CSG Systems International Inc (CSGS) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by.

Welcome to the CSG Systems Q2 earnings conference call.

At this time, all participants lines have been placed in a listen-only mode.

Following today's presentation instructions will be given for the question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded Tuesday, July 26th of 2005.

At this time, I'd like to turn the presentation over to Liz Bauer, Investor Relations.

Please go ahead, ma'am.

Thank you, Andrew.

Today's discussion will contain a number of forward-looking statements, particularly with respect to any financial projections that may arise, the Company's ability to perform satisfactorily and maintain good customer relations, provide products and services that meet the needs of the marketplace, manage our international operations, which by nature is much more complex, and carries a higher collections risk, and our ability to successfully deliver on lengthy and/or complex implementation projects.

All of these statements reflect our best current judgment.

They are subject to risks and uncertainties that could cause actual results to vary.

In addition to factors noted during the presentation, these risk factors are discussed in more detail in our most recently filed 10-Q and 10 K.

Currently, the Company has no intention to update this information during the quarter.

If you did not receive a copy of our press release, you can obtain a copy from our website.

Today we have with us Ed Nafus, our Chief Executive Officer and President, and Peter Kalan, our CFO.

Ed will begin with his opening remarks, and Peter will follow up and then we will open the call to your questions.

Ed.

Thank you, Liz.

And thank you all for joining us this afternoon.

Today we'll go through four items.

First I will review our financial performance for the second quarter.

Second, I will provide an overview of each division's performance.

Third, I will provide you with insight as to what we are seeing in the marketplace where we have opportunities, and where we have challenges.

And finally I will turn it over to Peter Kalan to review in more detail our financial performance for the second quarter, and outline our guidance for the third quarter.

For the second quarter we exceeded our financial expectations for both revenues and GAAP net income.

We reported revenues of 141.7 million, and GAAP net income of $0.17 per diluted share.

Backing out the benefits associated with contract settlements during the quarter, we still would have come in at the very high end of our guidance for both revenue and earnings.

Importantly, we continue to see strength in our processing, maintenance and professional services revenue streams.

Generating software license revenue remains a challenge as long sales cycles continue, decisions are delayed, or providers stay with their existing solutions.

Our Global Software Services Division had revenues of 39.9 million, an 8% year-over-year increase and a 4% sequential increase over the first quarter.

In addition, this division continues to be a positive contributor.

This quarter was an exceptionally strong quarter for our Americas team, with three new clients signed, including Auto Trader, the world's #1 on-line automotive classified advertising company, Hawaiian Telecom, the leading provider of telecommunications services in Hawaii, and Costa Rica's largest provider of telecommunications services.

This was extremely heartening as this team underwent a major reorganization in the first quarter.

Hal Michaels, Charlie Ydoate, and Chevy Vithiananthan should be commended for ensuring that the reorganization did not disrupt or slow down business.

In addition to the Americas, we also reorganized our teams in the EMEA region.

We have realigned the sales and delivery teams to more accurately reflect our customer base.

We now have dedicated sales executives on our large tier 1 customers and prospects, and geographic sales executives covering our tier 2 and tier 3 customers and opportunities.

Our goal with this change is to ensure that we more effectively support our existing customers, while at the same time pursue new business with no distractions.

Our APAC team signed a landmark deal with BSNL, one of the largest wireline and wireless providers in India.

This is a result of a strong relationship, solid products and being able to meet the needs of a growing tier 1 consolidator.

An important metric that we are focused on is our ability to upgrade our customers to Kenan FX.

This quarter we are happy to say that 37 customers have signed up for Kenan FX, and 9 of those are live.

Getting our customers to upgrade to Kenan FX provides us with visibility on our professional service, services and our maintenance revenue streams, it also reinforces that the investment we have made in our product and solution set is the right strategy.

This commitment translates into the establishment of a solid product roadmap based on input from telecommunications providers in every vertical, in every region and of every size.

Finally, I am encouraged by the progress that the GSS team has made over the past quarter.

