CSG Systems International Inc (CSGS) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the CSG Systems fourth-quarter earnings call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Tuesday, January 23, 2007.

I would now like to turn the conference over to Roger Metz, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Rob.

Today's discussion will contain a number of forward-looking statements.

In particular, around any financial projections, our ability to meet our clients' needs through our products and services and performance, our ability to maintain good customer relations and our ability to successfully integrate and manage acquired businesses or assets 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 actual results to vary.

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

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 Web site.

Today we have with us Ed Nafus, our Chief Executive Officer, Randy Wiese, our Chief Financial Officer, and Peter Kalan, Executive Vice President.

Ed will begin.

Thank you, Roger.

And thanks to all, for joining us.

Today we will talk about some of the CSG's recent successes, review our results for the fourth quarter and full year 2006 and share with you our expectations for 2007.

We are pleased to announce another strong operational quarter at CSG.

Our fourth quarter 2006 revenues were approximately $96.6 million, which was within the expected range of the financial guidance we gave in October.

Our income from continuing operations came in at $0.30 per diluted share, which is reflective of a one-time $0.04 per diluted share impact related to an income tax matter that was not anticipated in our financial guidance for the quarter.

Absent this item, our EPS would have been within the range of financial guidance.

Randy will talk in greater detail about our financial results in his remarks, but first I'd like to provide a few examples of recent CSG successes.

We helped our customer include our customer care capabilities.

We recently introduced a product that expands our Care Express capabilities to kiosks so that our clients can offer consumers the flexibility to walk into retail locations and electronically manage their accounts, sign up for new services, or pay their bill with cash, credit or check.

We launched a pilot of this technology in January and anticipate exceptional results.

We were recently engaged by one of our large clients to implement our new order work flow capabilities.

These features will streamline processes in their call centers and will provide additional functionality around the deployment of advanced services.

In December, we successfully converted Eastlink, a regional Canadian cable operator to our ACP platform.

At this new client we are supporting their triple-play video, data and voice offerings.

We also renewed our contract with Liberty Cablevision of Puerto Rico for five years.

We have continued to migrate existing subscribers to our next generation of Advanced Convergent Platform, which gives them the full benefit of our technology to support their roll outs of new services.

We now have approximately 29 million subscribers on this solution, which represents approximately 90% of the cable subscribers we serve.

We still anticipate having all of our cable subscribers on the ACP platform by the end of 2007.

We continue to support the highly complex transition of Adelphia subscribers to Comcast and Time Warner sites.

This process will extend through the first half of 2007.

It continues to go well, and, as previously stated, we expect the transaction to be roughly neutral to CSG in terms of subscriber volumes.

In November, we announced the addition of Ron Cooper to our Board of Directors and we're pleased to have him as a member of our team.

With nearly 25 years in the cable TV business, Ron is very well known and highly respected throughout the industry.

His leadership, through both the exciting times and challenges of the cable industry's evolution will allow him to provide CSG with very relevant insight, as we continue to shape CSG's future and as we help our clients to evolve and expand their product offerings.

Next I'd like to provide some qualitative insight into some of the things that are taking place in the industry and how CSG is helping our clients keep pace with such changes.

In addition, I'll talk about the investments we are making in our business to support that growth.

CSG remains focused on serving the needs of our core customer base.

Those companies with their roots in cable and satellite video services.

We have the most widely deployed and proven customer care and billing platform serving those markets.

But as you know, the broadband service providers have evolved into much more than simple video.

They have experienced successes in digital video, high-speed data and now they are becoming very real competitors with their accelerating successes in Voice over IP.

The MSOs are now looking to expand into services to small to medium-size business customers.

Their offerings are expected to consist primarily of voice and data services, but in some cases video as well.

Clearly the industry has changed significantly over the last several years and future changes are expected to occur at an even greater pace.

