CSG Systems International Inc (CSGS) 2012 Q2 法說會逐字稿

Welcome to the CSG Systems' second quarter 2012 conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Tuesday, August 7, 2012.

I would now like to turn the conference over to Liz Bauer, Investor Relations.

Please go ahead.

Thank you, Alicia, 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 relation 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 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 Peter Kalan, our Chief Executive Officer, and Randy Wiese, our Chief Financial Officer.

With that, I would like to now turn the call over to Peter.

Thank you, Liz, and thanks to everyone joining us on the call today.

I'm pleased to report that we had another solid quarter of execution generating revenues of $184 million and non-GAAP earnings per share of $0.56.

Our strong start in the first half of the year provides us with continued confidence in our ability to achieve the mid to high end of our 2012 financial guidance.

In addition to our solid financial performance this quarter, I'm extremely pleased with our continued ability to get deeper into our client's businesses by finding new ways to help them be successful and more efficient in their operations.

Our investment in our people and our clients' businesses has positioned us as a trusted partner during these challenging times and we believe this will pay dividends in the long run.

Helping our clients do more with less and be even more competitive is the driving focus of our Company.

Let me give you a couple examples of what I mean by this.

This quarter Charter Communications, North America's fourth largest cable operator, implemented our product catalog to help them launch their new Triple Play pricing and packaging of cable, high speed internet, and phone services.

Our product catalog, called Enhanced Sales Edition, helps providers maximize their investor in their networks and increase their average revenue per subscriber by upselling different packages of products and services to new and existing customers.

This easy-to-use advanced product catalog solution takes the guesswork out of how to package and price offers for the customer service rep by controlling the data, the rules, and processes for implementing products, services and bundles across the entire product set.

As a result, not only does it drive increased revenues, it also helps improve the overall customer experience.

Agents can more quickly and intuitively package the right types of services for a customer based on their specific needs.

We are pleased to empower providers like Charter Communications to successfully introduce new products and services to their customers with a tool that helps their agents increase revenues and improve the overall customer experience.

When one of our largest video clients wanted to enhance their IPT offering by creating a more user friendly experience for customers to easily browse and select programming packages and then subscribe and pay for those packages through a seamless and secure eCommerce process, they chose our Content Direct solution.

As many of you know, Content Direct is a cloud-based solution that enables content owners and distributors to create powerful direct-to-consumer digital content and commerce experiences across a broad range of connected devices, both mobile and wired.

You've heard us talk about some of the work that we've done for companies like Ultimate Fighting Championship and OnLive gaming and Paramount Studios.

With this IPT offering, this operator can now pursue new customers that have typically not been available to them.

To access this service, the consumer just needs a broadband connection and a Roku device.

They don't even need to be an existing customer to subscribe to the service.

Once again, this is another example of how we continue to create next generation platforms and solutions for existing clients to compete in new and different ways.

As we've demonstrated year after year, adding to our product portfolio enables us to get broader and deeper into our client's businesses.

On July 16, we announced the acquisition of Ascade, a leading provider of trading and routing software to telecommunication providers worldwide.

Let me provide a little background on the wholesale billing world.

Interconnection between telecom operators enables voice, video, or data traffic to pass across different telecom networks.

As you can imagine, this becomes extremely complex for international operators who have customers who routinely move from country to country requiring carrier and network access for their mobile devices.

In addition, with more and more devices on the networks like laptops, and smartphones, tablets, or iPads and the increased mobility of consumers, operators want to ensure the optimal routing of those interactions to improve cash flows and secure the settlement of those transactions between the various carriers and networks.

By combining Ascade's world class trading and routing solutions with our established and proven wholesale billing product suite, we continue to strengthen the industry's best solutions and practices in wholesale inter carrier billing and settlement, trading, routing, and quality assurance.

This acquisition provides us with additional opportunities to help our combined interconnect lines numbering over 325 operators worldwide, to continue to be successful by reducing their operating costs and improving their operational efficiencies.