This team was able to deliver on their product roadmap commitments and sign up new customers, while undergoing an organizational realignment.

I believe that the moves that we are making in this division will pay dividends for us in the future.

Next our Broadband Services Division had another strong quarter, both from an operational and a financial aspect.

At the end of the quarter, we had approximately 16 million subscribers migrated to our new ACP solution.

This represents over one third of our 44 million subscriber base.

I can't say enough about the great work that our migration teams are doing.

In addition, we continued to help our clients sign up digital phone subscribers.

This is a major accomplishment for our clients and for CSG.

It validates the investment we have made in rearchitecting our solution, so that it more easily allows our clients to bundle multiple product lines.

ACP is a result of several years of investment and development in a solution that allows our customers to roll out new products and services quickly and improve the quality of the service that they provide their customers, and do all of this as a price point that is very cost effective.

The solution was designed with input from our clients through our user groups, client conferences and day-to-day interactions.

As a result, our product road map reflects our clients' evolving businesses and their desire to have a preintegrated customer centric solution that meets their needs today and in the future.

Looking at the performance of both divisions, I am pleased with the progress that we are making.

We continue to execute on our short-term opportunities while solidifying the foundation for long-term sustainable growth.

Before I turn it over to Peter, I'd like to provide you with our perspective on the marketplace.

First, communications providers are weathering the storm.

They continue to look for strategies to increase their strength, whether it's through acquisitions, operational efficiencies or others.

As a result, their businesses are becoming much more complex.

Second, providers are shifting their investments from network and planned upgrades to rolling out new services so they can monetize their previous expenditures.

We are seeing this occur across the board with our customers, whether they are a video and e-commerce, and mobile or a wireline provider.

While these trends work in our favor, the marketplace is certainly not without its challenges.

Sales cycles continue to be long and often times no decision is made even after an extensive RFP and sales process.

As I hope you will see is evident by our actions during the quarter, we are focused on ensuring that our organization is aligned to maximize the opportunities and overcome any challenges.

At the same time, we continue to look for areas in which we can use our balance sheet as a tool for value creation.

We have demonstrated over the past two quarters through our 10(b)5-1 plan and stock purchased during the open period, that we believe repurchasing our stock is one good use of our cash.

In addition, we continue to evaluate acquisitions that can further broaden our solution sets, these acquisitions range in various sizes and will be evaluated based on the Return on Invested Capital that they present for us.

Most important, we continue to work with our customers to help them be successful.

At the end of the day, we believe that providing our customers with the best tools, technology and expertise will result in long-term sustainable growth for both them and us.

We are confident that we will be a valuable and contributing partner and we have every intention of continuing to be so.

Finally, I will turn it over to Peter Kalan to review our financials in more detail.

After Peter does this, we will take your questions.

Peter.

Thank you, Ed.

I am pleased to share with you today the financial results for our second quarter, as well as our outlook for the third quarter of this year.

For the three months ended June 30th, 2005 revenue totaled $141.7 million, and net income under Generally Accepted Accounting Principles was $8.5 million, or $0.17 per diluted share.

Revenue for the second quarter included approximately $2.3 million in one-time fees associated with bankruptcy and contract termination settlements, or approximately $0.03 per diluted share.

These one-time revenues are reflected as processing fees within the Broadband Services Division.

Our second-quarter results included an expense of $4.3 million related to the expense accrual of retirement benefits for Neal Hansen.

The second-quarter results also included restructuring charges of $6.1 million.

Together, these expenses totaled $10.4 million, or $0.13 per diluted share.

Additionally, the bankruptcy and contract termination settlements resulted in one-time expense benefits of approximately $1 million, or $0.01 per diluted share.

Total revenues for the second quarter increased 9% over the same quarter last year.

Excluding the fees associated with the bankruptcy and contract termination settlements, revenues grew approximately 7%.

Second-quarter processing revenues totaled $88.7 million, software maintenance revenues for the quarter totaled $25.1 million while professional services revenues totaled $18.1 million, and software license revenues were $9.8 million, all in line with our expectations.