We view change as opportunity at CSG, and as our clients grow they will continue to need more robust customer care and billing functionality to manage their increasingly complex customer relationships.

This becomes even more important as they feel the competitive pressures from companies that are beginning to encroach on their core video business.

CSG's value proposition is to provide solutions that help our clients ensure that every interaction they have with their customers is an opportunity to create value or deepen the business relationship.

We will continue to seek out technologies and functionality that would be additive to our current suite of offerings.

We anticipate growing along with our clients in several ways in 2007.

First, we expect to benefit from our clients' traction with Voice over IP and the deployment of other new services, such as business services.

Next, we will increase penetration of existing products and will sell our newly developed products and services to both existing and to prospective customers.

And finally, we will continue to look for new ways to support our clients and may attain these through organic development, partnerships or acquisitions as appropriate.

As you will see with Randy's guidance, our growth will require continued investment in our business to ensure that we stay ahead of our clients' needs, not just for 2007, but as we look ahead to 2008 and beyond.

These investments will primarily take the form of staffing, for research and development, as well as the scaling up of certain operational capabilities to support this growth.

I would like to share with you some tangible examples of the investments we are making in our business.

Our clients will begin to benefit from some of our recent research and development efforts, as CSG begins rolling out enhancements to our already proven and widely deployed Advanced Convergent Platform.

These enhancements will incorporate, among other things, functionality from the COMX platform we acquired with Telution in 2006.

These capabilities will give our customers more versatility around product configuration, offer management and order flow workflow capabilities to handle the increasing complexities inherent in serving business customers, as well as the increasing variety of residential service bundles.

In addition we are making the necessary investments in our hardware and software infrastructure and related support functions to enable our clients to continue to grow their Voice over IP and commercial services offerings.

We believe these investments will bear fruit for us on the revenue line as our clients achieve critical mass later this year with their Voice over IP offerings and into 2008 with things like business services and expanded content delivery models.

We are at a very exciting time in the evolution of CSG, as well as the evolution of the cable and satellite TV industry.

We have the best and most-proven products and services in the business, a very focused commitment to our customers and industry, and an extremely talented team of employees.

Collectively, these are the things that will carry CSG and its clients into the future.

Thanks for your support in 2006, and we look forward to delivering continued strong results in the coming year.

With that I will turn it over to Randy Wiese, our CFO, to review our fourth-quarter and full-year financial results, as well as our 2007 financial guidance.

Randy?

Thank you, Ed, and welcome to all of you on the call today.

I'm pleased to share with you today the financial results for our fourth quarter of 2006, as well as our outlook for 2007.

Total revenues for the fourth quarter of 2006 were $96.9 million, up 4% when compared to $93.2 million for the fourth quarter of 2005, and down 2% when compared to $98.5 million for the third quarter of 2006.

Looking at the components of total revenues, processing revenues for the fourth quarter were $87.3 million, relatively unchanged when compared to $87.1 million for the same period last year.

However, down 3% when compared to $90.3 million for the third quarter of 2006.

Software maintenance and services revenues were $9.3 million for the current quarter, which compares to $6.1 million in the fourth quarter of 2005, and $8.2 million for the third quarter of 2006.

The sequential decrease in total revenues and processing revenues between the third and fourth quarters of 2006 relate primarily to the impact of Comcast and Time Warner's acquisition of the former Adelphia subscribers in the third quarter.

If you recall from last quarter, we recognize $2.8 million of one-time revenues related to the former Adelphia subscribers upon the closing of the transaction in the third quarter.

In addition, beginning in August 2006, these former Adelphia subscribers were billed at the lower per unit pricing than our Comcast and Time Warner contracts.

The total impact of these matters resulted in lower revenues related to the former Adelphia subscribers of approximately $3.5 million in the fourth quarter when compared to that of the third quarter.

In summary, the impacts of the Adelphia transaction ended in the third quarter and, as a result our fourth quarter results are the first full quarter of which the ongoing effect of these subscribers were reflected in our results.