It allows us to leverage our scale, expand our client base, and broaden our solutions to drive value and create long-term operational synergies.

Next, I'd like to spend a little time on what we're seeing in the marketplace and share with you examples of where we are winning business.

As we discussed last quarter, we continue to see a trend in which large transformational billing deals are being broken into multi-phase projects by operators for various reasons, including the desire to reduce the risk and disruption associated with a change out of mission critical solutions.

In addition, many providers are choosing to implement new billing solutions in phases for new lines of business so that they can prove out the objectives and return on investment of these projects before proceeding further.

Finally, we are seeing a willingness to make decisions and proceed with those billing projects that are smaller and less complex in nature.

So, let me give you examples of what I mean by this phased approach by communication service providers.

Last quarter we shared with you that an existing large North American enterprise communications provider chose to upgrade one of its existing Singleview installations to a more recent version to handle their growing volume of transactions and lower their total cost of ownership.

As a result of that upgrade project, this large enterprise provider is now moving forward with the next phase of this transformational billing project, consolidating the majority of their existing billing installations, most of which are home grown, onto our Singleview platform.

By proving out Singleview's ability to handle the massive amount of transactions as well as develop a comprehensive total cost of ownership, we have earned the right to be the billing platform for this provider who has traditionally developed their own internal systems to meet their business needs.

Next, when one of the world's leading providers of business credit intelligence decided to take their internal systems to the next level of scalability and flexibility, they selected our Singleview solution on which to consolidate their various billing solutions.

This new client for us builds upon the success of deploying Singleview for high volume complex billing solutions.

Finally, we added another new Singleview client to our roster.

UK based Trader Media Group.

Trader Media Group is Europe's largest specialist multimedia group and supplier of automotive market products and services.

Trader Media Group chose Singleview to handle its highly complex enterprise billing needs covering the web and mobile businesses, including its well-known on-line classified brand Auto Trader.

Interestingly, two of these wins demonstrate our ability to take our Singleview solutions to markets outside of the telecommunications industry.

With Singleview's ability to handle highly complex transaction processing we believe that there are more opportunities in new and untapped verticals.

Before I turn it over to Randy to review our financial performance for the quarter, I'd like to summarize a few points.

We had a strong second quarter, really first half of the year that was strong, and are focused on doing what we have done for so many years, executing.

We continue to move sales opportunities through the pipeline and have added new clients to our extensive roster like we did this quarter with two new Singleview wins referenced earlier.

We continue to get broader and deeper into our clients' operations and develop additional solutions for helping them move their businesses forward much like we've done with our cable and satellite customers with our content direct and our product catalog wins.

And we continue to strengthen our position in the global communications industry through our intense focus on helping our clients succeed in these dynamic and evolving times.

And we are in a financially strong position that enables us to continue to invest in our people, our products, and our clients.

With that, I'll turn it over to Randy to review in more detail our financial performance in the second quarter and our expectations for the remainder of the year.

Thank you, Peter, and welcome to all of you on the call today to discuss our financial results for the second quarter 2012 and the guidance for the remainder of the year.

Overall, we executed well in the quarter and are pleased with the results as we enter the second half of the year.

Total revenues for the quarter were $184 million, up 1% over the same quarter last year.

As we expected, our second quarter revenues were sequentially down by $1 million or 1% from the first quarter.

Breaking down revenues further, during the quarter we had three material clients that each individually generated revenues over 10% of our total revenues, Comcast, DISH Network and Time Warner.

Together, they were 43% of our revenues for the quarter.

Additionally, in the second quarter we generated 8% of our revenues from the Europe, Middle East, and Africa region and 4% of our revenues from the Asia/Pacific region.

Our non-GAAP operating income for the second quarter was $33 million with a margin of 18% consistent with those amounts for the same period last year.

As anticipated, our second quarter non-GAAP operating margin declined sequentially from the first quarter due to the expected decrease in revenues and the increase in our data processing and employee expenses.