For the second quarter, approximately 21% of CSG's total revenues were derived from international markets.

International revenues were lower than previous quarters, due to the one-time settlement fees, as well as stronger performance within our North American market.

Within the world regions, EMEA contributed 13% of total revenues, Asia-Pacific generated 4% and Latin America delivered 4%.

Comcast continued as our largest client comprising approximately 15% of the company's total revenues for the second quarter.

For future quarters we continued to expect that revenues from Comcast will be in line with this percentage.

Total expenses for the second quarter were $128 million, which includes approximately $6.1 million in restructuring charges and $4.3 million in accrued retirement benefits.

Restructuring charges were related to the increase in an abandonment reserve for one of our lease facilities, and expenses associated with the staff restructuring within our GSS Division.

The second-quarter gross margin was 48%, and the operating margin was approximately 10%.

Which includes the impact of the previously mentioned accrued retirement benefits and restructuring charges.

These expenses lowered the operating margin by approximately 7 percentage points.

The second-quarter results also included a foreign exchange transaction gain of approximately $900,000, or $0.01 per diluted share.

The financial results of CSG include several recurring non-cash expenses.

For the second quarter, stock-based compensation expense was $4.3 million, depreciation expense totaled $3.8 million and intangible asset amortization expense was $7.2 million.

These non-cash charges totaled $15.3 million for the second quarter, or $0.19 per diluted share.

Turning to the segment results of the Company, the Broadband Services Division generated $101.8 million in revenues for the second quarter.

Software revenues were strong again in the second quarter as our clients increased their use of ancillary software applications, including our workforce and call center applications.

The Broadband segment produced a contribution margin of $37.2 million or 36% of revenues, with non-cash charges of depreciation, intangible amortization and stock-based compensation totaling $7.6 million for the quarter.

We finished the second quarter with 44.4 million subscriber accounts on our processing system.

The average annualized revenue per subscriber, or ARPU, for the second quarter was $8.02.

The ARPU was higher than anticipated due to the one-time bankruptcy and contract termination settlement fees which contributed $0.21 to the second-quarter ARPU.

And higher than expected revenues related declines discretionary and verbal use of ancillary processing services, also contributed to the higher than anticipated results.

For the third quarter, we expect that ARPU will range between $7.70 and $7.85.

The Global Software services segment produced approximately $39.9 million in revenues for the second quarter, with a contribution margin of approximately $3.3 million.

The results for the GSS Division include non-cash charges of $4.2 million associated with amortization of intangibles, stock-based compensation and depreciation.

We continue to believe that the contribution margin of the GSS segment will expand as we grow the revenues of this business.

Turning to the balance sheet as of June 30th, our net bill trade accounts receivable totaled approximately $134 million, which compares to the March 31st balance of approximately $143 million.

The bill trade accounts receivable reflected days billed outstanding or DBOs, of approximately 69 days for the second quarter, which is in-line with our expectations of a 65 to 75-day range.

Cash flows from operations through the second quarter were approximately $43.3 million.

These cash flows include the impact of a domestic client making payment on certain invoices which had been delayed in the first quarter.

The payment of these invoices along with the benefits of the bankruptcy and contract termination settlement fees contributed approximately $12 million to our cash flows for the second quarter.

During the second quarter, between purchases within our 10(b)5-1 Plan and also open-window purchases we repurchased 1.1 million shares of the company stock, at a total purchase price of $20 million, or approximately $18.49 per share.

Within our 10 (b) 5-1 plan we have allocated up to $15 million per quarter for stock repurchases.

As of June 30th, 2005, the remaining number of shares authorized for repurchase under the repurchase program totaled 3.3 million shares.

Next I'd like to provide you an overview of our financial expectations for the third quarter of 2005.

We are expecting that revenues for the third quarter will range between 135 and $142 million.

We anticipate that processing revenues will total between 86 and $87 million.

We expect that software maintenance revenues will range between 24 million and $25 million, and professional services revenues will total between 17 million and $19 million.

We are projecting that software license revenues will range between 8 and $11 million.

