CSG Systems International (CSGS) Q1 2019 Earnings Call Transcript

In fact, they don't even categorize themselves because Cable companies anymore. They study of themselves because technique or digital services or broadband entertainment or software companies now. They eat been more than offsetting any reject at video customers with increases at high-speed data customers. cottage the world is talking almost 5G, they're talking almost 10G.

They're reinventing the user undergo with platforms garment X1 and enabling an total ecosystem by partnering with their competitors. We will never bet against our clients. We will invest at technologies and platforms that enable them ought serve their customers above their terms. impartial this past quarter, we signed expanded contracts with lease and Comcast ought amplify their avail of our kiosk solutions that enable consumers ought revenue their bills or upgrade their solutions without the intervention of a human.

In addition, we migrated a tiny amount of Charter's customers off of a third-party revenue management solution onto our platform and anticipate migrating more this summer. cottage lease has no made a resolution ought impress away from their 2-vendor strategy, we linger focused above helping them standardize and better their passenger undergo and continuing ought lower their price of operations. Bottom line, our heart customers are identical smart, robust capitalized and robust positioned ought compete at the digital market, and we will flourish ought concentrate above serving them ought acquire at this space. Next, few investors indicate the character of our long-term relationships with our customers and the business-critical character of our solutions because creating a moat almost our hold business.

There is some reality ought this, cottage during this is no something we acknowledge because granted. One of our heart values is being customer-obsessed. Our employees work difficult ought acquire the credit of our customers hence that we can acquire broader and deeper at their operations and business. at fact, impartial this past quarter, we expanded our relationship with AT&T's Puerto Rican enterprise operations.

Over the next five years, we will be responsible because managing AT&T's inner revenue management solutions, helping them lower their price and better their performance. This is another example of where we eat transitioned a software and maintenance passenger into a longer-term managed services visitor and another wireless acquire at North America following freedom Wireless final quarter. We're arrogant of the work that we conduct with different affair units within AT&T. Next, we acquire asked a destiny almost our capacity ought help those companies that are going govern ought consumers with their content, garment how we are helping Formula One.

In fact, Formula One impartial kicked off their new nation season and we are seeing important increases at the amount of consumers who are utilizing the F1 app because their battle platform because these racers. at addition, we recently helped launch a mega entertainment brand's direct-to-consumer service at partnership with Japan's largest mobile phone operator, NTT DOCOMO. NTT DOCOMO will compose the subscription video above ask service because movies and television programs available ought their customers above the web, mobile and different in-home OTT devices. Without any promotional activity, at the first 24 hours of offering the service, new passenger sign-ups exceeded expectations.

We're seeing what companies garment this at Formula One that when you eat a recognizable brand appoint and faithful followers, customers will revenue because your offerings. Finally, with our robust cash flow generation, investors shared with us their ideas above the best manner ought location our cash ought work. We comprehend this input and ought attempt -- and attempt ought acknowledge a identical balanced approach. We conduct this by executing at three areas: First, we invest at our affair ought motivate innovation, deliver world-class experience and services, and pursue new opportunities because growth.

Next, we reply cash experience ought our shareholders at the figure of a dividend, which we eat grown each year because its inception and by buying experience our stock. This quarter, these two activities combined utilized almost $17 million of our cash. And finally, we will flourish ought pursue acquisitions that also help hasten our time ought market, amplify our footprint at a fast-growing industry garment payments with the Forte acquisition or provide us with operational scale ought optimize our margins garment the affair Ink acquisition has provided. These acquisitions eat because robust helped us diversify and amplify our revenues into verticals garment econmic services, government and healthcare.

This quarter, above 40% of our revenues came from verticals external of Cable and satellite, and our Forte and affair Ink acquisitions are executing ought plan. at summary, we are executing above a tactic that we established few years ago and we are seeing the benefits of that strategy. And we are at a favourable location because we emerge ought the future, because of few key characteristics of our business: First, we eat an enviable affair xerox with robust fundamentals that location us robust ought motivate shareholder value. Second, we eat unrivaled sphere expertise at the revenue management and digital monetization, passenger undergo and the payment industries.

