Good day, everyone, and welcome to the CSG System International First Quarter 2019 Earnings Announcement. 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 call is being recorded. At this time, I would like to turn the call over to Ms. Liz Bauer, Investor Relations. Please go ahead.

Thank you, Anne, 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 risks 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 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 and 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. We're pleased with our results for the first quarter of the year. We're starting 2019 strong with adjusted revenues growing 13% year-over-year to $228 million, and non-GAAP earnings per share growing 19% to $0.82. We attribute these strong results to several factors. First, we are realizing the benefits from our investments in our cloud platforms as well as our customer communications management and wireless solutions. These platforms and solutions are powering our customers' own digital transformation journeys. Second, we have always been known for our prudent management of expenses. There is more to this than just spending less. It involves reinventing your business model to ensure that you remain competitive while continuing to be a trusted and reliable partner for your customers. We continue to evolve our cost structure to improve processes, ensuring we have the right job functions in the right locations from a cost standpoint and optimizing our internal technologies and platforms. Third, we're expanding our reach into logical, adjacent verticals that rely on high-volume transaction processing and operational excellence. This has resulted in a more diversified revenue mix for the company. And finally, we're putting a strong and consistent cash flow that we generate to work to not only strengthen and diversify our business but to continue to be shareholder-friendly through our increased dividends and share repurchases. I've had the opportunity to meet with investors over the past couple of months, and I realize that there are several opinions out there that impact their view of our business. First, with all the headlines associated with cord cutting, combined with the fact that cable customers represent a meaningful part of our revenue, investors are concerned that video operators will not survive the competitive threats from companies like…

Thanks, Bret, and welcome, everyone, to the call today to discuss our financial results for the first quarter as well as our outlook for the remainder of 2019. We are pleased with our solid start to the year and the progress we are making on our strategic initiatives. Before I walk you through the financial results, I'd like to highlight a change in our income statement presentation within our consolidated financial statements. As our cloud and related solutions have grown through both acquisitions and our success in converting many of our wireless and wireline customers to long-term relationships, a separate presentation of revenue and the related cost of revenues attributable to software services and maintenance is no longer required on the face of our income statement under SEC rules as those revenues are no longer individually significant to our total revenues. Those separate revenues and the related cost of revenues, however, will continue to be disclosed and discussed in detail within our MD&A section within our Form 10-Q. With that, let's walk through our financial results. We reported revenue of $245 million for the first quarter. Our non-GAAP adjusted revenues, which exclude transaction fees, were $228 million, an increase of 13% over last year. This increase is reflective of two key items: one, organic growth of about 2.5%; and two, the contributions from both Business Ink, which we acquired in February of last year, and Forte Payment Systems, which we acquired in early October. Moving on, our first quarter non-GAAP income was $41 million, or 18% of non-GAAP adjusted revenues. Our operating results this quarter reflect the positive contributions from the acceleration of project work and thoughtful expense management, as Bret previously mentioned. Next, our non-GAAP adjusted EBITDA was $55 million for the first quarter, or 24% of non-GAAP adjusted…

[Operator Instructions] We'll take our first question from Greg Burns with Sidoti & Company.

So I just wanted to ask about the comments you had about Charter and moving some of their subs off of a third-party platform. Can you maybe just give us a little bit more color on what part of that business is? Is it a specific geography or kind of a protocol business? And can you remind us what percent of Charter's subscribers are on a competing platform? Maybe what the longer-term opportunity is for you there? Thanks.

Yes. Greg, thank you for the question. It was a smaller group of subs tied to a geography that moved across. And so it's not material. There's more that we expect to do this summer as we move forward with it. It's an area that we continue to say Charter is a very key and important customer for us, and we will continue to do everything in our power. But as of today, we think we're extremely well positioned to serve their business and we view that as opportunity long-term as we go forward. Approximately 60% of their subscriber base is on a competitor. But as I said, we recently won that smaller agreement, have one coming this summer and continue to believe we're well positioned to serve them as we have for a long, long time.

Are these smaller wins like a prelude to a bigger discussion you're having with them, or like are these -- you view these as trials to a bigger agreement, or how should we view the movement there?

It's a large opportunity and it's one that we would always welcome the opportunity to have that discussion. We're willing to use all resources available to us, people, balance sheet, whatever, to continue to improve our business. If you recall back in 2014, we had material discussions with Comcast that led to 100% of their residential subscribers coming onto our platform. We would welcome that with any of our customers, that opportunity. Winning the smaller ones, we believe, are things that help to position us well. For those longer-term discussions, sometimes, it's just an area where a -- causes a small geography to be more efficient for the CSP at that point in time, communication service providers. But we strongly believe that by continuing to execute on our strategy, investing in the business, these things are the ones, when we deliver, day in and day out, our incredible employee base, that position us for those longer-term, bigger discussions that are there that we welcome.

And then in terms of Comcast, if I missed, right, it looks like your revenue is down about 10% year-over-year. Can you just give us maybe a little bit of color on what's driving that? I think a couple of quarters ago, you mentioned they were delaying some project work potentially, but what's your outlook for Comcast? Thanks.

Thanks, Greg. I think our Comcast revenue year-over-year for the quarter is maybe down 1%, tops. So it's not a large one.

We do have the agreement in place with them and we're in discussions with them for the longer-term activities. We've got the current agreement that goes through June of 2020 with a possibility for a one-year extension. We're working diligently to serve them in the best way possible to solve for that in a longer-term fashion, but the revenues are flat to very slightly down. And that's primarily down around project work. There's a lot going on at Comcast. And like our previous discussion with Charter, they are phenomenal customers that we're very grateful to have and we'll continue to work with to serve and support, and I hope to serve them more and do more with them if possible.

