Q2 2019 Earnings Call
Well, it's hard to listen only mode. A question and answer session will follow today's presentation instructions at that time today's conference is being recorded at this time I'd like to turn the conference over to Mike.
Sorry.
Your Vice President.
Okay. So then Investor Relations Officer. Please go ahead ma'am.
Thank you Kelly Ann 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.
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 material.
Materially differ.
Please note that these forward looking statements reflect our opinions only as of today 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 and 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 non-GAAP reconciliation tables on our website, which will also be furnished at the FCC on form 8-K.
With me today on the phone are Bret Griess, our Chief Executive Officer, and Raleigh, Jones, our Chief Financial Officer with that I'd like to now turn the call over to Brett.
Thank you Liz and thank you all for joining US today, we started the year strong as is evidenced by our results for the second quarter and quite frankly, the first six months of 2019.
For the second quarter adjusted revenues grew 7% year over year to $228 million and non-GAAP earnings per share grew 16% to 85 cents.
Organic growth was once again about 2.5%.
Our operating margin came in at 17.6% at the higher end of our long term target range of 16% to 18%.
We're delivering these strong and stable results at a time that our customers are reinventing the way that they do business. This quarter is a classic example of how we are helping our clients to do this.
Whether it be through consolidating their customers on to fewer revenue management platforms looking to introduce new revenue generating services or utilizing cloud based solutions to drive more flexible agile and lower cost capabilities. Let me share. Some examples of what I mean by this this quarter. We completed the conversion of approximately half a million of charters customers off of a third party revenue management solution and on to our platform. This allows chartered to delivering more consistent and higher quality customer experience. In addition, this reduces the number of technology vendors that charter needs to manage and train its personnel wise, we service approximately 60% of charters residential customers.
Our goal is to earn the right to serve the remaining 40% one day by helping them standardize and improve their customer experience, while improving their overall cost to serve those customers.
Next a tier one Scandinavian telco signed a multi year contract with us to help them launch new digital services to their customers later this year.
This operator will be deploying many of our next generation solutions to deliver a truly compelling in the in digital monetization experience for their customers, we will be providing our solutions that he managed services agreement, meaning we will be implementing configuring and running our solutions on behalf of this operator. This is a great example of how we are driving longer term engagements with our international customers in essence, lengthening and strengthening our relationships.
Solutions that will be deployed include our Ascendon cloud based digital monetization solution and our recently introduced joke journey orchestration solution.
Our journey orchestration solution as part of our customer Communications management portfolio. It provides companies with a centralized personalized real time decision, making engine that allows them to engage with their customers in a relevant and meaningful way across any channel and most important the customer's preferred channel whether that be text email voice or others.
And finally this quarter, we introduced several new solutions as a result of our continued steady investment in research and development.
The first is our journey orchestration solution, which I just discussed.
Next we applied our cloud first approach to our mediation platform and announced the availability of our industry leading solution in the cloud.
The current and upcoming deployments so fiveg around the world, we anticipate that there will be massive increase in the number of sensors and connected devices.
However, it will be difficult for service providers to predict the number of applications that will leverage this new connectivity.
With our cloud based mediation platform service providers will be able to scale on demand to support this growth as it happens in fact, our platform could scale up to 150 billion events per day.
Provides a cost effective way for operators to tie their costs to current demand versus the traditional method of investing upfront to account for unpredictable peaks. We have several customers that are using our cloud based mediation platforms.
Next we just recently introduced our field services management suite. This is the next evolution of our award winning workforce Express solution in which we have again taken our cloud first approach to provide our clients with global availability scalability and data security in real time.
Our product suite enables field technicians, who many times are the first person that a new customer engages with to provide a more integrated and proactive customer experience. It optimizes operations.
This is one of those solutions that is very easy to demonstrate a quick return on investment due to the increase in worker productivity. We believe this will become even more important in substantial as a service providers ecosystem grows.
There are just a few of these are just a few of the examples of how we are helping our clients acquire monetize engage and retain their customers being a trusted partner to some of the world's leading consumer brands means that you must continually invest innovate and deliver solutions that help companies optimize each touch point in the customer lifecycle, we've been doing that for over 35 years.