We expect that the software license fees within the Broadband Services Division will decrease from the levels achieved in the first half of 2005, and that increased license revenues within the GSS Division will offset the decrease in the Broadband Division.

As of June 30th, our software and services backlog totaled approximately $111 million, which is in-line with the March 31st reported software and services backlog.

We are projecting that expenses in the third quarter will total between 117 and $120 million.

We do not anticipate any significant restructuring fees in the third quarter and the significant expenses associated with retirement benefits have been accrued through the second quarter.

Included in these projected expenses are amortization charges of approximately $7 million, depreciation expense of approximately $4 million, and stock-based compensation charges of approximately $4 million.

Non-cash charges are projected to total approximately $15 million, or approximately $0.19 per diluted share.

Based on these targeted revenues and total expenses, we anticipate that earnings per diluted share for the third quarter will range between $0.22 and $0.27.

We continue to expect that the effective tax rate for 2005 will be approximately 39%.

We are also projecting diluted shares outstanding of approximately 47.8 million shares, which include the impact of projected stock repurchases in the third quarter.

We expect that cash flow from operations for the third quarter will range between 27 and $31 million, and that capital expenditures will range between 3 and $4 million for the quarter.

In summary, the financial results for the second quarter were very strong and we have achieved financial improvement in both our divisions.

We continue to support our clients in their rollout of new services, while also delivering operational efficiencies which improves their financial performance.

We are also focused on improving our performance and continuing to deliver strong financial results and free cash flows.

With that, I'll turn it over to the moderator for questions.

Andrew.

Thank you. [OPERATOR INSTRUCTIONS] One moment please for our first question.

Our first question comes from Michael Turits.

Please state your company affiliation followed by your question.

Hello, Michael Turits.

How are you?

Very good thank you.

One quickie on cash.

You said all the accruals have been done for severance and for restructuring, any ongoing cash charges that we should put into our cash flow forecast?

From a cash perspective, Michael, the actual cash payments associated with the retirement will be over the coming 18 months.

Okay.

So just quickly, what have we got left?

How much oer quarter, for 18- months?

From a P&L perspective, there's really nominal charges that will be coming through the P&L.

Right.

On a cash basis.

On a cash basis there's approximately 8 million to $9 million that will be paid roughly every six months over the next 18 months.

I don't have the specific -- or over the next 18 months.

I don't have the specifics with me.

It was all included in the 8-K filing that we did.

Okay.

That's fine.

Otherwise, pull it out and I'll have a follow-up with you.

And then restructuring, anything else there?

From a cash flow perspective.

Cash flow.

Not anything of significance.

Some of the restructuring on the staff will be paid out over approximately a six-month period.

Okay.

So not significant cash impacts from that.

And can you just review where you are from a contract perspective with Comcast?

Obviously -- we want to make sure we're refreshed with that with [Andox] now entering the cable business.

What's the length of the contract with Comcast, what are the minimums there?

How does that split out between normal kinds of video services versus voice-over-IP?

Michael, that's probably getting into more detail than we can share.

The contract runs through 2008 and the -- I think we published the minimums that decline over time.

I can't remember the exact number but the services that are included, include all of the product lines -- the major high-speed data, the video, and of course the digital telephone services as well.

So I think you could see that the revenues have remained fairly steady, even with the declining minimums.

Okay.

Great.

Thanks very much.

Yes.

Thank you.

Our next question comes from Ashwin Shirvaikar.

Ashwin Shirvaikar from Smith Barney.

Congratulations on the solid results.

Thank you.

First question is on the sustainability of the higher ARPU on the Broadband side, when the one-time is taken out.

So is the strength in software likely to lead to higher sustainable processing and/or maintenance?

Ashwin, this is Peter.

I think your question on the sustainability of the ARPU is a good one.

There's not any one item that's really driving that by itself.

We're seeing increases of consumption of some of our ancillary products and variable-based products by our clients across the board, whether it's reporting tools, whether it's the marketing services and statement services, whether it's the ongoing support of our workforce products.