Comcast continued as our largest client, comprising approximately 26% of the company's total revenues for the fourth quarter.

EchoStar represented approximately 20% for the company's total revenues for the quarter consistent with the third quarter.

We finished the fourth quarter with 45.4 million subscriber accounts on our processing system.

The average annualized revenue per subscriber, or ARPU for the fourth quarter was $7.72.

This compares to the third quarter 2006 ARPU of $8.08.

The sequential decrease in ARPU between the third and fourth quarters relates primarily to the Adelphia matters discussed about above.

The $3.5 million sequential decrease in revenues related to former Adelphia subscribers equates to the sequential reduction in ARPU, of approximately $0.30 between the third and fourth quarters of 2006.

The fourth quarter 2006 gross margin was approximately 49%, compared to the prior year's gross margin of 47% and 49% for the third quarter of 2006.

The operating margin for the fourth quarter 2006 was approximately 21%.

This compares to 23% for the third quarter of 2006.

If you recall from last quarter, we expected our operating margin to come in at approximately 22% for the fourth quarter, primarily due to lower anticipated revenues in the fourth quarter and due to an expected increase in our R&D and support function costs to address the opportunities we see with our clients' changing business needs.

Our 21% performance for the quarter came in slightly less than our expectations, as we added certain resources sooner than previously anticipated.

Income from continuing operations for the fourth quarter 2006 was $14.1 million or $0.30 per diluted share, which compares to $0.09 per diluted share for the same period last year and $0.37 per diluted share for the third quarter of 2006.

The $0.30 of income from continuing operations per diluted share for the fourth quarter came in below the lower end of our guidance of $0.34 to $0.36 per diluted share primarily, as a result of the higher than expected effective income tax rate for the quarter.

Our effective income tax rate was 42% for the fourth quarter of 2006, which is higher than our previously expected 35% effective rate, resulting in an approximately $0.04 per diluted share impact that was not anticipated in our financial guidance for the quarter.

Absent the impact of this item, CSG would have achieved the bottom end of its earnings per share guidance for the quarter.

The higher than expected income tax rate for the fourth quarter was primarily as a result of a correction of minor income tax expense items from previous periods that were not considered material to the current or past periods, giving consideration to the guidance in the SEC's, staff accounting bulletin number 108, and thus were recorded in their entirety in the fourth quarter.

The accounting correction in these items is considered one time in nature and is not expected to materially impact our estimated income tax rate going forward.

The financial results for CSG include several non-cash items.

For the fourth quarter, stock-based compensation was $3.1 million, depreciation expense totaled $2.8 million and amortization of intangible assets was $4.3 million for the fourth quarter.

These non-cash charges totaled $10.2 million for the fourth quarter, or $0.13 per diluted share.

As we did last quarter, we had some accounting activity related to our discontinued operations.

During the fourth quarter of 2006, CSG recorded an income tax benefit from the true up of certain state income tax items related to our former GSS business, which was sold to Comverse in December, 2005.

The previous accounting for these matters was appropriately based on various estimates.

With the filing of the various state income tax returns during the fourth quarter the determination of the actual benefits due is now certain.

As a result, CSG had a gain from discontinued operations for the fourth quarter of 2006 of approximately $1 million, or $0.02 per diluted share.

Turning to the balance sheet, as of December 31, cash and short-term investments totaled approximately $415 million, consistent with that from the previous quarter.

Our net trade billed accounts receivable totaled approximately $110 million, which is also relatively consistent with the previous quarter.

The billed trade accounts receivables reflected days billed outstanding or DBOs of approximately 64 days for the fourth quarter, which is within our target range of 55 to 65 days.

As of the end of the fourth quarter, the company had $230 million in continued convertible debt outstanding which matures in 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 scheduled put-or-call option for redemption of these securities is in 2011.

Cash flows from operations for the fourth quarter were slightly higher than we had anticipated at $28.9 million.