GAAP operating income for the quarter was $24 million or a margin of 13%.

For the second quarter our adjusted EBITDA was $44 million or 24% of our total revenues.

Non-GAAP EPS for the second quarter was $0.56 which compares to $0.49 for the second quarter of the prior year.

Our estimated non-GAAP effective income tax rate was 39% for the quarter which was lower than our expectations providing unexpected benefit of $0.04 per share for the quarter.

This lower tax rate was driven in large part by new state tax legislation passed during the quarter, which will result in an overall reduction in our state income taxes in the United States going forward.

I will address the impact of our full-year expectation from this tax benefit later in my comments.

GAAP EPS for the first -- for the quarter was $0.37.

Foreign currency movements did not have a material impact on the current quarter.

Under our balance sheet and cash flow, our cash flows from operation for the quarter were $37 million and $85 million for the first half of the year.

Our cash generation capability continues to be a strong metric of our solid business model.

We ended the quarter with cash and investments of $196 million which was up $8 million from the ending balance last quarter.

During the quarter, we repurchased 345,000 shares of our common stock for $5 million, our weighted average price of $15.76 per share.

We spent over $11 million on capital expenditures and paid $10 million on our term loan which allowed us to end the quarter with $323 million in par value debt on our balance sheet.

Before going through the specifics of our 2012 guidance, I'd like to review the financial highlights associated with our recently announced acquisition of Ascade.

As Peter mentioned, we are pleased to welcome Ascade to our CSG team and are excited about the opportunities to enhance our market position as we combined talents and technologies supporting the complex global interconnect market.

The purchase price was approximately $19 million which was paid in cash, or about 1.2 times Ascade's 2011 revenues.

We anticipate the transaction related costs for the acquisition, for such things as legal and accounting fees, to be approximately $500,000 for 2012 of which about two-thirds were recognized in the current quarter.

Consistent with our past practices, we will exclude these transaction-related costs associated with buying the business and our determination of our non-GAAP financial measures.

Operationally for 2012 we anticipate that Ascade will contribute approximately $7 million in revenues and be slightly dilutive to our non-GAAP operating results.

Although Ascade was slightly profitable in its most recent fiscal year, the expected cost of our planned integration efforts and the accounting impacts related to purchase accounting and the adoption of revenue accounting policies under US GAAP is expected to cause this acquisition to be slightly dilutive for us in 2012.

Over time, we expect to improve the profitability of this business as we realize the benefits of increase in the penetration of each other's products into our combined 325 plus wholesale billing client base, obtain expense synergies and improve our operating leverage.

Next, let's move on to the guidance for the remainder of the year.

For 2012 we are increasing our revenue guide to $722 million to $747 million to reflect the Ascade acquisition as I just mentioned.

In addition, we are also increasing guidance for our various operating performance measures which I will provide detail on shortly.

Consistent with last quarter, we remain comfortable in our ability to achieve the mid to high end of both our revenue and operating performance financial guidance based on three key factors.

First, we have executed very well in the first half of 2012 in a tough environment, closing deals early in the year.

Second, 800,000 Comcast customer accounts that were previously expected to de-convert off our system in March have been further delayed and, as a result, are now expected to stay on our system for all of 2012.

At this time, we are uncertain as to when Comcast will look to reschedule this matter.

And, third, while we continue to face head winds in several regions as well as a cautiousness in spending by communication service providers, we continue to expand our footprint into our client base with high value solutions like our product catalogs, content management, and complex billing solutions.

Moving on to guidance for our operating performance measures.

We are raising our expectations for our non-GAAP operating margin guidance to an approximately 17.5% range for the full year 2012 which compares to our previous expectation of approximately 17%.

This improvement is mainly the result of our solid execution so far this year and because of the delay and the de-conversion of the Comcast accounts I just mentioned.

This guidance does imply further downward pressure on our non-GAAP operating margin percentage heading into the second half of 2012.