Third, we work with some of the largest and most innovative service providers at the world, and we are establishing ourselves because a trusted digital transformation attach because companies undertaking this journey. Fourth, we eat proven technique and a firm glory because operating our solutions indeed well. Fifth, we generate robust cash flows and eat a firm surplus sheet, which confer us vast flexibility ought become and diversify the affair and quiet reply major ought our shareholders. And most important, we eat talented and dedicated employees along the world who are committed ought helping our clients and our company attain greatness.

With that, I'll become it above ought Rollie ought publication our econmic deed because our first quarter.

Rollie Johns -- Chief econmic Officer

Thanks, Bret, and welcome, everyone, ought the shriek today ought controversy our econmic results because the first belt because robust because our anticipate because the surplus of 2019. We are pleased with our firm festival ought the year and the promote we are making above our strategic initiatives. ago I walk you along the econmic results, I'd garment ought highlight a vary at our allowance statement presentation within our consolidated econmic statements. because our cloud and related solutions eat grown along both acquisitions and our success at converting many of our wireless and wireline customers ought long-term relationships, a divide presentation of revenue and the related price of revenues attributable ought software services and maintenance is no longer required above the look of our allowance statement beneath SEC rules because those revenues are no longer individually important ought our total revenues.

Those divide revenues and the related price of revenues, however, will flourish ought be disclosed and discussed at detail within our MD&A belt within our figure 10-Q. With that, let's walk along our econmic results. We reported revenue of $245 million because the first quarter. Our non-GAAP adjusted revenues, which exclude transaction fees, were $228 million, an expand of 13% above final year.

This expand is reflective of two key items: one, organic growth of almost 2.5%; and two, the contributions from both affair Ink, which we acquired at February of final year, and Forte Payment Systems, which we acquired at early October. Moving on. Our first-quarter non-GAAP allowance was $41 million or 18% of non-GAAP adjusted revenues. Our operating results this belt meditate the sure contributions from the acceleration of plot work and considerate fare management, because Bret previously mentioned.

Next, our non-GAAP adjusted EBITDA was $55 million because the first belt or 24% of non-GAAP adjusted revenues. Our non-GAAP EPS because the belt was $0.82, up 19% above final year chiefly owing ought our modern belt operating performance. because expected, our non-GAAP impose estimate was 26%. Moving above ought the surplus sheet.

We ended the belt with $142 million of cash and short-term investments. We generated $13 million of cash flow from operations and $5 million of liberate cash flows because the quarter. Now from time ought time, our cash flows from operations can be impacted by the timing of visitor payments because was the example this belt when a important payment was delayed and received instantly after belt end. cottage we occasionally eat short-term timing fluctuations above our working capital, we find these occurrences nurse ought even out above time.

Also of note, we paid almost $8 million of dividends because the quarter, which reflects an expand of 6% at our per fraction dividend estimate above final year. at addition, fraction buybacks totaled $9 million because the quarter. hence moving above ought our guidance. We are maintaining our 2019 revenue guidance can a hill of $965 million ought $995 million.

We flourish ought wish our non-GAAP adjusted revenues ought be amid $903 million and $920 million, an expand of 5% ought 7% above 2018. because a reminder, this expand reflects the growth at our traditional affair because robust because the expected incremental revenue contributions from our 2018 acquisitions. hence acknowledging the robust deed because our first belt and our anticipate because the surplus of the year, we're increasing our anticipate because our non-GAAP adjusted operating border percent from 17% ought a hill of 17% ought 17.5%. We are because robust increasing our expected hill because adjusted EBITDA from $202 million ought $207 million ought a new hill of $206 million ought $213 million.

In addition, we are increasing the tall purpose of our 2019 non-GAAP EPS by $0.04 because a new hill of $3.15 ought $3.31. That said, we flourish ought anticipate our 2018 non-GAAP impose estimate ought be almost 26%. We because robust plan ought flourish repurchasing shares beneath our buyback program and anticipate prominent shares because the year of almost $32 million. And finally, we are increasing the tall purpose of our expected hill because our operating cash flows by $5 million ought a new hill of $125 million ought $150 million.

