CSG Systems International Inc (CSGS) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the CSG Systems Q3 earnings conference call. [OPERATOR INSTRUCTIONS].

As a reminder, this conference is being recorded today, Tuesday, October 25, 2005.

I would now like to turn the conference over to Miss Liz Bauer.

Please go ahead, ma'am.

Thank you.

Today's discussion will contain a number of forward-looking statements, particularly with respect to any financial projections that may arise, and our ability to perform satisfactorily and maintain good customer relations, provide products and services that meet the needs of the marketplace, renew contracts and increase the usage of our additional products and services to new and existing customers, and manage any disruption to our operational or financial performance should the sale of the GSS business to Comverse be terminated or be delayed for any reason.

All of these statement reflect our best current judgment.

They're 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 other most recently filed 10-Q and 10-K.

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

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

Today, Ed Nafus, our Chief Executive Officer and President will begin our call, followed by Peter Kalan, our CFO.

After Peter's remarks, we'll open up the call to your questions.

Ed?

Thank you, Liz.

And thank you all for joining us today.

Today, we would like to go through four items.

We'll review our financial performance for the third quarter, we'll provide an overview of each division's performance, we'll discuss in more detail our pending transaction with Comverse technology, Peter Kalan will provide a more detailed outline of the third quarter and outline guidance for the fourth quarter and after Peter's comments, we'll take your questions.

So, let's begin.

Our third quarter revenues from continuing operations came in at $96.8 million, a 7% increase over the same period last year.

Our earnings of $0.30 per diluted share from continuing operations rose 15% when compared to the same period last year.

We are pleased to report that each division again executed against their plans.

Our GSS division had a strong quarter at a time when many organizations would have been distracted by rumors and the talks that were taking place regarding the potential sale of the unit.

This is a tribute to the management and leadership team of the GSS division.

I would like to take this time to compliment and thank them for their perseverance during this period.

During the third quarter, seven customers went into production with Kenan FX bringing the total number of customers live on Kenan FX to 16.

In addition, at the end of the third quarter, we had 40 customers in total who have selected Kenan FX as their billing platform.

The fact that we have been able to complete so many upgrades and implementations on time and on budget is a true testament to the GSS team.

Our Broadband Services division continued to execute on their goals of migrating our customer base to our ACP platform, increasing the penetration of our ancillary products and services and gaining market share.

We have now migrated approximately 22 million subscribers to our ACP platform.

This is important to us and to our clients.

Our ACP platform enables our customers to roll out their product bundles in a seamless manner.

It also enables them to have a customer-centric view of their subscribers, resulting in higher levels of satisfaction.

ACP is an advanced platform that's in production and proven.

We're very pleased with our progress.

In addition, we are continuing to see increased usage of many of our ancillary products and services, including our self-care solution called Care Express.

Several of our clients use our Care Express suite to allow their customers to view, manage and pay their bills over the Internet.

This virtually eliminates manual processes carried out by customer service reps from taking orders and upgrading services.

Today, over three million end users across our footprint manage their accounts on-line using our.

Care Express solution.

Our Broadband Services division signed a new client contract with EastLink, the fifth largest cable company in Canada.

EastLink serves several hundred thousand business and residential customers in Nova Scotia and was the first to offer local telephone service over a state of the art digital network.

This contract represents the early tages of a transformation that cable and direct broadcast satellite providers are undergoing.

They're now offering multiple products to their consumers and want to be able to bundle those products and services in a meaningful way to each individual customer.

This calls for more sophisticated solutions, that optimize each customer interaction while maximizing the provider's ability to generate revenues.

The selection of CSG by EastLink further validates the approach that we have taken with our ACP platform.

Next, I would like to talk about the transaction that we announced after the quarter ended.

On October 7th, we announced that we have signed an agreement to sell our GSS division to Comverse technology.

This decision was a difficult one and one that we took very seriously.

I would like to cover a few points to help provide some perspective.

When approached about this transaction, we worked closely with our management team, board and advisers in determining what would be the best long-term direction for the GSS business.

It was clear to us that there is not extensive synergy between our GSS and Broadband divisions.

These divisions, while very effective in their markets, operated mostly autonomously and have different business models.

It also became clear that to hit the financial targets we had set would require a turnaround in the market, or additional investment that would allow us to create the international infrastructure that's required.