This is consistent with our previous expectations and reflects our intention to hire additional professional services staff to fulfill an increasing number of software and services projects in the second half of the year and also reflects the anticipated dilutive impact from our Ascade acquisition.

We anticipate adjusted EBITDA will increase slightly from our previous guidance and be in the range of $166 million to $173 million or 23% of our expected total revenues.

As previously mentioned, we benefited from some favorable state income tax legislation this quarter and now expect that our full year 2012 estimate for our non-GAAP effective tax rate will decrease from our previous guidance of 43% to our new expectation of 41%.

The 39% non-GAAP reported rate for the second quarter was necessary to reflect an overall effective tax rate of 41% for the first half of the year.

Going forward, we anticipate that both the second half and full year rate for 2012 will be 41%.

We continue to work with outside advisors to evaluate different options to further improve our income tax rate going forward.

We are increasing our 2012 non-GAAP EPS guidance to the range of $2 to $2.15.

This represents an improvement of $0.15 over our previous guidance range with the increase attributed almost equally to our improved expectations for operating results and an improved outlook for our income tax rate that I previously mentioned.

We are also increasing our operating cash flows for the year to the range of $120 million to $130 million, an improvement of $10 million from our previous guidance.

This assumes that some of the working capital benefits we experienced in the first half of the year will normalize in the second half of the year.

We are maintaining our guidance for capital expenditures in the $30 million range for the year.

Our guidance re-enforces our solid cash entering business model and strong capital structure.

Please note that our 2012 guidance does not anticipate any significant impact from foreign currency fluctuations since we generate large percentage of our revenues in US dollars and because of the difficulty in predicting foreign currency rates for the remainder of our business.

We do have a portion of our foreign revenues expenses in a natural hedge position, but we were still subject to foreign currency fluctuations in certain areas.

And, finally, consistent with our past practices our guidance does not assume any share buybacks under our repurchase program for the remainder of the year.

To summarize, we were pleased with our results for the first half as we enter the latter part of 2012.

We are excited to integrate the talent and technologies from Ascade to further strengthen our product portfolio and market position.

And we remain committed to delivering world class product offerings to service providers around the world who depend upon our business critical solutions to operate their businesses and deliver a superior customer experience.

We look forward to sharing our successes with you as the year progresses.

With that, I'll open it up to the operator so we can take any questions you may have.

Thank you, Sir.

(Operator Instructions)

Julio Quinteros with Goldman Sachs.

Hi, guys.

This is Paul Thomas for Julio.

Thanks for taking my question.

I guess first on the increasing guidance, can you talk about how much of that has come from new contracts signed versus existing ones being expanded?

I'd say it's a couple of different things.

We signed several contracts earlier in the year, so we're seeing the benefit of those coming through but also the delay in the Comcast subscribers not coming off our system was also a benefit, as I mentioned in my comments.

Then with the increase in the operating margin guidance, how should we think about the sustainability of that sort of ending this year into next year?

As I mentioned in my comments in our previous expectations, we still expect the margin to come down in the latter part of the year coming off of Q2 mainly because of additional professional services staff being added as we start to fulfill some of those contracts that we have signed already in the year.

Okay.

Maybe just lastly on the buyback, you still have quite a bit left in your authorization there.

How should we think about buybacks going forward?

I think you - I'd be consistent in our comments is we'll look at those opportunistically, evaluate that as well as the other opportunities for use of our cash and make decisions each quarter.

Daniel Meron with RBC Capital Markets.

Hello, Peter, Randy, and Liz.

Congrats on the consistent execution here in the first half.

First off, Randy, can you break down in the delta between the new guidance to the old one.

I think it's about, if I do the math, like $7 million give or take in revenue and about I think $0.15 in the EPS.

How much of that is coming from on the top line from the acquisition of Ascade?

How much of that from having the extra contract from Comcast extended on those customers that are not transferring to Amdocs, and on the EPS, same thing, what's the breakdown between the various elements as well as the tax impact in the delta?

Sure.