As I look forward to the remainder of the year I like where we are we're focused on continuing to lengthen and strengthen our relationships with our existing customers and earning more of their business. We are well positioned to help our customers biggest business challenges as a result of our investments in our people and our solutions.
Our acquisitions continue to perform to plan and we believe we have the right formula for delivering the results anticipated from current and future acquisitions. This allows us to diversify our revenue mix the logical and intentional approach.
We continue to evolve our cost structure to ensure that we are trued or competitive differentiator, which is delivering on our promises while at the same time, ensuring that we have the right people technology and platforms to deliver at the right price point.
And last but not least we're consistently delivering organic revenue growth that is above the industry growth rate.
In summary, we are executing on a strategy is working and we are seeing the benefits of that strategy and we are in the fortunate position as we look to the future. Thanks to several key characteristics of our business.
First we have an enviable business model with strong fundamentals that position us well to drive shareholder value.
Second we have unrivaled domain expertise in the customer experience revenue management and digital monetization of payment industries.
Third we work with some of the largest and most innovative services providers in the world and we are establishing ourselves as a trusted digital transformation partner for companies undertaking this journey.
Fourth we have proven technology and a solid reputation for operating our solutions really well the strength of these solutions allow us to pursue new verticals, creating more a more diversified and sustainable growth engine.
Fifth we generate strong cash flows and had a solid balance sheet, which gives us tremendous flexibility to grow and diversify the business and still return capital to our shareholders and most important.
Talented and dedicated employees across the globe, we're committed to helping our clients and our company achieve greatness.
With that I'll turn it over to Raleigh to review, our financial performance for second quarter.
Thanks, Brent and welcome everyone to the call today to discuss our financial results.
The second quarter as well as our outlook for the remainder of 2019.
We are pleased with our solid start to the first half of the year as we deliver on our strategic initiatives.
So let's walk through our financial results.
We reported revenues of $246 million for the second quarter non-GAAP adjusted revenues, which exclude transaction fees were $228 million up 7% compared to the second quarter of 2018.
This increase is reflective of two key items.
First we delivered organic growth of about 2.5% driven mostly by continued growth in our cloud solutions and managed service arrangements.
Second the contribution imports, which we acquired in early October of last year.
Moving on our second quarter non-GAAP operating income was $40 million.
Or 17.6% non-GAAP adjusted revenues.
Our operating results this quarter reflect the consistency in our revenue quarter over quarter.
And the alignments costs to continue to deliver those revenues and invest in our people products and clients.
Next to our non-GAAP adjusted EBITDA was $55 million for the second quarter.
Or 24% non-GAAP adjusted revenues.
Our non-GAAP EPS for the quarter was 85 cents up 16% over last year.
Mainly due to our strong current quarter operating performance.
As expected our non-GAAP tax rate was 26%.
So moving on to the balance sheet.
We ended the quarter with $131 billion in cash and short term investments.
We generated $16 million of cash flow from operations and $6 million or free cash flow for the quarter.
Cash flow for this quarter was impacted by the timing of the significant client payment that was delayed and receive shortly after quarter end.
Since before for example in the first half of 2018, we were impacted very much the same way.
Then in the second half of the year, we generated significant cash flow that leveled out our working capital over the full year.
This is why we remain confident in our cash flow guidance for the full year 2019.
In addition, we paid approximately $7 million in dividends for the quarter, which reflects an increase of 6%.
In our per share dividend rate over last year, and finally share buybacks totaled approximately $7 million for the quarter.
So moving onto our guidance.
After two strong sequential quarters, we are reaffirming our 2019 revenue guidance at a range of $965 million to $995 million.
And we continue to expect to non-GAAP adjusted revenues to be between 903 $920 million.
That said, considering our year to date performance and the outlook for the second half of the year, we anticipate ending the year at least above the midpoint of those ranges.
As a reminder, the 5% to 7% increase in adjusted revenue over 2018.
Reflects growth in our traditional business as well as the expected incremental revenue contributions from our 2018 acquisitions.
The consistency of our performance in the first two quarters strengthens our confidence in our outlook for the remainder of the year.
Therefore, we are reaffirming our previously provided guidance as follows.
We expect non-GAAP adjusted operating margin of 17% to 17.5% and see a clear path to the higher end of that range.