Consistent with our most recent expectations for the quarter, we purchased approximately 756,000 shares of the company stock under our stock repurchase program during the fourth quarter at a total price of approximately $20.5 million, or approximately $27.13 per share.

CSG has purchased approximately 1.6 million shares for $42.4 million, or approximately $26.90 per share towards our planned $350 million stock repurchases that we announced in August, 2006.

The number of shares repurchased on our stock repurchase plan is based primarily upon predetermined factors that were established when we implemented our plan in August, 2006.

These factor are evaluated on a periodic basis for possible adjustment.

Over time, there will likely be some variability around the share repurchases based upon changing market conditions.

We remain committed to putting the $350 million of stock repurchases, but the time period to complete this is now expected to extend beyond the original estimate of 12 to 15 months due to various market factors that have impacted the pace at which we have bought back our shares.

Next, I would like to provide you with an overview of our financial expectations for the first quarter and full year of 2007.

For the first quarter, we expect revenue to range between $97 million and $99 million.

We expect full-year revenues to range between $398 million and $406 million.

This reflects year-over-year top-line organic growth of approximately 4% to 6%, which is consistent with the targeted growth rates we have shared with you in the most recent quarters.

This growth is expected to come primarily through our delivery of additional products and services to our clients to support their bundled residential and commercial service offerings, and from our clients' increased penetration of their customer base with new service offerings such as Voice over IP.

We expect our operating margin for the first quarter to be approximately 21%, which is consistent with that of the fourth quarter.

We expect our operating margin to expand slightly over the second half of 2007, as we grow our revenues, such that our full-year operating margin is expected to be approximately 22%.

This operating margin is consistent with our previous expectations for 2007, and is reflective of our commitment to expand our R&D and support function expenses in order to address the opportunities we see with our clients' changing business needs.

We expect our effective income tax rate for the first quarter and full year 2007 to be approximately 37% to 39%.

We expect income from continuing operations for the first quarter will range between $0.32 and $0.34 per diluted share, with full year expectations ranging between $1.41 and $1.49 per diluted share.

Our quarterly and full year earnings per diluted share estimates are dependent upon our outstanding diluted shares amounts.

At this time, our EPS gains will repurchase five million shares of our common stock under our stock repurchase program ratably during 2007.

However, the actual amounts and the timing of such repurchases are highly dependent upon various market factors.

As a result, the amount and timing of share repurchases can vary significantly between quarters, or from this full year assumption.

Absent any unexpected unusual fluctuations in our working capital items, we expect cash flows from operations for the first quarter will range between $20 and $22 million with full year expectations ranging between $110 and $118 million.

The lower cash flow estimate for the first quarter, when compared to our more recent quarters, relates primarily to the expected payment of the 2006 year-end management bonuses during the first quarter.

We expect CapEx will range between $15 and $18 million for the year.

This level of CapEx is higher than our 2006 amount and is another indication of the investment we are making in our business.

Our 2007 CapEx consists primarily of hardware and software infrastructure to support our clients expanding business needs.

And in our statement production equipment to continue to offer enhanced functionalities to our clients in this area.

Non-cash charges led to depreciation and amortization and stock-based compensation for the first quarter are expected to be approximately $9.4 million, or $0.13 per diluted share, and are expected to be approximately $40.9 million, or $0.57 per diluted share for the full year 2007.

In summary, our business continues to perform very solidly and we are making the necessary investments in R&D and other support areas in order to strengthen our business performance and support our clients as they expand their business.

Through these efforts we believe we can grow our business and continue to deliver shareholder value.

We look forward to reporting continued successes in the coming quarters.

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

[OPERATOR INSTRUCTIONS]

First question comes from Liz Grausam from Goldman Sachs.

Please go ahead.

Hi.