We would not be able to get to our financial objectives by growing at market rates.

In addition, during the year, we had been working with Comverse on joint bids.

While there is some GSS client overlap with Comverse, there is very little product overlap.

Comverse has a strong international presence and a strong prepaid solution.

GSS has an international presence and a strong postpaid solution.

This combination should result in attractive synergies.

Some you have asked why we did not shop GSS to other buyers.

The fact of the matter is, the GSS division was not for sale.

Comverse came forward with a financial proposal that our advisers said was compelling.

We felt, based on our previous dealings with Comverse that the sale was in the best interest of our shareholders, our customers, and our employees.

With very little overlap between products, there is an opportunity for Comverse to take advantage of the size and scale that they'll have after this transaction closes.

We've also been asked why we would want to focus on our Broadband division which has not had high growth rates in recent years.

Many of my earlier comments can provide clarity here.

The cable and BSS market is in the early stages of moving from providing one-way programming through a television set to providing interactive content to any device any time.

We believe that our ACP platform and our extended products will help our clients be successful with this transformation and differentiates CSG from other billing providers.

Our solution should create an opportunity for CSG to demonstrate our capabilities to our clients and those providers not using us.

We feel we can expand our product usage and win added market share.

Another question that we have not provided a concise answer to is what we plan to do with the money from the sale.

As many of you have accurately calculated, once the transaction closes, CSG will have approximately $370 million on its balance sheet in cash with $230 million in convertible debt.

Peter will walk through the mechanics of the convert in his remarks.

Historically, we have been strong purchasers of our stock.

As you know, we're currently in a 10B5-1 program which allows us to buy up to $15 million of our stock each quarter through a planned program.

We will continue at this level for now.

As you would expect, we will do a thorough analysis of all options available to put our cash to use in the best way to create long-term shareholder value.

Now, I'll turn it over to Peter to review our financial results.

Thank you, Ed.

Welcome to all of you on the call today.

As we have previously reported on October 7, 2005, we announced an agreement to sell our Global Software Services business to Comverse Inc., a division of Comverse Technology Inc. for $251 million in cash subject to certain adjustments.

As a result, the GSS business is reflected as discontinued operations in CSG's results for the periods ended September 30, 2005 and 2004.

The GSS business to be purchased by Comverse includes the Kenan FX software and services portfolio, the ICMS Customer Care and Billing assets and certain corporate personnel and functions that directly support the GSS business, which had previously been reported as part of CSG's corporate overhead expense.

CSG's results of operations from continuing operations consist of the broadband services division and corporate overhead expense related to CSG's ongoing business.

I will be focusing my third quarter comments and fourth quarter guidance on the continuing operations of CSG.

Total revenue from continuing operations for the third quarter of 2005 were $96.8 million, an increase of 7% when compared to $90.1 million for the same period in 2004.

Looking at the components of the total revenues, processing revenues for the third quarter were $87.6 million, up 8% when compared to $80.7 million for the same period last year.

Software maintenance and services revenues were $9.2 million for the current quarter.

A 1% year over year decrease.

The revenues of the continuing operations are primarily driven by the subscriber management services we provide to our broadband clients and the number of subscribers on our processing system.

This business model generates highly recurring revenues with significant visibility.

The software maintenance and services revenues are primarily related to ancillary products, software products that add expanded functionality around our processing services.

The largest source of revenue in this category is maintenance services, which are associated with previously sold software licenses.

These maintenance services are recurring in nature.

Comcast continued as our largest client, comprising approximately 22% of the Company's total revenues from continuing operations for the third quarter.

The third quarter 2005 gross margin was 48%, compared to the prior year's gross margin of 47%.

The operating margin for the third quarter of this year was approximately 24%, which compares to the same period last year of 25%.

The financial results for the continuing operations of CSG include several recurring noncash expenses.

For the third quarter, stock-based compensation expense was $3.2 million, depreciation expense totaled $2.4 million, and intangible asset amortization expense was $3.7 million.

These noncash charges totaled $9.3 million for the third quarter, Or $0.12 per diluted share.

Income from continuing operations, net of tax for the third quarter of 2005 was $14.2 million or $0.30 per diluted share.

This compares to $13 million or $0.26 per diluted share for the third quarter of 2004.