We also expect adjusted EBITDA of $206 million to $213 million, a 3% to 7% increase over 2018.
In addition, we expect our 2019 non-GAAP EPS to land in the range of $3.15 to $3.31.
3% to 8% increase over 2018.
This expectation is based on a 2019 non-GAAP tax rate of 26%.
And continued share repurchases under our buyback program.
With anticipate outstand anticipated outstanding shares for the year of approximately 32 million.
And finally, despite our short term working capital headwinds in the first half of the year. We continue to expect a range operating cash flow of $125 million to $150 million with an annual capital spend range of $30 million to $40 million.
In summary, we continue to execute well with solid organic and inorganic revenue performance driving bottom line growth.
We are pleased with this quarter's operating results, allowing us to continue executing on our long term business objectives, and returning cash to our shareholders to deliver additional long term value.
With that I'll turn it over to the operator for questions.
Thank you at this time if you do have a question. Please press star one again.
That will be star, one well hear first today from.
Hi, guys, Matt Vanvliet on for Tom.
Thanks for taking my question.
Hi, how are you.
So obviously, another very solid quarter.
Just I was just wondering if you could touch on.
Some of the the charter announcement that you.
You talked about 500000 subs.
Over.
And just how that.
Continues to play out what the ongoing conversation there is in light of some recent announcements.
From your competitors are out.
Maybe some of the new mobile offerings from those traditional pay TV.
Providers.
Yes, sure Matt I appreciate the question being on today things. It was really an opportunistic one where they had a market that they were looking to consolidate and sticking to the fact that we are the only company in the industry that has a dedicated conversion team for over 30 years.
Once again incredibly proud of our team that pulled off the conversions.
Moving those half a million subs over onto the consolidated platform.
Without missing a date without losing anything along the way. So it was an outstanding effort by the team and as as we said in the formal notes is the fact that we believe it positions us really well for that longer term dialogue as we go including some of the other.
Wins that we've had at charter around kiosks and some of the items that happened.
On that front as far as some of the.
Other ones that some of the competitive reference the mobile activities that are going on we continue to say you know. These are these are large clients with a lot of different activities going on we're doing many different things within their environment. We just view this as a very good displacing when that positions us well.
To create that positive momentum will continue to work day in and day out to serve charter and all of our customers in a consistent high quality, great price point that position and we believe that when these opportunistic things come up.
Potential consolidations in the future, we will be very well positioned for when we'll continue to deliver that way.
And then with.
The Scandinavian telco that you said you were selected by <unk> to roll out services.
Just curious in terms of.
What that what that overall contract looks like.
In terms of way and maybe total contract value or where you think that that could go over time, if you guys can to deliver.
Like we've seen you do it at other areas like MTN and Telstra.
Yeah, we're not disclosing the.
TCV total contract value at this point, but what I can share is that it is a multi year agreement and its a really broad one where we're helping to solve challenges as I mentioned with our Ascendon platform, but all always are also through the whole managed services, we're doing a lot more on behalf with them to help to plan and execute on that and as you've seen in the past those are the areas, where we get in and we get started and we continue to add value over time. So in essence, you know if you go back to 1995 in 1996. When we are asked by a small startup called dish to help them to solve problems.
It's been a multiyear relationship the same way. It is yes, we just view when we get in like this and can do a multi tenant multi function area as far as planning developing executing and having it on our next generation platform. We believe it positions us very well there in Scandinavia and beyond because we're taking that model that we've had for years and years.
And expanding more in the international marketplace to drive value with our solutions.
And then just lastly, I'm curious if you had any update or care to comment on what the progress is in terms of some of the cross sell opportunities, where forte and if you had an acute awareness with our business in the quarter.
Yeah, as we mentioned in the notes to continue to execute to plan there have been some really good.
Wins in the last two quarters on that front no specific names that were bringing to the to the call. This quarter that but we're continuing to see really positive things there from the pipeline and the sales team actually just this week I've been reading some of the things that are going on and working with that team and there's a lot of positive momentum going and they're still executing to plan. So we're still very very positive on what's going on with Forte and our payment space.
All right well. Thank you for taking my question.
Thank you Matt.
We'll hear next from Redburn.
The company.
Good afternoon.
I was just wondering if you could just.