Given your cash position now and expectation of another $100 million in free cash flow that your going to generate, can you share with us what are the factors that you really do consider in your repurchase activity, because 5 million shares still seems to be fairly low given how much cash you have sitting on the balance right now?

Liz, keep in mind the 5 million shares is kind of the assumption we used in the EPS guidance for the year.

That number can be significantly higher or significantly less than that dependent upon various factors and those factors can consist of market conditions.

It can consist of whether or not we make changes to our 10b51 parameters or if we decide to make some purchases in the open market.

So there's many factors that will determine whether or not the five million is greater or less than that amount.

Does that answer your question?

Sure.

And then just on your R&D spending, certainly the budget came in a little bit higher than we'd expected.

Can you help us just understand what products you are in development right now?

Are they for specific customers, or are they in anticipate of customer demand going forward?

And when we might start to see some revenue upside as a result of those investments?

I think Ed alluded to a couple of those in his discussion and I can give you a little bit more detail.

Some of the things we are working on is the continued development in evolution of our ACP product to include such things as enhanced order work flow tools, which helps our clients streamline call center processes.

As Ed mentioned we are working on some kiosk and cash payment interfaces for retail locations.

We are working on some enhanced product configuration and order management tools.

We are working on new work force automation functionality.

An example is we now have the ability for a call to go to the subscriber prior to the truck rolling to the locations to ensure that there is someone at the location.

Enhanced reporting around our business decision support tools.

And also, as you heard a lot of the MSOs are targeting commercial services, business services, so we are enhancing our products to address that.

We'll continue to enhance our products to increase the functionality around our Voice over IP offering.

So those are some of the items.

I think some of those are driving our revenue growth for 2007 and clearly will be some expectation of revenue growth beyond '07.

Thank you.

Thank you.

Our next question comes from Ashwin Shirvaikar from Citigroup.

Please go ahead.

Thanks for taking my question.

Questions on guidance, clearly you guys are delivering on the revenue front relative to what you promised a year ago.

But the price for revenue growth seems to be lower margins, which is not quite customary in a scale business.

Can you comment on, outside of the R&D, what's going on in -- what's the assumptions for gross margins and so on that go into your margin guidance?

I'm sorry, Ashwin.

I would say two things.

One is, there is a significant investment in R&D, so that is putting some pressure on the profitability.

Also on some of these products we are making investments early on in both the hardware/software assets that are necessary to roll these products out, as well as building the infrastructure support staff to support these.

So, we generally get more scale in these products as they become more mature and our clients get greater use of those.

So, we are early in the product life cycle on some of these, which is why I think you see some depression in the operating margin.

Do you see R&D as a percent of revenues ramping down at some point in 2007?

I think right now you should expect R&D to stay pretty high in '07.

We did a little over 13% of our revenues this past quarter, this past fourth quarter.

I think you should probably expect it to be in that general range during '07 as well.

Okay and could you review the economics of the incremental services being supported.

So what's the ARPU on business services and in Voice over IP?

If you can break that down.

We generally don't break it down to that level of detail, Ashwin.

The other thing on commercial services, just to kind of note, our former measure of ARPU may become somewhat obsolete with the definition of commercial services as the fee that we will receive will not have necessarily a correlation to the subscriber.

It may be number of lines, or some other metric.

So, our ARPU measure around that may not be relevant going forward as well.

How big is that business for you today?

Right now it's very, very small for us, just as it is for our clients.

They are expecting to grow in later '07 and roll out their business models and have some success in '08 and you should expect our revenues to somewhat follow theirs.

Okay.

Great.

Thanks.

Thank you.

Our next question comes from Scott Sutherland with Wedbush Morgan Securities.

Please go ahead.

Great.

Thank you and good afternoon.

First question I had is what percentage of revenue were your top four customers in Q4?

Similar to the previous quarter, about 70% of our revenues come from our top four customers.

Okay.

Great.

As you look at the cable market or the broadband market and there's been some consolidation, how are you targeting to withstand any further consolidation in that market?