In addition, because we flourish ought slaughter above our tactic and emerge because innovative ways ought better processes and acquire efficiencies, we eat initiated a plan ought amplify our existing workforce and device at Bangalore, India afterward this year. Taking this plan into consideration, we are, at turn, expanding our initial anticipate because our annual major expend from $30 million ought a hill of $30 million ought $40 million. at summary, we're executing well. We're achieving firm revenues and driving bottom queue growth.

We're executing upon our long-term affair objectives and returning cash ought our shareholders ought provide additional long-term shareholder value. We are pleased with the modern belt performance, delivering firm results cottage continuing ought construct a robust affair because the future. With that, I'll become it above ought the operator because questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] We'll acknowledge our first question from Greg Burns with Sidoti & Company.

Greg Burns -- Sidoti and company -- Analyst

Good morning. hence I impartial wanted ought demand almost the comments you had almost lease and moving some of their subs off of a third-party platform. can you maybe impartial confer us a tiny bit more color above what separate of that affair is? Is it a concrete geography or type of a protocol business? And can you recolect us what percent of Charter's subscribers are above a competing platform? maybe what the longer-term happen is because you there? Thanks.

Bret Griess -- Chief Executive Officer

Yes. Greg, thank you because the question. It was a smaller group of subs tied ought a geography that moved across. And hence it's no material.

There's more that we wish ought conduct this summer because we impress deliver with it. It's an district that we flourish ought say lease is a identical key and important passenger because us, and we will flourish ought conduct everything at our power. cottage during owing ought today, we study we're extremely robust positioned ought serve their affair and we recommendation that because happen desire word because we impress can forward. almost 60% of their subscriber basis is above a competitor.

But because I said, we recently won that smaller agreement, eat one coming this summer and flourish ought confide we're robust positioned ought serve them because we eat because a long, desire time.

Greg Burns -- Sidoti and company -- Analyst

Are these smaller wins garment a prelude ought a bigger discussion you're having with them? Or garment are these -- you recommendation these because trials ought a bigger agreement? Or how to we recommendation the shift there?

Bret Griess -- Chief Executive Officer

It's a big happen and it's one that we used to always salute the happen ought eat that discussion. We're voluntary ought avail total estate available ought us, people, surplus sheet, whatever, ought flourish ought better our business. if you recolect experience at 2014, we had substance discussions with Comcast that led ought 100% of their residential subscribers coming onto our platform. We used to salute that with any of our customers, that opportunity.

Winning the smaller ones, we believe, are things that help ought location us well. because those longer-term discussions, sometimes, it's impartial an district where a -- causes a tiny geography ought be more effective because the CSP can that point at time, traffic service providers. cottage during we strongly confide that by continuing ought slaughter above our strategy, investing at the business, these things are the ones, when we deliver, appointment at and appointment out, our incredible employee base, that location us because those longer-term, bigger discussions that are there that we welcome.

Greg Burns -- Sidoti and company -- Analyst

OK. Great. Thanks again. And then at condition of Comcast, if I missed, right, it looks garment your revenue is down almost 10% year above year.

Can you impartial confer us maybe a tiny bit of color above what's driving that? I study a join of flae ago, you mentioned they were delaying some plot work potentially, cottage during what's your anticipate because Comcast?

Rollie Johns -- Chief econmic Officer

Yes. Thanks, Greg. I study our Comcast revenue year above year because the belt is maybe down 1%, tops. hence it's no a big one.

Bret Griess -- Chief Executive Officer

We conduct eat the squeeze at location with them and we're at discussions with them because the longer-term activities. We've got the modern squeeze that goes along June of 2020 with a possibility because a one-year extension. We're working diligently ought serve them at the best manner feasible ought solve because that at a longer-term fashion, cottage during the revenues are even ought identical slightly down. And that's primarily down almost plot work.

