CSG Systems International Inc (CSGS) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the CSG Systems Q4 earnings conference call.

During today's presentation, all participants are in a listen-only mode.

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

(OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to Mr.

Roger Metz.

Please go ahead, sir.

Thank you Arianne and thanks to everyone on the call for joining us.

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

In particular, these will include statements regarding our projected financial results, our ability to meet our clients' needs through our products and services and performance, and our ability to successfully integrate and manage acquired businesses, in order to achieve their expected strategic operating and financial goals.

While these statements reflect our best current judgment, they are subject to risks and uncertainties that could cause our actual results to vary.

In addition to factors noted during this call, a more comprehensive discussion of our risk factors can be found in our most recently filed 10(Q) and 10(K).

Currently the company does not intend 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 on the phone we have Peter Kalan, Chief Executive Officer, and Randy Wiese, Chief Financial Officer.

Peter will begin.

Thank you, Roger, and thanks to all of you for joining us today.

As most of you know, I took over the range from Ed Nafus as CEO at the end of 2007, and speaking for the management and all our employees, we are thankful for Ed's many years of service to CSG.

I am honored to now have the opportunity to guide CSG into the future.

I've been here for about 11 years and have learned over that time that this is a company with great capabilities.

I've been fortunate to have had the opportunity to serve the company in many different capacities, and I'm excited to use the collective experiences of my roles at the company for the benefits of our clients, shareholders and employees.

My primary objective going into this job is to build upon the great foundation of products, solutions, clients and employees, that together have made CSG as strong as it is, while furthering CSG's capabilities, expanding the markets we serve, and delivering financial performance.

As you have seen in the fourth quarter financial results we released this afternoon, CSG delivered another solid quarter, capping off a strong year of both financial and operational performance.

Our revenue of $113 million in the fourth quarter and $419 million for the year, were at the top end of our guidance.

In addition, we completed our $350 million share repurchase program in the fourth quarter, fulfilling our commitment to use the excess capital, that primarily came from the sale of our international division, for share repurchases.

Randy will take you through the financial results in more detail and provide 2008 guidance at the conclusion of my comments.

Just as important as our achievement of financial objectives, CSG continued to execute on the business objectives we set forth for 2007.

We told you a year ago that we would continue to invest in our business to ensure that we stayed ahead of our clients' needs, since they were evolving their businesses and competing for customers at a more rapid pace than ever before.

In support of our clients, we brought to market many innovative product offerings in 2007, the results of both our internal research and development efforts and our acquisition activity.

Due to this, we provided the means for our clients to improve customer service, deliver new services and operate more cost-effectively.

For example we completed the migration of our cable client base to our Advanced Convergent Platform, or ACP, which gives them the full benefit of our technology to support the advanced marketing and roll-out of new services.

Having our clients on ACP allows them to take advantage of the next wave of new functionality, like product catalog, order management and offer management.

Our solution is componenttized, has inter-operability and is built upon new technologies.

We saw great acceptance of our Order Workflow Tool, which streamlines our clients' engagement with the customer and enhances the process of deploying advanced services.

We introduced our Business Services Platform, which helps our clients manage the complexities of larger business customers, customers who have multiple locations, more complex account structures and larger number of employees.

We began deploying kiosks that extend our self care capabilities to allow consumers to manage their accounts, sign up for new services or pay their bills in person.

We released Content Direct, a new solution that allows video content creators, aggregators and distributors, to easily and effectively market, manage and, importantly, monetize video content outside of the traditional linear programming business model.

And finally, we acquired and integrated the Comtech and Prairie businesses, both of which bring a range of new solutions to our client base, and also provide solid relationships upon which we can build in a variety of new industry verticals, such as financial services, telecommunications and utilities.

As we enter 2008, we at CSG are well aware of the challenges that lay ahead, both for our clients and for our company.

The market dynamics that our clients face are increasing in both complexity and the range of services offered.

They are now facing more competition than ever before from new entrants, which have competitive product offerings with an expanding reach.

At the same time, our clients are deploying new services at a faster pace than ever before, dramatically increasing the complexity of their business operations.

Who would have thought just a few years back that Comcast would today be the fourth largest phone company in the United States.

Or that AT&T would be competing with the cable and satellite operators for digital video customers.

Or that we would be on the cusp of commercially available download speeds in excess of 100 megabytes per second.

Or that consumers would have a multitude of on demand, high-definition content, but also a variety of ways to acquire the content and an even greater number of devices upon which to view it.

For our clients, the advancement of the network, the introduction of new products, and the evolution to more complex operations and services, creates a more complicated customer service environment.

At CSG, these dynamics play to our strength as we have a proven track record of helping our clients solve real business problems, not just managing a more complex business but also speeding their time to market for new offerings, providing better customer service to the end consumer, and helping them save money along the way.

As CSG meets these challenges head on by delivering new solutions, we have stepped up our research and development investment to advance our clients' businesses and our business as well.