You're looking at other verticals beyond just broadband at this point?

Scott, this is Peter Kalan.

The way we are looking at our businesses is, we, one, we believe we have to be very relevant and true to our core customer base first, because they have so much activity going on.

We want to make sure we invest appropriately to make sure we can continue to support them as their business needs and their business models evolve.

But at the same time, as we look at expansion of capabilities in what we either build, partner, or buy, we are looking for solutions that would have applicability towards other vertical markets so that we can get some synergies with some of the other capabilities that we already have, because we have a very broad set of capabilities around what we can do in helping clients manage their customer interactions.

And so we are looking at acquisitions and partnerships as ways to help us get some broadening of the markets we serve.

My last question was you had a nice little uptick in the software market.

Obviously you got out of the major part of your software market a year ago.

What's your focus on this market and how do you kind of expect this to bounce around in future quarters?

I think Q4 we had a couple of very nice software transactions and that may not be entirely recurring in that nature.

I think, though, you can probably look at Q4 as kind of the expectation of what it should be in '07 as well.

Great.

Thank you.

Thank you.

Our next question is from Larry Berlin from First Analysis.

Please go ahead.

Good afternoon, guys.

Hope you're doing well.

Hi, Larry.

Hey.

Just a couple of questions.

One, during your comments you said you had used some resources that had you not expected, just curious what you had used and towards what.

What I meant by that comment, Larry, is we've been building our workforce to kind of keep pace with the R&D requirements, and we were able to find a lot of qualified applicants and we hired them slightly sooner than we had anticipated.

That's what I meant by the comment.

Okay.

Great.

And the other question, there's a little bit of variability in your gross margins from this quarter going back to the last.

Just curious if you can run through that a little bit, especially on maintenance and services.

I think if you look at our overall gross margin it's been pretty static throughout the year.

It's been 49% in Q1, it was 49% in Q3 and 49% in Q4.

The one core that kind of sticks out is the second quarter, which is about 51% overall and I think that was just a mix of the revenues for that quarter, as well as at differing times some of the our costs for people that flow into cost of goods sold, sometimes will flip over to R&D, based upon how the project has progressed.

So, I think if you look at for the year, which is 49% that's a pretty good indication of where our gross margin should be going forward.

Okay.

Then for the maintenance software and services, I assume the extra, you just referred to some extra license sales and I assume that that's what helped the gross margin there go up a bit.

For that individual set of revenue, yes.

Yes, for the fourth quarter.

Yes, [costs were] relatively flat between periods.

Okay.

Great.

And then your answer to Scott's question this would be then coming -- you don't expect to see this recur?

Or these extra sales recur.

I think the one time nature of those sales will not recur, but we do see some growth in other software sales going into '07 such that the fourth quarter run rate should be somewhat reflective of what we expect for '07.

Okay.

Great.

Thank you very much, guys.

Have a great evening.

Thank you.

And our next question comes from Tom Roderick from Thomas Weisel.

Please go ahead.

Hi, guys.

Good afternoon, thank you.

Just wanted to ask a question here on Comcast.

Historically, you've given just some metrics around market activity and things that you're doing with Comcast that gives you comfort that as the revenue minimums expire here at the end of 2006, you feel you're in as good, if not even a better position, to continue to serve this customer.

Can you update us on some of those metrics?

Perhaps it's how they are installing Voice over IP, or other ancillary services that are extending your footprint within Comcast?

Sure, Tom, this is Ed.

Obviously, we can't get into too many specifics on their behalf, but we've continued to roll out the work force product to the entire footprint that CSG serves.

As well, we've continued to roll out Voice over IP in all of the regions that CSG supports that they have chosen to roll out over the past year, as well.

So, from those two perspectives, the self-care business has also continued to grow nicely within that footprint, so that's another strong indicator that the adoption rate is very good with the products.

And, in general, the working relationship in terms of building the road map to go forward and working together on product development has been excellent.