It shows up in many areas, and we like to see the diversity and broadness of those revenues because it shows our product success and getting down to our clients' hands.

Not to say that there won't be future variability in it but we like to see the depth of it within our operations.

This also gives us a good base in the future, as we come down the road to get voice services, as our clients roll the voice-over-IP out as well.

But for the products that they are currently rolling out in their operations today, we don't see a change and I think that's reflective in the guidance that I gave for the third quarter.

Okay.

And if I look at the software side, are some of the early Kenan FX customers, for example, those that are live, is the sales pipeline for new-product sales maybe stronger, is there a way to tell, or is that too small of a pipeline yet?

I'm not sure I understand completely.

The nine customers --

The follow through from Kenan FX signings.

Very good -- I understand now.

Once we get to Kenan FX, it clearly opens up the ability of the additional modules that are built around that platform, and that are available then to be sold into the -- into the clients that are on FX.

Absolutely.

Be hard to quantify it right now, but it certainly opens up the additional modules.

But are you actually seeing those clients come back to you and say that now we have Kenan FX, what else can you offer us?

Or is it too early to tell that?

In some cases too early but certainly we're seeing indications of the motivation to go across, if you will, was to have access and to be able to more easily add the modules.

Okay.

And finally one clarification, if I may.

What is the ongoing revenue impact of the discontinued customer?

That's a great -- another great question, Ashwin.

I guess for a little clarity.

This is the contract relationship that goes back to 2003 that was -- the contract was terminated before we ever initiated services.

And so there was never any revenues in our past reported results that would be going away.

So there is no future impact to it from a loss of revenue.

Does that make sense?

Oh,

We never were --

Nice business to have if you can get it.

We were never recording any revenue from this relationship because it was a relationship that soon after the contract was signed, the customer defaulted on the contract.

So where are the one-time revenues coming from?

It's the contractual obligations in the contract that they defaulted on, and it was settled between the customer and ourselves to say that they'll just buy out their obligations of the contract for us not to provide the services.

Got it.

Okay.

Okay.

Thank you.

Thank you.

Our next question comes from Marianne Wolk, please state your company affiliation followed by your question.

Yes.

Susquehanna.

A couple questions.

So can I understand that there was $900,000 that was reduced that we should have seen in OpEx because of this customer?

And I just want to clarify that.

Second of all, I would assume that you'd be getting some transition fees as your customers upgrade to ACS.

Where would we see this reflected?

Are some of those sort of transition fees helping the ARPU that you're getting on the processing side?

And then a final question.

I know you said a third of your base roughly was upgraded to ACS.

How does Comcast look like on that same perspective?

What percentage of Comcast has upgraded to ACS, if at all?

Thanks.

Sure.

This is Ed.

The -- it's the ACP platform.

In the Broadband Division.

The Comcast -- I believe now has 6 of their sites, or 6 of their MSOs on the new platform.

I don't know what that translates off the top my head to subs, but they are moving along nicely, in terms of the migration to ACP.

Does it feel like that's meaningfully different than the average in terms of penetration of their customer base?

Well, there -- you know, they're the largest and they would have the largest number of migrated so far as well.

In terms of percentage.

Let me jump in and clarify also, the ACP platform in itself was not something that we are charging the clients to migrate to.

This is something that we invested in as a product rearchitecture upgrade to the platform that we are migrating them to, without additional fees.

But then as a clarification, what is driving that big increase in the ARPU then on the processing side?

I mean I know you mentioned a whole lot of products -- sound like products you have had quite a while.

Can you talk through strategically why you're suddenly seeing the upgrade cycle?

Marianne, this is Peter and you're correct, that many of the products that we're seeing higher consumption on from our clients is our products that we've had available in the marketplace.

In some cases it's products that our clients hadn't rolled out that drive incremental future processing fees.

In other cases, they are looking to understand their client or their operations better, and they're looking to use our tools and services and products, whether it's how they market to their customers to roll out new services, whether it's how they are analyzing their client base or the consumer base to understand how they should best attack their marketplace.