On the revenue side that's pretty easy.

The movement in the guidance was entirely attributed to the Ascade inclusion.

The Ascade is slightly dilutive.

So the Ascade acquisition did not really do anything to the operating performance guidance slightly dilutive, so think of it as somewhat neutral.

The benefit on the guidance improvement on both the operating margin and EPS really is almost equally split between improvement in our operating margin which is driven in large part by the Comcast customer account staying on our system for the entire year and the other half really comes from the income tax rate.

Okay.

That's very helpful.

I may have missed this on the renewal with Comcast.

Did you comment on that or on Time Warner or was it just related to the movement to Amdocs?

Daniel, I didn't provide any comments specifically around the renewal discussions.

I did provide that comment that the 800,000 subs were not looking to be moved off of us and that conversion is tabled for the time being.

As it relates to the discussions, we are continuing in our discussions both with Comcast and Time Warner.

The relationships are strong and solid in both of those client relationships.

We continue to be very confident that we will have long lasting relationships and continue growing relationships with both Comcast and Time Warner.

Once we have some contracts actually executed, we'll be sure to update you.

Okay.

Thank you.

That's very helpful.

Then last for me before I yield the floor.

I noticed that the software business did pick up this quarter.

Is that indicative of anything?

How much of that is really attributable to recent wins either in North America or other regions, and then also on the regional dynamics, can you just provide a little bit more color around that, that would be helpful?

Sure, Daniel.

Well, we talked about for 2012 this is a year that we needed to start executing on our sales activities, especially around the acquired products from the Intec acquisition.

We've started successfully having wins early and are now bringing those forward into solutions that are being delivered on behalf of our clients getting those systems implemented, and we continue to have some success in the second quarter getting more contracts signed.

It's executing on our acquired software assets is the bulk of where you see that success coming through.

From a regional perspective, I can share with you that we continue to see very strong success in North America and Latin America and South America.

From the EMEA market, it's hard.

It's - the economic conditions there and the financial crisis that's been going on has really broken up that market, so it's not an exceptionally strong market for us right now.

From our -- the financial results show that we're fairly constant period to period on Asia-Pacific for our revenue streams, but I will tell you we are starting to see strengthening of the pipelines and the rebuild that we had to do in that leadership and sales organization is starting to pay benefits as we, I think, have a really stronger pipeline with more realizability likely to come out of that pipeline.

Tom Roderick of Stifel Nicolaus.

Hi, guys.

This is Chris in for Tom.

Just to make sure I'm interpreting your guidance correctly.

Based on what Daniel said there, it kind of seems like, I think you mentioned that $5 million was what you expected to come off of revenue this year for Comcast.

You are only raising it by [7] which is the rough amount of Ascade.

So, that $5 million delta in terms of I guess would be an organic guide down, is that due to the European commentary that you just said or are there other factors that are maybe making you a little bit more cautious on the top line?

Chris, thanks for the question.

This is Peter.

I would tell you that we had a range of revenue and there's multiple ways that we had to achieve that.

Right now we're seeing the benefit of Comcast coming along gives us a means to hit the high end of our range and is also why we are talking about greater confidence from the midpoint up.

It is not reflective of any specific thing in our business though there are some pockets, as we talked about EMEA, that are softer, but we have not gone through and say this offsets what is happening in other parts of the world.

We gave a range because there are multiple things that have to happen and this is one of the things that is a benefit following to us this year and is bringing good profits with it, as Randy referenced.

Then so just in terms of the transformational deal that you're seeing, so nice couple of wins that you had, was that pretty much the pace that you were expecting to close on that through the year?

Would you say you were ahead of plan or in terms of just the sales cycles -- or I shouldn't say sales cycles, but in terms of milestones and things like that, is the pipeline moving through as you expected through the same quarter?

I think that's a great question, Chris.

Yes, we -- as we mentioned we had two new clients announced for this quarter.

I think we probably had two clients announced last quarter.

We had one that came in at the end of last year that we announced as part of our year-end results.