So, we feel very good about it.

Okay.

And did you say that 26%of revenues came from Comcast this quarter, or was that for the full year?

That was for the quarter and that slight uptick is primarily related to the Adelphia subscribers, if you recall.

They acquired some of those subscribers, so that was one of the reasons as why the revenue went up.

It was 26% for the quarter.

Right.

Great.

And last question for you on just the integration with Telusion.

It seems as that's been a nice positive for you as far as being able to roll out additional services to your platform, but also we're seeing an uptick in R&D.

Are those two related and do you feel like you're getting the synergies on the cost side with Telusion that you had hoped, or is this an area where you are seeing some talent and you want to continue to invest in that talent?

Tom, this is Peter.

We've been extremely pleased with the acquisition of Telusion that we took -- finished in the first quarter of last year.

It has increased to some of the increase in R&D, as Randy referenced, in that we've been very focused on taking the technology assets that we acquired from Telusion and infusing them into our next generation platforms that are helping drive business services, as well as the offer management capabilities that our clients are going to be needing in their coming periods.

In Portland, we've also been very successful in taking the management team that was in place and making sure that they are integrated into CSG in a key roll, so that we are infusing new ideas into the company.

And from a cost integration standpoint, I will speak on Randy's behalf, we've achieved everything we expected to from that as well on time and have been very pleased with the overall success of this acquisition.

That's great.

Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from Peter Jacobson with Kauffman Brothers.

Hi.

Thanks.

Just a question on the competitive landscape and specifically relative to Mbox's release of Mbox 7, which they've discussed as being focused on the broadband space.

Can you kind of describe some of the comparisons between CSG's new functionality versus Mbox's new functionality?

We typically as you know don't comment on competitors announcements or their business, necessarily.

We certainly view them as a very good competitor and a good company.

In referring to any comparisons, certainly for us what's most important is the response for and on behalf of our clients to the need to continue to roll out new services in an effective, efficient and cost-effective manner, which is really where our focus is.

And, as is the discussion has pointed out as we've gone along, we've done a good job of supporting our customers, and we are working very closely with them as we look at the road map for the future of what's going to be required to compete with all of the people that are out there engaged in this business.

We like our position.

We have an excellent footprint.

We have made some excellent progress with our ACP platform, but we by no means consider that the end game.

The work that Peter has mentioned that we are doing with the Telusion assets to continue to develop the product in concert with that is ongoing, and, as I mentioned, the work that we will do moving forward directly in communication with our clients is probably the more key thing.

In summary, we like our position.

We don't take anything for granted.

We will assume that they will do very well in what they accomplish and we expect to do the same.

In terms of, I guess, there's no further perspective in terms of the approach that they take, maybe perhaps more customized, or price range, or packaged approach, no further clarifications on the differentiation that you might explain to a customer?

There might be some that we'd explain to a customer, but at this point I think it's pretty early to tell in terms of exactly how that will play out.

Okay.

I appreciate the feedback.

Thank you.

Sure.

Our next question comes from Ashwin Shirvaikar from Citigroup.

Please go ahead.

Hi.

Question's for Ed.

I just wanted to follow up on a question we have had before in terms of, what's the end gain for CSG in terms of, obviously mid single-digit growth in revenue is flat and possibly declining margins but very good cash generation.

And what are you doing with your cash is just putting it back into your base, and you don't really -- Why do you need capital markets?

Why stay public?

Once again, that's not a question that's entirely up to me, obviously.

As I've said before when you've asked the question I think we would be open to whatever the desires and the various pressures from whatever constituency comes forward.

But in the meantime what we do is concentrate on trying to build things that will create a strong solid future for the business.

Does that imply that you've not had discussions about going private?

If I did I couldn't tell you.

That's really something that's hard to discuss.

Okay.

Fair enough.

Thanks.

Thank you.