It's a myriad of pieces and we're just seeing strong performance out of those variety reports and products.

It's important that as you think about us as a company and I know Marianne you have followed us for a while, that we've put a lot of money into R&D over time and that R&D has spawned a lot of products that we're starting to see the penetration in the same way that we're targeting to see the same thing come out on the GSS side, with the ancillary products components that will go into FX.

We're just seeing it very strongly on the Broadband today.

And then finally the expenses were reduced by $900,000, is that correct?

It was actually -- I commented in my script it was about a million dollars.

Let me just kind of give you a basis of the total benefit that we received from the contract settlements between bankruptcy and termination.

There was a total of about $3.3 million worth of benefit, 2.3 million showed up as revenue, 2.3 million showed up as revenue, and 1 million showed up as expense benefit, of the $3.3 million.

The expense benefit is really recovery of fees that we had incurred in either the bankruptcy proceedings as we look to collect on defaulted amounts, legal fees and such.

And so this -- this total of $1 million of expense recovery is -- is items that are showing up in OpEx, primarily in the SG&A line.

Does that make sense?

Yes.

Thank you very much.

All right.

Thank you.

Our next question comes from Tom Roderick.

Please state your company affiliation followed by your question.

Hi, Tom Roderick, Thomas Weisel Partners.

Good afternoon, guys, thank you.

Just looking here -- I thought the Auto Trader.com deal was kind of interesting here in that it was a bit outside the normal business for you, reminds me of the eBay deal I guess.

Is there a more concerted effort to push into more content-type deals on the software licensing side?

And if so, what are you doing from the sales force perspective to move in that direction?

Thanks, Tom.

Yes.

I think we're seeing the -- the opportunities for those types of -- of transactions and sales, if you will.

And we are -- we are looking at that as a -- as another way to focus, if you will, in part of our reorganization and restructure of the sales teams, has kind of taken that into account, if you will, so that we're not trying to be all things to all people, but certainly when we identify verticals like this, similar to like, eBay and Auto Trader, we will continue to try to take advantage of that.

Okay.

Good.

And maybe shifting gears looking over -- over at China and now that Amdox has made an acquisition to get into that market, and you're seeing some more pickup in general around spending on billing in the Chinese market.

Can you give us an update on your activities there, and how we should think about the pipeline in that -- in that market as well?

Well, we certainly have a presence and -- as we previously -- you know, announced have some client relationships, and some activity going on there.

We expect to be there as the market grows.

We certainly intend to be a player.

I don't think we put anything in our projections at this point in time, that are rocket ships or anything like that but we certainly would plan to sustain our participation there.

Okay.

Last question I have here just around ACP.

It seems that about 35% of your base now is on ACP, so that's pretty fast penetration.

In that regard, can you just give us an update on how quickly we should think of you getting the remainder of your sub base on ACP, or what the penetration rates should look like there over the next year?

Initially Tom we set out a goal to hopefully be pretty well done with the migrations by the end of the first quarter of 2006.

Great.

Very good.

Thanks very much.

Appreciate it.

Thank you, thank you.

Thank you.

Our next question comes from Thomas Ernst.

Please state your company affiliation followed by your question.

Hi.

Good evening.

This is actually [Joseph Borrick] covering for Tom, Deutsche Banc Securities.

Thank you very much.

Hello.

The first question we have here is a small follow-up on the recent announcement of the upgrades agreed in the BT Group in the UK.

I would like to ask you if this is part of their 21st century project.

And if not, are you involved in any way in the request for proposals in that initiative?

Joseph, obviously this is Liz.

The BT contract that we announced was for their wholesale area.

It was not part of the 21st Century project that they have underway.

They are using another vendor for that project.

And that's in place.

We've been growing our penetration, or our footprint within BT, and we have a dedicated sales executive that continues to win more business on that account.

Okay.

Thanks.

And then another question just following up a little bit on what -- it's been already asked about Amdox getting into the cable space.

Do you see that more as a risk or an opportunity for you?