For the third quarter of 2005, the loss from discontinued operations, net of tax, was $700,000 or $0.02 loss per diluted share.

This compares to $3.3 million of income, or $0.0 6 per diluted share for the same period in 2004.

Net income for the third quarter of 2005 was $13.5 million, or $0.28 per diluted share, down 17% when compared to the $16.3 million or $0.32 per diluted share for the third quarter of 2004.

We finished the third quarter with $44.7 million subscriber accounts on our processing system.

The average annualized revenue per subscribe for the third quarter was $7.86.

The ARPU was in line with the high end of our expectations, as our clients continue to use our various products in the marketing and delivery of their services.

For the third -- for the fourth quarter, we expect that ARPU will range between $7.75 and $7.90.

Turning to the balance sheet, the announced agreement to sell the GSS business results in the assets and liabilities associated with the GSS business being separately reflected on the balance sheet as GSS business assets and liabilities held for sale.

As of September 30, our net bill trade accounts receivable associated with the continuing operations totaled approximately $96 million.

The bill trade accounts receivable reflected days billed outstandings or DBOs of approximately 60 days for the third quarter.

Going forward, we expect that our DBOs related to continuing operations will be in a range of 55 to 65 days.

As of September 30, 2005, cash, cash equivalents and short-term investments associated with the continuing operations totaled $161 million.

When the sale of the GSS business is closed, we expect the after tax proceeds from the sale will total approximately $220 million , which will add to the strength of the Company's balance sheet.

As of September 30, the company had $230 million in contingent convertible debt outstanding, which matures in the year 2024.

Holders of the securities can convert at any time after CSG's common stock trades at a price in excess of $34.80 for a set period of time.

The first put or call option for the redemption of the securities is 2011.

In 2004, the Company made an election to settle the principal portion of the convertible debt in cash upon conversion.

To the extent that the conversion obligation exceeds the principal amount, we retained the option to settle the premium in stock or cash.

We're confident in the cash generating capabilities of our business, and if needed, our ability to refinance the debt were it to be converted in the future.

Consolidated cash flows for operations from operations during the third quarter were approximately $25 million.

During the third quarter, we repurchased 796,000 shares of the Company's stock at a price of approximately $15 million, or approximately $18.84 per share.

As of September 30, 2005, the remaining number of shares authorized for repurchase under the repurchase program totalled 2.5 million shares.

With the strength of our balance sheet and the continuing strong cash flows of our business model, we expect to continue to repurchase shares in the coming quarters.

Additionally, as I mentioned previously, we're focused on bringing additional products and services to our clients and as their business needs evolve, meeting those needs.

We'll consider acquisitions to fill product needs as an alternative to using internal development resources.

Next, I would like to provide you an overview of our financial expectations for the fourth quarter of 2005.

We're expecting that revenues for the fourth quarter will range between $96 million and $99 million, with processing revenues ranging between $87 million and $88 million, and software, maintenance and services revenues ranging between $9 and $11 million.

We expect that the operating margin of the business for the fourth quarter will be consistent with the third quarter at approximately 24%.

We anticipate that income from continuing operations per diluted share for the fourth quarter will range between $0.30 and $0.31.

This guidance does not include any results from discontinued operations.

Included in the projected results from continuing operations are amortization charges of approximately $3.8 million, depreciation expense of approximately $2.4 million, and stock based compensation charges of approximately $3.2 million.

Noncash charges are projected to total approximately $9.4 million, or approximately $0.12 per diluted share.

Our guidance for continuing operations does not include any restructuring charges or any expenses associated with the GSS divestiture that may be incurred in the fourth quarter of 2005, related to our continuing operations, As we cannot estimate them at this time.

We expect that the 2005 effective tax rate for continuing operations will be approximately 36%.

We're also projecting diluted shares outstanding of approximately 47.5 million shares for the fourth quarter, which include the stock purchases for the fourth quarter.

We're updating our guidance for the full year 2005 based on the previous nine months continuing operations performance and the new fourth quarter guidance.

We now expect revenues from continuing operations to be between $388 million and $391 million and income from continuing operations per diluted share of between $1.13 and $1.14 for 2005.

We expect that cash flow from operations for the fourth quarter will total approximately $24 million, and that capital expenditures will range between $2 and $3 million for the quarter.

