connected Services Group because anytime somebody is connected and they're going to be dealing with digital monetization, revenue management, customer experience we can and have been helping. That's why it's no longer your father's or your grandmother's CSG, because we truly are working to transform the business in that direction to improve the trajectory of the future of what we're doing. So thank you for noticing that. I hugely appreciate it because of the work and the efforts behind that. More specific to the questions that you had along Forte in the payment space and BI in the customer experience, they are performing to what our expectations were. You're right, it's early. I wouldn't say it's the first inning, but we're not probably far beyond the second or third inning with those transactions, and they are hitting the major milestones we put in place as we go forward, exactly as I mentioned in my comments and that's part of the discipline of the teams on the front end. There somewhere we've done cross-selling already not only our solutions into their business, but the opposite, their solutions into our customers, where we can drive a better value with that scale and consolidation. So, we're hitting on all the milestones that we put in place that are key to our shareholders, acquisitions are hard. There is work that has to be done, consolidating by following our strategy and the discipline is playing out as planned and we're going to continue to drive that to transform the trajectory of where this business can go.

Excellent. Let me get back to the core here, just a little bit thinking about Ascendon and I guess I want to touch a little bit on Ascendon relative to some of your OTT opportunities. And if I look at the headlines more recently, we've seen a variety of new offerings out there. I think Disney even announced to go with their international. They've finally launched their domestic OTT offering here. So, they're coming out all over the place, and I know you've had some good sort of innovative wins, but the traffic and volumes haven't necessarily been there. As we exit '18 getting into '19 here, how do you sort of think about where industry volumes are going and when should we be having the discussion of sort of breaking out Ascendon as a meaningful product line driver for the whole business?

It's a good question. When you ask how I look at it, Tom, the way I look at it is, I don't look at it as an OTT solution, even though it is and it's served in that area. It's where you hear the phraseology revenue management and digital monetization, which includes things like IoT and the stuff that we're doing in different places. So Ascendon really is that next generation of revenue management and digital monetization that virtually everyone in industry is aspiring to be. So it's hard to contemplate a business in the future that isn't using digital monetization and revenue management or customer experience. OTT happens to be a sector that we have and can serve. And you referenced one provider of content that's dealing with challenges. This streaming solution is going up, this streaming solution is going down. So we continue to work with them in those markets with different providers in that space and we continue to help them with that revenue management and digital monetization and end customer experience. But I don't really look at it in the OTT portion, look at it as far as -- as we transform to those digital, low cost, quick time to market business as you go forward. Ascendon is a core part of our investment thesis as we go down there. We're having to manage that very tightly. We don't want to over-invest and we don't want to under-invest. We think we're managing it very appropriately. We constantly look at how we deliver the details of that to the market on materiality or immateriality as you go forward. We'll continue to do that. And if and when some of the legacy systems to it are not direct one for one transitions, we have major customers today who are on our legacy platform and on the next-generation platform, because they provide different levels of services and different ways of doing it. So, there may come a time in our future where it gets reported at a called out, but I don't see that happening in the near future.

Excellent. Rollie, quick one for you. The cash flow beat on the quarter was pretty noticable. And it doesn't look like a pull-forward from next year at all. So kind of curious if you could help us parse through what drove the beat. I remember couple quarters ago there was one payment that sort of slipped and so perhaps there is just a catch-up on that one customer payment, but maybe something else. So, can you just kind of walk through that for us?

Sure. Sure, Yes. As we've talked, cash flow has and mainly specifically in the working capital area, has fluctuated back and forth. We did have some catch-up. Certainly happy about the fourth quarter, pleasant, nice total accumulation at the end there. As we're looking from and I look at '18 going into '19, there is consistency there. The reality is if you look at '18, well, if you go back to the end of '17, we had a significant customer that had a miss. So. the reality is, we've got 13 of their payments sitting in '18. So the '19 guidance is to level set that.

[Operator Instructions] We'll take our next question from Chris Moore with CJS Securities.

This is Stefanos Crist calling for Chris Moore. Just a couple of questions. First, one of the goals you talked about when you were acquiring Forte was ultimately to enable a single monetization experience for consumers. Can you talk about that progress a little bit? Any milestones you have with that for 2019?

Yes, thanks, Stefanos. This is Bret again. We -- some of the milestones that we have there, when you contemplate things like revenue management and digital monetization, that's how you manage that whole customer piece of it, all the details back behind it with those revenue activities and then you look at the customer experience, that's all of the experience or things that are happening like whether you're calling into a call center, getting an IVR message, getting a printed statement, using your phone to do a transaction on that front, well what you've got there is, helping to manage the customer and helping to manage the overall revenue stream. A very good tangential is now when the money starts moving and that can be through ACHs, it can be through other things, and that's what the Forte application actually brings to us. it brings us into the actual movement of the money for the payments for those customer experiences and that helped us to move into other areas that helped with the diversification. If it's in governmental services of those actions, if it's in the insurance industries in that area, so it really is a very logical place in a higher growth space right on the tangential of what we're doing. And as I mentioned earlier with the question, I believe it was either Tom's or Greg's along the lines of we've already within the short period of time have crossed off some of our thresholds both of synergies within the businesses and then also cross-selling the services into the other areas. So, we are helping to manage the money in state, we're helping to manage the money when it's moving, and we're helping to manage the overall customer experience in that digital scenario. As we move forward, we do have targets and we do have milestones to help continue to grow that business in the payment space to drive the transactions there wherever we can. And the only way we will be able to do that is by delivering a good solution at a good price point that brings customer satisfaction and the teams are very focused on doing so.

Great. And then to stay on Forte. We're trying to better understand how to look at the pass-through revenue. So with the pass-through revenue associated with each dollar that Forte generates, is that always the same or does it vary?

It varies based on -- well, it's standard fees. It will go up and down with revenue. In the past, we've said just based on historical levels, the transactional revenue probably represents about 60% of total revenues for Forte.

And it appears there are no further questions at this time. I'd like to turn the conference back to Bret Griess for any additional or closing remarks.

Thank you, Lauren. We appreciate it. And thank you to everybody for being on the call. Your support -- we appreciate your support and taking the time to understand the business and to ask the questions that you have while we're traversing through today's fund business world as we move forward to operate, build and continue to transform to improve the trajectory of this business, and it's really great to have a quarter where we're hitting on all cylinders and setting the tone for the future as we move forward. So, thanks for your time today, and have a great evening.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.