Are you planning to target any of the DST customers looking towards maybe some disruption among them?

That would be probably not proper for me to telegraph that at this point in time, in terms of exactly what our reaction is going to be.

I would make the comment, they are a very worthy competitor and a good company.

At the same time, we will do what we have always done and will continue to focus on upgrading our products, upgrading our relationships with our clients and pressing forward with the things that we know we can do today with an eye towards exactly what it is that we need to do to react, mostly from the perspective of what our clients need, first and foremost.

Okay.

Thank you very much.

Thank you.

Thank you.

Our next question comes from Liz Grausam.

Please state your company affiliation followed by your question.

Hi, guys, Liz Grausam at Goldman Sachs.

Just wondering if there's any correlation with you upgrading your clients to ACP and their uptake of ancillary services.

I know the front end makes it easier to adopt ancillary services, and is that what we're seeing in terms of the revenue subscriber?

You might be seeing a little bit of that because of the -- the -- if you will, the open APIs and the ability to access better.

But I think the -- what you've seen so far would be a small combination, if you will, of the new products as they come on.

But probably more so the utilization of our self-care and workforce products that continue to expand within the -- within the footprint.

Okay.

And then looking into this second half outlook for your software division.

It sounds like you're going to see a little bit of an acceleration in the actual license revenue there.

What are you seeing in the environment?

Is there more aggressive buying patterns, just more appetite, maybe what you see in geographies?

Well, you're clearly -- clearly right.

It varies greatly by geography and as I mentioned in my remarks, we've -- the Americas are very strong this quarter.

We have -- we've seen the APAC had good quarters, EMEA had a great first quarter.

So you've got some movement with regard to the geography.

On balance, you know, I use the term weathering the storm.

I mean -- the providers are certainly in a situation where they're trying to strengthen themselves, expand their lines of services, products, and from that perspective at least, we see that as encouraging in terms of a bit more activity than we've probably seen in past years.

Okay.

Thank you very much.

Thank you.

Our next question comes from [Israel Eisler].

Please state your company affiliation followed by your question.

Yes.

This is Israel Esler with Raymond James.

Most of my questions have been answered but if you would.

Could you discuss some of the opportunity that you're seeing from cable and wireless converging, touch a little bit more on that?

And also what additional products do you need, if any, in Broadband as well as GSS to compete long term?

Well, first of all, the -- the -- I think the expansion of moving our clients to both FX and the ACP platform, if you will, broadens the range of services that we can provide on a single platform, which of course is the goal.

In terms of the wireless piece, it's just a little bit early to tell exactly what we're going to be asked to do, certainly in the Broadband side.

There's a lot of -- certainly a lot of chatter about that and we certainly want to be in the mix there.

And if you will on the -- on the GSS side, we've been doing that for a while now, and I think with the addition of Kenan FX and the modular concept that -- in terms of add-on modules that they can use, I think we'll see some help there.

In terms of the question on will we need to make massive changes or acquisitions of product to compete, I think it's a little bit early to tell.

As of today, I'd say okay.

But if we made the statement that we're home-free, that would probably be very foolish on our part.

But we think we have the right basis on both sides of the business, to advance our position as we go forward.

And as we always say, there's always going to be, I would say, tuck-in or types of product adds that we will continually strive to make as we have in the past.

So no -- I don't think the alarm bells are going off in terms of being able to compete at this point in time, but obviously we need to remain alert and look out for opportunities there.

Okay.

Thank you.

Thank you.

Our next question comes from Shaul Eyal.

Please state your company affiliation followed by your question.

Thank you, Shaul Eyal, CIBC World Markets.

Congratulations on a good quarter.

Thank you.

Sure.

A couple of quick questions.

Convergent spending I know earlier you touched on it I think last question.

Maybe rather than pursuing some acquisitions or adding to your product portfolio, maybe it's kind of better to go and co-operate with some of the guys that are out there.

Is that an opportunity you could be thinking about, some of those big RFPs out there?

Yes.