In summary, the continuing operations of CSG delivered another quarter of strong financial results, along with solid operating cash flows.

We are focused on strengthening the ongoing business while continuing to deliver shareholder value and we would look forward to continued performance in future quarters.

I will now turn it over to the moderator for questions.

Thank you, sir.

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [OPERATOR INSTRUCTIONS].

One moment please for the first question.

Our first question comes from Tom Roderick with Thomas Weisel partners.

Please go ahead.

Good afternoon, thank you, guys.

Tom.

Wanted to follow up here, a few quarters back, we had an announcement on the fiber to the home, I believe coming from Verizon at the time.

Wanted to see what else you could offer in terms of an update of other wire line opportunities as we look at the business potential outside of the broadband sector as a whole.

What can you share with us about progress made or efforts made to get to some of the markets?

Well, we have, of course, the Verizon start-up, which is still in the early days and we have also been working with Qwest on the same type of product.

I guess probably the best thing I could say at this point, Tom, is it is still early days and we feel comfortable that we're well-positioned to help providers with this service, fits very nicely into our product mix.

And when you look at your product mix out there, you talked about M & A as a strategy by which you can grow.

Are there pieces of technology that you would look to add that can help you become more competitive on the traditional wire line markets there?

Well at this stage, we feel pretty comfortable with what we have but I would say there are always opportunities, if you will, that sit out there, that would extend some of the product into areas maybe where we don't have the sweet spot right now, and I think the key there is that our philosophy, certainly with our balance sheet and our ability to -- if you will, be flexible in choosing, we will very seriously use a build versus buy, and if buy is the right answer, we would do that.

Ok.

Good.

One last question here.

The number last quarter, you had a couple million dollar positive impact on the processing revenues.

Did you see any positive one-time impacts this quarter?

Tom, this is Peter.

You're correct.

In second quarter, we had about $2.1 million of one-time items.

There were no unusual items like that in the third quarter.

Great.

Very helpful.

Thanks, guys.

our next question comes from Liz Grausam with Goldman Sachs.

Please go ahead.

On the Broadband Division going forward, can you give us perspective on what you see the goal for your long-term operating margin?

I know many years ago, you operated north of a 30% operating margin.

Is this obtainable again in your view?

Liz, this is Peter.

I would tell you that I think the margins we experienced in past years will be difficult to duplicate.

When we think about the business, the gross margins that we're operating at today, we think are levels that would be difficult to expand, but as we grow the business, we think that we can gain some leverage on our SG&A and we would be looking to do that as the business grows, but trying to draw upon the historical levels that we've done in the past would be, we think, beyond the scope of what could be achieved, especially in the market we're serving today.

Okay.

And then on your ARPU numbers, which have been consistently strong for the last few quarters, can you give me some perspective going forward, how you expect to grow your ARPU?

What specific areas do you see that coming from, either increased voice over IP, or other new products you're introducing continuously to beef that up?

Well, Liz, there's two drivers of our ARPU.

One is price inflaters that we look to get as part of our contracts to take into account our increased costs year over year.

But probably more importantly, its increased usage of our product set.

That really comes across from multiple components.

Whether it be the voice services that we're starting to support for our clients, some of the web-based technologies that Ed commented on, or the field technician services that we provide, those all add to it, but we look to also get expansion through some of the statement processing and marketing services that we provide to our clients, our reporting tools.

Payment options that our clients have.

We look at all of those types of things to add to it.

I think it is a reflection that we don't have one or two items that are driving it, but a broader portfolio that moves that ARPU, and so I don't have any one area that I'm really looking as being the driver on it.

Lastly, on growing your subcount going forward, nonorganically, through new customer wins or market share gains in the U.S., what do you see as the biggest opportunity in the near-term horizon and then maybe longer term?

This is Ed.

We would probably be able to come up with the same list, Liz, in terms of who's out there that we're not doing.

We would consider all of those potential opportunities for us.

Although we're also very interested in expanding the relationships where we are in many of our accounts, and a shared environment.

Over time, that is something that we're setting out to do with regards to the Improvements we've made on our platform and the expansion of our product offering.

Any update on international markets you can give us?

Not at this point in time.

Okay.

Thank you.

Our next question comes from Thomas Ernst with Deutsche Bank.

Please go ahead.

Good evening.