And then lastly, the international business, obviously, you highlighted another man services win with AT&T this quarter. But what's the split of that business now between managed services and software?

We don't disclose that in the level of detail that you're asking about. The things that we have shared and we'll continue to is that we believe transitioning our software businesses into managed services continues to be a very good strategy because it takes it from being a one-off to being multi-year. As I mentioned with the AT&T Puerto Rico, instead of a one-year software maintenance, it's a five-year managed services agreement. The numbers that we have shared is that we thought in the short to mid-term, we could turn managed services into a roughly $50 million to $75 million a year business. We're on course with our plans for what we're doing there, and our teams are doing an incredible job not only with winning deals like AT&T Puerto Rico but executing on deals like MTN South Africa and Telstra and continuing to evolve and grow those business similar to what we've done with customers like Charter and Comcast and DISH and the numerous ones over the years. We just find traditionally that the more our people work with our customers, the more our customers want to do work with our people, and it helps to benefit and grow those businesses.

Is the total value of that five-year deal greater than what you would have gained from a traditional kind of software sales to AT&T?

Absolutely greater than what we would have gotten from a traditional software sales, yes, because it's always a longer period of time in that exercise which works better.

Okay, thanks.

We'll go next to Zach Silver with B. Riley FBR.

On Forte, it seems like you have a big opportunity now that you have a cloud-based payments gateway to pair that with Ascendon. Can you talk about how the cross-selling efforts between those two have gone and how perhaps you're marketing a combined solution?

Thank you for the questions, Zach, we appreciate it. And it was just last fall when we closed on the business, but it moved along very quickly to get some of the cross-sell activities closed in very short order. We were absolutely executing the plan on what we said and intend to do with that acquisition. We continue to be hugely impressed by the platform and the growth opportunities that are out there with both sell-through and the continued activities of the sales that are going on there. So it's right on course with what we thought and where we plan to hit it. We do see the payment space as a faster growing, more interesting space. So we will balance that with executing in what we believe to be a rational and logical vertical there in the payment space with what we do traditionally from a revenue management and digital monetization space. But we'll look to maximize that both with the sell-through and into that broader market.

Got it, that's helpful. And then one question on the guidance. So you're 1Q 2019 operating margin came in at 18.1% but the full year guide for, I think, 17% to 17.5%. Knowing -- I know there's some seasonality involved, but anything in particular we should be thinking about with that new margin guidance?

This is when there is some seasonality there, and I'll let Rollie answer to it also. But we always give ourselves some benefit for opportunities like our customers that we would like to work long-term extensions with that if there's a capability, we're always willing to do some give to get on that front. But as you see, it did bring up some of that range. Rollie, do you have other...

Yes. I mean from a perspective, really good, strong, strong quarter. When I look -- I think we saw some timing impacts within that quarter, and that's why we've left the revenue range as is for now. We were comfortable there, but we did see some efficiencies that we think we can continue through the year and that's why we brought it at the high end on the EPS.

[Operator Instructions] We'll go next to Tom Roderick with Stifel.

I am Matt Van Vliet on for Tom. I guess first off, following up on the Forte acquisition, we're looking at some of the newer verticals that helped you get into at least in a bigger way. How has that sales activity been so far? How's the pipeline building? And how's the overall volume of potential opportunities been?

Thanks, Matt. I appreciate the question. As I said it before, it's executing to plan as far as what we thought would happen. Whenever you go through the acquisition, there's always some of the integration activity that happens there. But having just gone through a detailed portfolio review of those assets and also the pipeline, I would tell you that we're very excited about what's there. The sales pipeline is never big enough. So we'll continue to drive to make that bigger as we go through it, but it's a different type of sales pipeline in that payment space. It does give us some good diversity in some of the different markets that's pushing us to, and they continue to execute on our plans for what we intend to do there and we'll continue to look for ways to put jet fuel on it and make it go faster and higher.

And then looking at some of the Ascendon opportunities, you obviously highlighted a nice deal in Japan. Just curious in terms of what you're finding -- or are you narrowing in on a specific revenue model that you're going to look to drive with that platform or continue to be sort of use case-specific and maybe helping us to understand what the overall revenue contribution can be or what level of sort of build-out do you have to see to gain the volume of specific customers.

That is a great question. We've been at this for a while and there have been a lot of different models that have been worked. I would tell you that the teams and us, we're getting a lot more disciplined on what we're doing and where we intend to take things on the Ascendon front. And so there's a couple of models that are pretty consistent that start to play themselves out. It's a traditional rate times the volume model. You've seen that with our subscription, subscriber times rate. That's one that we're seeing that works pretty well. And then there's also one that works pretty well. That's the rev share model, or revenue share, where if they're successful, we get a percentage of it. As everyone knows in this industry and around these areas, there's a lot of new entrants and a lot of things going on. And so we see some of those flushing out and we're getting more focused on what we do. The amount of revenue and the specific models that are there, we don't share those at this point because they're not material but we continue to see great hope in next generation and serving our customers and broader customers in this space of revenue management and digital monetization.

[Operator Instructions] And at this time, we have no further questions in queue.

Well, thank you for taking the time in being here for everyone who's on the call. We really appreciate the investment community. We appreciate our customers who are on the call and continue to give us feedback and input for how to make CSG great. And as always, we hugely appreciate our employees that are on the call and who, day in and day out, are working their tails off to help us to realize the benefits of our strategy to lengthen and strengthen these relationships, diversify our revenues and grow at or above the industry growth rates which we were doing from an organic basis and inorganic basis. So I would be remiss to not say thank you. Thank you to everyone for what you do to help make CSG great, and have a great day.

This does concludes today's conference. We thank you for your participation. You may now disconnect.