I think you -- certainly in the GSS side and probably less so in the Broadband side, but I think that that's something that we would always be open to exploring.

Good.

In terms of co-operation with other suppliers.

Because I think convergence billing postpaid, prepaid, is that kind of a fair assumption on that front?

Yes.

Yes.

Yes.

Right on.

That would be a very fair assumption.

Good.

You mentioned earlier in your previous remarks some restructuring now that have been taking place in EMEA.

I would imagine that some of the big opportunities, British Telecom was announced previously, I would imagine France Telecom, that could be another major RFP.

How do you feel right now about the restructuring?

Are you feel adequate to compete with some of the other vendors out there?

Yes.

I think we are -- we are positioned well and both from a product and -- if you will a focus perspective, in getting people so that they're clear in terms of what their challenges and opportunities and what they should pursue.

Fair enough.

And I know you touched on it previously but on the prepaid billing side, what do you see kind of -- CSG fitting into the landscape here?

That one is a -- that's probably one that is I would say under development, under discussion.

I think that we can -- we can find ourselves fitting in very nicely.

We're certainly not exactly where we would need to be at this -- at this stage in time, but it's something that's clearly on our radar screen.

Thank you very much and good luck.

Thank you.

Thanks.

Thank you our next question comes from Peter Jacobson.

Please state your company affiliation followed by your question.

Thank you.

Kaufman Brothers.

Good afternoon, everyone.

Hi.

Hello Peter.

Hi.

Last quarter you had given guidance with a fairly wide range and exceeded that range, and this quarter you have a range as well.

Can you explain what caused you to exceed the high end of the range last quarter, and maybe some of the thinking that went into the revenue guidance for the September quarter, and is it one of relatively high predictability and steady state with the Broadband Services Division, it may be variability on the GSS side or would you describe it another way?

Okay.

Peter let me first start off with our performance versus the guidance.

We had given overall guidance range of 139 million on the high side, and as we said in our remarks and you've seen in the press release we've reported 141.7.

Of that 141.7 million there was $2.3 million worth of one-time nonrecurring fees associated with bankruptcy and contract termination settlement fees.

You back those out and we would have, excluding those we would have done $139.4 million, which would have been just slightly above the high end of our range.

So a very strong quarter for us as a Company.

But in general in line with what our expectations were for the quarter.

When you look at our guidance for the third quarter of total revenues of 135 million to $142 million in revenue, the two biggest components of those revenue streams are going to be processing fees and maintenance fees, and both of those are very visible, recurring and we have great comfort in that amount.

So of the 142 million on the high side of our revenue there's 30 million that's not associated with recurring type of revenues.

We generally have fairly good visibility on our services, and our license fee is the piece that we have the least visibility as we enter each quarter.

But the nice thing we like about our business model is that it is highly visible on 75% of our revenues and I think that's what's been one of the drivers for our ability to continue to drive strong cash flows as well.

Okay.

So the overachievement in the June quarter was associated with more software licenses than anticipated initially?

No, no, no, no.

The processing fees that we reported of $88.7 million had $2.3 million worth of one-time fees and that --

I understand that piece.

Yeah.

And so if -- if you back that out we would have been at $139 million for the quarter.

We would have been strong in our processing fees, relative to guidance, by -- on a normalized basis, if you want to call it, of about 1 million to $2 million.

Maintenance would have been right in line, services would have been in the midpoint and license would have been in the mid- -- you know, roughly the midpoint.

So our performance -- the overall strength was across the board but the greatest strength was in our processing fees which you see show up in our ARPU and what our guidance is going forward on the ARPU.

Okay.

Good.

Thank you.

Thank you sir.

Ladies and gentlemen, [OPERATOR INSTRUCTIONS] One moment please for our next questions.

One moment, please.

Well, Andrew, I think -- I think we're probably through since everyone got their questions answered.

Ed, do you have any closing remarks?

I would just say thanks again for your support during the last quarter.

Thanks to all of our people for the fine job that they did, and we will continue to keep our nose to the grindstone.

Thank you all.

Thanks.

Thank you management.

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