This is actually [Joseph Borick] covering for Tom tonight.

Our first question tonight would be regarding our understanding that there was certain Kenan FX technology that was used in the ACP platform.

If we are right in that assumption, what will be the situation right now?

Are you going to be licensing those modules, or you are just going to create your own solution for that?

I think you have a misunderstanding.

The ACP platform was developed independent of the Kenan business and the Kenan assets.

Though there were certain assets that we were evaluating and looking to potentially bring to the market, but we've concluded that there's not anything of any substance that is really needed between the two.

We did take the opportunity over the last four years of the ownership, or close to four years of the ownership, to get some transfer of knowledge of the markets that Kenan historically had served and shared that amongst the two sides.

But it was not a technology transfer or technology leverage.

So, you would say at this point you won't be licensing anything from Comverse Technologies?

There is one asset that we're working and we'll be looking to use the revenue settlement product but it has not been built into the ACP platform.

It would stand separate from it.

Ok.

If I may follow up one other question, that would be -- regarding the EastLink win you announced, can you provide some more color in terms of what you expect to be the timing of this project when you expect to have revenue recognized from these guys?

As is typical with processing business, it takes a little bit of time to get the conversions to take place and it will -- can generally take anywhere from 120 to 180 days to get conversions completed, and so you would expect to have revenues from this client to start showing up in our financials in the middle of next year.

And so somewhere in late second quarter, early third quarter.

Ok.

Thank you very much.

Our next question comes from Ashwin Shirvaikar with Citigroup.

Please go ahead.

Hi, thanks for taking my question.

Ed, just, if I may ask you this, are you strongly committed to remaining an independent public company over the next several years, or would you consider other offers?

That's a loaded question, Ashwin.

Thank you.

I appreciate that.

I thought I would put you on the spot.

Well, first of all, you know, the Board is clearly given this Management team the charter to operate the business and grow shareholder value.

And that is what we're about.

As I mentioned, this transaction that we're in the process of completing was something that came up, that was really not expected.

With regard to what would happen over the longer term, you would never say never about anything.

But in terms of our approach to the business, it is to operate it as though we're going to operate it for the long-term.

Okay.

That is very helpful.

If I may have a follow-up, Peter, can you go through the historical BSS versus GSS cash flow dynamics, sort of looking at the working capital usage and Capex?

Let me kind of give you some general points on that, Ashwin.

And I don't know how much history I'll go back into but I can give you a perception of some general characteristics.

One, the business of GSS is not a Capex heavy business.

It is a business that, if you looked at our expectations, it is probably similar from an annual Capex of approximately $5 to $6 million is what our historical has shown.

A little over a million dollars a quarter, approximately.

From a cash flow perspective, cash flow from operations, one of the best things to look at is the -- in the financial statements, we show that from a GAAP operating margin that this is a business that had about a break even business for Q3 from an operating margin.

Within that, there's about $5 million of noncash charges and so, if you were to look at the impact of that, you would translate that to about $5 million worth of cash flow from operations that you could estimate excluding any working capital changes.

This is a business that the working capital has fluctuated up and down.

And so I think, to try to put any type of characteristic on the working capital is difficult for consistency and so I guess to summarize it, Ashwin, you would look at cash flow from Ops on a quarterly basis about $5 million a quarter, and then work -- assuming working capital is neutral, and then Capex, call it a little over a million a quarter.

So, free cash flow.

That's for GSS only.

The remainder of the business has continued to be a very strong cash flow business.

Ok.

Just to clarify, does the fourth quarter cash flow guidance include or exclude --

It does not include GSS.

It is for continuing operations only.

That's a great clarification.

Ok.

Thank you.

Sure.

Thanks, Ash.

Our next question comes from Mike Latimore with Raymond James.

Please go ahead.

Good afternoon.

On the GSS business, do you have a backlog number for the third quarter there?

We're only providing guidance for the continuing operations, Mike.

So, there's no financial information we're providing for the GSS side.

Ok.

And then just for housekeeping, what was the revenue and EPS number first quarter, second quarter for continuing ops?

One second.

I'll get you comparables for that.

So, for the continuing ops in the first quarter of this year, one more page.

The revenues, consolidated revenues for the total revenues for continuing ops were $95.7 million, and the income from continuing operations on a EPS basis or diluted share basis was about $0.24.