We're comfortable that the pace is happening like we expected it to, though the deals are a little smaller than we originally expected.

Some of them are being broken up into pieces and we are seeing incremental revenue as we go through step phases.

But overall, we are winning the names that we are hoping to win and we continue to look to have a strong pipeline that will set us up as we go into 2013.

Then, Randy, just a quick question on the margin end, maybe a little bit just in terms how we were supposed to think about '13.

That second half margin guidance, you guys have always done a very good job on that front and it seems like it's implying something in the let's call it mid 15 to mid 16 range.

Do you think that, one, is that accurate and then, two, as we move into '13 do you think you move more towards your goal of say 18 relatively quickly or is this something that you expect to be somewhat compressed for a while?

I think your logic on your numbers makes sense to me.

That's my comment on that.

I think with respect to our ability to expand the margins back up to our target range I think it's going to take some time.

I think the other thing you're seeing here is that as we win more of these deals, we are getting a larger percentage of our revenues in software and services which inherently have a little bit lower gross margin for us.

It's probably in the 40% range versus the processing which was probably in the mid 50% range in gross margin.

You'll see a little bit of that going on.

I think this becomes a game of scale like I've always said, as we gain additional scale on the company end of the business, that's our opportunity to expand the margins.

Ashwin Shirvaikar with Citigroup.

Hi.

This is [Phil Stiller] on for Ashwin.

I just wanted to follow up on that last question on the margins.

Can you guys discuss what are the major drivers of the sequential decline in the second half margin?

How much of that is timing of investments throughout the year and how much is ongoing mix of the business or changes that you guys are seeing?

I think there is a couple of different things.

There are some natural expense increases that we anticipated.

The data processing costs are going up yet another quarter or two as our clients' business are more complex, they are using more computing power, but probably the bigger factor going forward is really the additional professional services staff that we had and if you're familiar with the professional services staff, you need to add those probably 60 to 90 days in advance and when they start to generate revenue, so you have a little bit of timing going on as it relates to the expense adds and also they are just inherently just a lower margin revenue stream for us than our typical processing.

That's kind of what I would say is probably what's driving the second half of the year.

I mean as we think about it going forward, should we look at the full year margin or the second half margin and as we think about that, how do the potential contract renewals factor into your margin guidance on a go-forward basis as we think about the longer term 18% to 20% range?

Well, first of all, we haven't given any guidance out of 2012 and so the impacts that we'll have on our business as we look at the renewals of our contracts is we're going to wait until we get something in concrete before we bring that forward.

Our client relationships when we do contract renewals are interesting and sitting with our clients and making sure that we match up what their needs versus our needs is an integral part of this and it goes into the economics as well as everything else.

For us, we look to manage through and get something.

In some cases we give incentives on clients to make sure we get what we want out of the other side and it's an important part of what we do.

Once we have that solidified, we will be able to share with you what the outlook is for 2013 and beyond.

I think you summarized it well, Peter.

I would add, as I mentioned in the past is, we are good operators.

We will look to ways to expand the margin.

This is a great business model.

We generate a lot of cash flows.

I would say that, stay tuned and we will let you know how it goes after the renewals.

Okay.

Just one last question.

You guys mentioned some progress in terms of signing non-telecom companies on the Singleview product.

Can you talk about the difference in economics between telecom and non-telecom customers in terms of contract size, project ramp, margins?

I don't really have anything specific to give you on it, but I would tell you there is not a marked difference based on the size of the contract or what we're seeing as the targeted expectations that we have out of the economics.

(Operator Instructions) Scott Sutherland with Wedbush Securities.

Great.

Thank you and good afternoon.

Hi, Scott.

First of all, since you've talked a couple of times on the Comcast and Time Warner renewals working through that, can you talk about maybe in the first half of the year anything, any parts you might have up sold or cost sold to those clients to show that you're getting continued traction with them?

I've got to think back over the last six to nine months on that, Scott.