Our next question comes from Donna Jaegers from Janco Partners.

Please go ahead.

Hi, and thanks for taking my questions.

Probably, these questions are best for Randy I guess.

Usually you talk about what ARPU you expect going forward, especially like in Q1.

Either I missed it, or you guys didn't mention it.

Do you have a number there?

I didn't mention it, Donna.

If you kind of back into the numbers in the guidance I gave you, you should come out with about $7.90 to $8.05 for Q1 '07.

And we typically don't give guidance on ARPU outside the first quarter.

Okay.

Great.

And then on the 5 million share assumption that you've built into the EPS, that would be an average of 5 million shares bought over the year?

I would assume that we'd buy it ratably across the year, so approximately 1.25 each quarter and bought ratably across that quarter.

Great.

Thanks, Randy.

Thank you.

And our next question comes from Scott Sutherland of Wedbush Morgan Securities.

Please go ahead.

Okay.

Thank you.

Just another question on your guys' attempts to drive some organic growth.

When you look at your business are you more just trying to protect existing customers and sell more products and services into them, or do you see a bigger opportunity to target newer customers whether in cable broadband or other verticals?

Scott, this is Peter again.

We have been successful over the years of delivering more functionality to our clients and helping them deliver new services and through that generate growth in revenues for us and growth and profits.

It is a consolidated market in the United States, whether you take it from the traditional cable and DBS providers, or whether you take it from the telcos, so there is a diminishing number of providers and we think it's extremely important that regardless of whichever communications provider we are providing a functional product to, that we have deep relationships with them.

So you are going to see us continue to look to get more products into our clients.

As a general thought if you think about what our clients are focusing on, their focusing on two things.

They are focusing on delivering additional services to their end customers and enhancing the customer service experience, or the customer service quality.

And through that, our clients are looking to create greater value with their customers and deepen those relationships, because they are in their own battle in this competitive marketplace that they are in.

As our business is, we seek to be involved in as many interactions between our clients and their customers as we can be.

Whether that's a new service being delivered or whether it's a -- helping the customer service reps in their call centers improve the customer service experience.

Whether it's the field technicians that come to your home to do an install or service.

We are looking to make sure that those individuals are positioned to create the best experience and the best service quality for the end consumer.

Additionally from a service quality perspective, customer service quality perspective, our clients customers do a lot of interactions directly through the Web and we are looking to help make that a better interaction and better touch points, whether it's through the statements, whether it's through electronic bill presentment, or whether it's through some of the things we talked about where it's going to be a kiosk where the customer can go up directly and self-serve themselves in some type of retail location.

We recognize it is important to help facilitate that quality customer service experience and we do that on many, many fronts today and we will continue to look to expand that as we go forward.

It's through those types of capabilities that, when I answered your previous question, that that may lead us to other verticals that we've traditionally not been into.

And it's how we take these additional touch points and capabilities that we have around managing customer interactions is what's going to help us move forward into other places than we have traditionally been.

So we look at the markets we serve as they are, they are concentrated in clients and it's a double-edged sword.

We've got a great market position and it's clients that we can get deep with, but it also causes us to have concentration of revenue.

So, it's one that we think about a lot, but we are not going to get distracted inappropriately from making sure we can make our clients successfully on what they do every day.

Okay.

Great.

Thank you.

Thank you.

Our next question is from Donna Jaegers from Janco.

Please go ahead.

Hi.

I was just curious.

I know you guys had won the FiOS business from Verizon early on.

I was just curious if they are still a customer.

They are scheduled to move their business in house, which is fairly typical of their operation probably during the first quarter.

Okay.

Thanks.

Thank you.

And at this time we have no further questions.

I would like to turn the conference back to management for any concluding comments.

Please go ahead.

Thank you all for listening in.

Thank you for your support.

And we will talk to you in April.

Thank you.

Ladies and gentlemen, that does conclude the CSG Systems fourth quarter earnings call.

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