For the second quarter, the total revenues for continuing operations were $99.3 million.

Remember to note that there was about $2.1 million worth of one-time revenues in there associated with a contract and bankruptcy settlements.

And then from an EPS perspective, the income from continuing ops on a diluted share basis was $0.30 per share.

And there would have been approximately two sets of EPS value associated with the contract settlement.

So, you might want to look at those on a normalized basis.

Ok.

Thank you.

Sure.

Our next question is from Michael Turits with Prudential.

Please go ahead.

This is actually Sylvia in for Michael.

Is it possible to get a revenue breakout the way you guys used to provide it with software maintenance and service separated?

For the continuing operations --

I'm sorry for both GSS and broadband?

Of how the consolidated revenues would have looked for the Company -- I can give you a total revenue number on that.

Total revenue including the continuing and the discontinuing operations would have been $141.4 million, and of course we reported that the EPS for the continuing and discontinuing operations together or the net income was $0.28 per share.

Ok.

Thanks very much.

Our next question is from Donna Jaegers with Janco Partners.

Thanks for taking a question.

Can you give us a road map on what you have planned as far as the ACP roll-out with your other customers and to date, is that pretty much Comcast was the first customer to roll on to ACP, is that correct?

Donna, they were the -- they did the first migration last December in one of their regions, yes.

So, they were the first.

They account for about $11 million of the $22 million subscribers that are currently on ACP.

And the other $11 million, can you give us splits, how much is Time-Warner and other companies?

I wouldn't have it on the top of my head.

It is probably spread equally amongst the rest.

Everyone has moved a portion an , has scheduled.

The one thing that I might point out, Donna, is the -- we may have a little bit of a delay versus our original plan, because of the Adelphia transaction and so that might slow down just based on getting them in the right property before any migration takes place.

Ok.

And your plan is -- do you have a year-end goal as far as numbers on the ACP?

I haven't looked at the year-end numbers but you know, originally, we had hoped to have the most of it done by the middle of 2006.

And would hopefully be pretty wrapped up clearly by the end of 2006.

And would the satellite customers be -- would ACP be relevant for them?

Not as relevant as it is for the other folks.

So, that may be -- that may or may not be one that transitions.

Okay.

Thanks.

our next question comes from Gil Luria with Wedbush Morgan.

Please go ahead.

Calling for Scott Sutherland.

Wanted to follow up on ACP.

Reported 22 million converted by the end of the quarter.

How many had you had converted by the end of Q2?

We're checking.

Hold on.

We're going to have to follow up on that.

I don't have the Q2 book with me.

Let me ask the follow-up to that.

Of the customers you've already converted, are you seeing a material difference in the ARPU for those customers versus the customers that you have not yet converted?

Are you already starting to see the fruits of that -- being able to offer those advanced services?

We see -- we don't see it so much on the ACP sites versus the non-ACP sites.

We're seeing a shift toward incremental ancillary spending with us from our clients, as they're focused on customer support and roll out of new services.

Of course, ACP by itself does not trigger an incremental direct revenue component.

Our clients just focusing on the marketing of services and how they support their clients.

One area that you could see also indirectly coming through is of some the voice services as people are going on to ACP and their ability to bundle, we'll start seeing some of the incremental voice services but at this point, there's still not significant dollar amounts.

Another unrelated question.

You were able to take a lot of the overhead out with the unit that's being discontinued.

Are there any further cuts planned for this overhead?

We don't have defined cuts, though we have always looked at managing our expenses in all parts of the business including the corporate support functions carefully to make sure that we're getting good leverage on those expenses and so we'll continue to look at that as just part of the management of the business.

Great.

Thank you very much.

Thank you.

Our next question comes from Marianne Wolk with Susquehanna.

Please go ahead.

Yes, had a couple of questions.

First of all, usually around this time of year, you give us an update of what percentage of your subscribers need to be renewed for '06 and what percentage you've already renewed, I was hoping you could do that for us.

Secondly, is it too early to start thinking about the number of ACP customers that are currently using telephony, services and could you provide that information to us?

Thank you.

Ok, this is Peter.

First of all on the contracts up for renewal in 2006, there is really only one significant client up for renewal next year and that's Echostar which comes up at the end of the first quarter.

And I'll go ahead and comment that -- because I think the question will follow-up somewhere on the call.