Maybe give us a little bit of color on the types of conversations you're having with your customers around to send audits, if you're seeing any change in terms of.
Pipeline or demand or interest in your legacy cable operators kind of deploying that platform or maybe even over the tops what's what's the.
The the demand outlook looks like for that.
Platform.
Yeah. That's a good question, Greg we continue to have very relevant conversations with our current customers and additional customers that are in the marketplace.
Having a next generation platform is so important.
And so strategic it has to be on the solid and one that works we havent deployed today in.
Our top three customers in different lines of business. There, but then we have things going on like the discussions we've had around.
The Scandinavian one that we just rolled out we've had a couple of new Ascendon wins. This year, which is a very exciting time for us. So it's not a direct replacement for some of the things that have happened historically, so meaning our HCP platform, our workforce management platform. It just provides revenue management and digital monetization in some of the net new models. So the reality is.
Each of our product is incredibly important ascendon keeps us at the table and in very important discussions with.
The current customer base and a broader customer base because of how impressive. It is it has been recognized by Deloitte by ITC and others as a leading edge.
Hi functioning platform on those lines. So we're getting a lot of positive traction with it continue with those sales we've got it deployed customers like Comcast University.
Around the World and we'll continue to look to optimize all of the products within our portfolio.
Okay. Thanks.
Double digit growth and double the double digit growth on it has been outstanding so yes.
Okay can you.
Share of tenants.
Maybe a ballpark of what the debt.
The revenue base is on a double digit growth.
We don't speak because frankly, we don't speak publicly of or breakout assigned on when a send on Sunday becomes material to our financial results well, we'll probably disclose that information, but right now I'd say, it's those revenues are less than 10% of our overall revenue base.
Okay. So when we think about maybe more or basic.
Subscription management or billing solutions can send on scaled down and maybe go down market to see.
To expand your addressable market or is that something you'd have to.
Either.
Build organically or acquire to do so.
We know that it has the capabilities to scale down because of the incredible feature functionality in the Microservices it come to bear in the Ws solution. When you go down market.
And do some of the subscription billing there is a lot of opportunity there we've been contemplating that we look at that from a build versus buy it's not just the technology and the product. It's the go to market a lot of those are the more entrepreneurial startup business models. So you see some of the different competitors that are in that bloody ocean right now working to try to make money.
In that cycle, we will continue to look at that and prioritize all of the verticals, where we go into Greg because we just want to make sure that we're going into places, where we have the solutions to win and can actually make money and drive value for our shareholders, but the question you're asking is one that we contemplate daily and are continuing to look at the best places to apply our resources to drive the business.
Great. Thanks.
And again for questions.
This time, we'll hear next from Zack silver with B. Riley.
Okay, great. Thank you for taking the question.
Apologies. If this has been asked I am jumping over from another call but.
With dish potentially.
Getting into the wireless business on a bigger scale and you have.
Relationship with them already how do you see the opportunity with.
Cash evolving over time.
We see it as a great opportunity that thanks for being on the call it asking.
You know from the residential we've done a lot of work with dish over the last 20 530 years, we've got great relationships with Daves, we think that the activities that are going on with T. Mobile sprint dish brings a lot of excitement to the marketplace as you're now going to have.
Net new player in that space or at least accelerating the growth and when you consider all of the assets and resources. The dish has to bring to bear on that so the discussions are happening we will be continuing in that discussion.
We believe that the solutions, we bring to market are prepared to help them to roll that out and continue to progress down that path and we're just excited about the the change that it's bringing to the marketplace and the opportunity that that will provide and as we've seen over the years.
It's Charlie Ergen and the entire team at dish.
They compete to win and they will want to so we will continue those discussions on this more pipe.
Decade relationship that we've got and helping them to solve business problems.
All right great. Thank you very much.
Thank you.
And once again for any other questions at a star one at this time.
Wall Street, and everyone out there about the progress being made and Thats. The drumbeat, we're working to build to continue to have the momentum to solve with the investments that we've done in our next generation platforms and in our current platforms and most importantly.
Two are our customers and our employees that are working so hard to solve in this hypercompetitive industry to drive good business in good solutions. So thank you to everyone who's helping to make CSG. The great company. It is and thanks for being here have a great day.
Again that does conclude today's conference. Thank you all for joining us.