We did sell some of our business services solutions to Comcast.

We've seen that expand.

We've seen our digital or Direct Express which is a sales tool.

We've had a little bit of early success with our enhanced sales edition.

I'm trying to think through.

We've had several products that have gone into the - both Time Warner and Comcast and those that I've mentioned are the ones that first come to mind.

We are seeing the expansion of our solutions in their hands.

Okay.

On Comcast in particular, can you help us understand that drop a little bit on revenue from Q1 to Q2?

Is this kind of -- there is some one-time revenue in Comcast always occurs or is there something seasonal that happens in Comcast because we saw that last year as well.

Yes, Scott, we mentioned that in the first quarter that there was some seasonality and some revenues for Comcast.

It was some various marketing-type of activities that they undertook in the first quarter.

Yes, there was seasonality there.

Okay.

Regionally, Europe dropped a lot and obviously everyone knows the concern - what's going on over there.

Is that still a challenging market or is it part of your execution that you had to improve that you're seeing some deals come back there?

What should we expect out of Europe going forward?

Scott, I would tell you that I don't view this as specifically an execution issue on our side.

It's more a macro-economic and financial market for EMEA.

I think we're going to be in for more difficulty in that region than any other region around the world.

Okay.

My last question is we are seeing some of these evolution and shared data plans on the wireless side and machine to machine has gained a lot of noise out there.

Where do you guys see opportunities to play in that area are driving your business?

I think both of them are areas of interest to us.

We've had some early discussions with clients around the shared data plans as well as the bill shock plans that have to be out there as well that are kind of a separate but similar type of way and it's how do you manage consumption, so it's more manageable by the family or by the individual.

Machine to machine is an important part and actually some of our clients are actively involved in that.

We support OnStar which is effectively telematics into the -- from the car to the network of OnStar and our billing around that is part of it.

Then some of our large enterprise commercial clients, telcos that are supporting commercial enterprise have businesses around machine to machine and are building practices around it and our solutions are part of it as well.

Lauren Choi with JPMorgan.

Hi, guys.

Just a question around I guess cash flow for 2013.

I guess given the comments you've made about margins in 2013 and the thoughts around that, did the cash flow also follow that same thought?

We haven't provided any 2013 guidance yet.

Right.

But I guess I meant in terms of gross margins and operating margins seem kind of pulling back to a certain level and that should technically flow through to cash flows.

Is that the right way of thinking about it?

That is the right way to think about it.

Operations usually drives cash flows for us, yes.

All right.

Okay.

Then just in terms of pipeline again, I just wanted to ask in terms of the strength of the pipeline.

Relative to last quarter do you feel that the pipeline has actually become stronger or weaker or is it about the same level?

I know that you made comments about the pipeline remains strong.

Sure.

Lauren, I would say overall the pipeline is good.

You'll see some areas of the world have gotten stronger, some have gotten weaker.

You can expect that EMEA things have gotten drawn out longer there but APAC seems to be getting stronger both in numbers and progression of deals and the absolute size of the pipeline.

The Americas continue to have a consistent strength to them and it's one that we can -- it's just the sheer percentage of our revenues we looked at strength on as well.

Overall we still see strength in our outlook for what we see as sales to win and then closing those deals.

Just last question.

Can you give me an update in terms of the percentage that's non-cable revenue now?

I would say it's probably fairly consistent with probably last year.

I would say it's probably 60%, still comes from about - from cable.

Do the math it's 40% that's non-cable.

There are no further questions at this time.

I will turn it back over to management for any closing remarks.

Thanks to all that are on the call, both those who are - asked questions and those who listened in.

We appreciate the support.

We look forward to our third quarter when we will be continuing to share the successes that we have as a business and help you understand how we do.

We are excited about our position, the continued strength we have with our clients, and things we are doing in the marketplace and we look forward to catching up with you next time.

Bye.

Ladies and gentlemen, this does conclude the conference call.

You may now disconnect and thank you for your participation.

Have a nice day.