There is active renewal discussions going on and as we always like to say, we start renewal the day after we sign a contract.

So, we are in the midst of that continuing process to extend the Echostar contract.

The second question had to do with the breakout or reporting of what the voice subs would be for our clients.

We won't report that because we don't consider that a financial driver for the business of significance at this point, and we consider it a bundle at this point when we're providing our services to our clients.

Since we would all like to monitor that in terms of how entrenched they are on the platform, is there any way to characterize how that is building?

From a platform perspective --

ACP is 22 million.

I think she's asking about the telephony.

I think the best way to gauge that is by looking at how our customers report their telephony subs.

Ok.

And then applying a mathematical equation to say if we have X percent market share.

Do you get -- share several of your customers with other vendors?

Do you get the sense that, you know, for example, all of Comcast is moving at the same rate towards telephony, all of Time-Warner, or are you moving them more quickly?

Is there any way for us to gauge that?

I think it is market by market as they roll out the services so I don't think you can look at one vendor such as ourselves as pulling a client through a marketing stronger than another one does right now.

But we do believe that with ACP, we have the best platform in the market to do it.

But there's other factors that go into play with the carriers and that's going to be -- with the cable companies and that's going to be where they are best positioned for the roll-out of a service, not just including their customer care and billing platform.

Ok.

Thanks very much.

Our next question is from Josh Wilson with OMT Capital Management.

Please go ahead.

Hi, guys.

Just wondering if you could give ICMS revenue for Q2 and for Q3.

Yes, one second.

I think we have that handy.

ICMS for Q2 and Q3.

Yes.

It has been about $2.5 million a quarter.

Pretty consistent?

Yes.

So, does that mean that the maintenance and professional services line dropped off Q3 over Q2 on the broadband side?

No, the maintenance business on the broadband side has been consistent.

What you see us reporting on our continued operations for Q3, of that approximately $9 million worth of revenues is reflective of the maintenance, some software license fees, as well as the services work.

We did see a -- in the first half of this year, and including second quarter as well, strong license revenues associated with the business of the continuing operations and so, for the third quarter, there was lighter software license revenues than what we saw and I think we've commented in the past that we thought the license fees would decline relative to the first half the year.

Right.

Ok.

Thanks very much.

Sure.

our next question is from [Yare] Reiner from CIBC.

Please go ahead.

Hi, guys.

Did you see any impact, one-time or continuing from Katrina?

Kind of the supported number of subs in the affected areas.

Not really anything that was substantial in terms of our operations, certainly our clients were impacted in varying degrees.

But from our perspective, it wasn't anything material.

Ok.

Thank you.

Second question, in terms of ACP, as I understand it, Verizon and the service it is planning right now is not really doing IPTV per se.

If it decides to migrate to IPTV in the year, does your arrangement with Verizon cover that eventuality?

I think it does, yes.

Our business with Verizon is for their finer to the home video services so that would entail the IPTV.

Very good.

Thank you.

[OPERATOR INSTRUCTIONS].

Our next question is a follow-up from Donna Jaegers with Janco Partners.

Please go ahead.

Hi.

I was just curious on obviously there is a lot of rumors around that cable guys are close to signing NVNO agreements with Sprint and rolling out wireless.

How capable do you think your billing platform is to roll out that type of service and would they have to be on ACP to simplify that?

Donna, eventually, all of the clients will want to move to ACP, and I think clients that -- it would be to their advantage to be on ACP, because of its added capabilities for multiple product bundles.

So, from that perspective, they need to go to ACP.

From a perspective of if we're ready, we really feel as though we can support their requirements, I'm sure there will be some work to do once it gets more specific but at this point, it is kind of early days.

Are you guys involved in the Time-Warner cable test in Kansas City?

No.

Ok, thanks.

At This time, there are no further questions.

I would like to turn the conference back over to Management for any closing comments.

Thank you very much for joining us today.

We appreciate your support and your interest in CSG and we look forward to talking to you again soon.

Thank you.

Ladies and gentlemen, this now concludes the CSG Systems Q3 earnings conference call.

If you'd like to hear a replay of today's conference, you can dial 303-590-3000 with the access code 11039888.

Thank you again for your participation.

You may now disconnect.

Thank you and have a pleasant rest of the day.