There's a destiny going above can Comcast. And garment our preceding discussion with Charter, they are phenomenal customers that we're identical grateful ought eat and we'll flourish ought work with ought serve and support, and I desire ought serve them more and conduct more with them if possible.

Greg Burns -- Sidoti and company -- Analyst

OK. Thanks. And then lastly, the international business, obviously, you highlighted another mankind services acquire with AT&T this quarter. cottage during what's the rip of that affair now amid managed services and software?

Bret Griess -- Chief Executive Officer

We don't expose that at the even of detail that you're asking about. The things that we eat shared and we'll flourish ought is that we confide transitioning our software businesses into managed services continues ought be a identical good tactic because it takes it from being a one-off ought being multi-year. because 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 eat shared is that we conception at the short ought mid-term, we could become managed services into a almost $50 million ought $75 million a year business.

We're above lecture with our plans because what we're doing there, and our teams are doing an incredible work no maiden with winning deals garment AT&T Puerto Rico cottage during executing above deals garment MTN South Africa and Telstra and continuing ought evolve and become those affair alike ought what we've done with customers garment lease and Comcast and dish and the numerous ones above the years. We impartial find traditionally that the more our nation work with our customers, the more our customers expect ought conduct work with our people, and it helps ought advantage and become those businesses.

Greg Burns -- Sidoti and company -- Analyst

OK. Is the total evaluate of that five-year bargain greater than what you used to eat gained from a traditional type of software sales ought AT&T?

Bret Griess -- Chief Executive Officer

Absolutely greater than what we used to eat gotten from a traditional software sales, yes, because it's always a longer epoch of time at that exercise which factory better.

Greg Burns -- Sidoti and company -- Analyst

OK. Thank you.

Operator

We'll impress can next ought Zach Silver with B. Riley FBR.

Zach Silver -- B. Riley FBR -- Analyst

OK. Great. Thanks because taking the question. above Forte, it seems garment you eat a big happen now that you eat a cloud-based payments gateway ought join that with Ascendon.

Can you laguage almost how the cross-selling efforts amid those 2 eat gone and how maybe you're marketing a combined solution?

Bret Griess -- Chief Executive Officer

Yes. Thank you because the questions, Zach. We comprehend it. And it was impartial final autumn when we closed above the business, cottage during it moved across identical quickly ought acquire some of the cross-sell activities closed at identical short order.

We were absolutely executing the plan above what we said and intend ought conduct with that acquisition. We flourish ought 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 above there. hence it's right above lecture with what we conception and where we plan ought hit it. We conduct visit the payment space because a faster growing, more interesting space.

So we will surplus that with executing at what we confide ought be a rational and logical upright there at the payment space with what we conduct traditionally from a revenue management and digital monetization space. cottage during we'll emerge ought maximize that both with the sell-through and into that broader market.

Zach Silver -- B. Riley FBR -- Analyst

Got it. That's helpful. And then one question above the guidance. hence you're 1Q '19 operating border came at can 18.1% cottage during the full-year conduct for, I think, 17% ought 17.5%.

Knowing -- I appreciate there's some seasonality involved, cottage during anything at special we to be thinking almost with that new border guidance?

Bret Griess -- Chief Executive Officer

This is when there is some seasonality there, and I'll permit Rollie reply ought it also. cottage during we always confer ourselves some advantage because opportunities garment our customers that we used to garment ought work long-term extensions with that if there's a capability, we're always voluntary ought conduct some confer ought acquire above that front. cottage during because you see, it did spend up some of that range. Rollie, conduct you eat other...

Rollie Johns -- Chief econmic Officer

Yes. I intend from a perspective, indeed good, strong, robust quarter. when I emerge -- I study we saw some timing impacts within that quarter, and that's why we've left the revenue hill because is because now. We were comfortable there, cottage during we did visit some efficiencies that we study we can flourish along the year and that's why we brought it can the tall purpose above the EPS.

Zach Silver -- B. Riley FBR -- Analyst

Great. Thank you identical much.

Operator

[Operator instructions] We'll impress can next ought Tom Roderick with Stifel.

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