Though our systems are integral to our clients' operations, we know that it is important that we continually move forward with our clients, improve our solutions and provide value.

We face the important renewal of key client contracts in 2008, and recognize that the solutions we provide our clients must advance with their business.

We have confidence that we will continue to provide important services and solutions to these clients, building upon the long history of proven results in their operations.

We have core competitive strengths that we will use to enhance our client relationships.

We have the most widely deployed solutions in the market.

We have world class operations and the scalability to enable our clients' growth.

We have the greatest breadth of integrated product offerings used by our clients to manage their customer interactions, whether that touch point is through a call center, a call to the call center, a field technician visiting a home, a consumer logging on to the Internet, or a consumer walking up to a service center to use a kiosk to manage his account, or an interaction through a printed statement or marketing document.

We understand our client's businesses and we deliver the systems to meet their ever changing needs.

While we continue to strive to provide superior solutions and services to our existing clients, we understand the importance of and will continue to focus on growing and diversifying our business.

We are very fortunate to have the strength to grow our business.

We have a very solid balance sheet, with significant cash and minimal debt, combined with enviable cash flow generation that will allow to us continue to invest in the future.

Whether that be through acquisitions, partnerships or research and development initiatives.

We've come a long way over the years and have a lot to be proud of, but we always strive to be better.

In 2008, we will continue to focus on enabling our clients to grow through maximizing every customer interaction.

We will do this in several ways.

We are committed to continuing delivering the solutions and services to our clients with the highest level of performance and functionality.

We will find additional creative ways to solve our clients' business challenges, enabling them to better grow their businesses.

We will help our clients to make customer service a competitive advantage.

Each interaction they have with the customer provides an opportunity to solidify that relationship and no one is better than CSG in enabling this to happen.

We will continue to find new ways to expand our footprint in some of the new vertical markets we have entered with our recent acquisitions, which will enable these clients to benefit from CSG's innovation, while providing increased diversity to our business.

And finally, we will deliver on the financial commitments that Randy will outline next.

And before I hand the call over to Randy, I would like to say thanks to our investors for your continued support in this challenging market, to our clients for their continued partnership, and especially to all our employees, who deliver on our commitments to our clients and bring new capabilities to market.

I look forward to sharing our progress and successes with all of you in future quarters.

And with that, I will hand it over to Randy.

Thank you, Peter, 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 2007, as well as our outlook for 2008.

Total revenues for the fourth quarter were $113.5 million, which is slightly above the high-end of the range of our previous guidance for the quarter.

This represents an increase of 17% when compared to $96.6 million of revenues for the same period in 2006, and an increase of 5% when compared to $107.6 million for the third quarter of 2007.

For the full year, revenues came in at approximately $419 million, which represents a 9% increase over 2006.

These revenue increases relate to both organic growth factors as well as the impact of the Comtech and Prairie businesses, which were acquired by CSG in the third quarter of 2007.

Revenues from Comcast and EchoStar make up approximately 26% and 19%, respectively, of our total revenues for the fourth quarter.

In both cases, we saw the absolute amount of revenues from each of these clients increase in the fourth quarter, when compared to that of the third quarter.

We finished the quarter with 45.1 million subscriber accounts on our processing system, unchanged from the number of subscribers at the end of the third quarter.

Income from continuing operations for the quarter was $13.6 million, or $0.40 per diluted share.

This compares to $0.30 per diluted share for the same period last year, and $0.39 per diluted share for the third quarter of 2007.

For the full year, income from continuing operations came in at $1.50 per diluted share, which represents a 13% increase over 2006.

The financial results for the fourth quarter include several non-cash charges, related to depreciation and amortization expense and stock-based compensation.

These non-cash charges for the fourth quarter total $11.3 million, or approximately $0.22 per diluted share impact.

The total of these non-cash charges for the full year 2007 was approximately $42 million.

As we communicated to you in November, we incurred certain expenses related to the retirement of our former CEO during the fourth quarter that were not included in our quarterly guidance issued in October.

The net impact of these retirement benefits on our results of operations, when compared to the amounts in our previous guidance, can be summarized as follows.

First, the net reduction in our operating income, related to these retirement benefits was approximately $1.3 million for the fourth quarter.

This and other one time non-recurring SG&A type items are in large part the reason why our operating margin came in at approximately 18% for the quarter, compared to our previous expectations of approximately 20%.

Second, we received certain income tax benefits related to the retirement, such that the net amount of the reduction in our net income was approximately $0.01 per diluted share.

Absent this impact, our earnings per share would have been at the midpoint of the range of our previous guidance of $0.40 to $0.42 per diluted share.

These tax benefits are the primary reason our effective income tax rate for the quarter came in at 36%, which is slightly better than our previous expectation of 37 to 38%.

Turning to the balance sheet, as of December 31, cash and short term investments totaled approximately $133 million, which was down approximately $44 million from September 30.

The decrease in our cash and short term investments is due primarily to our stock repurchases made during the quarter.

Our net and build trade accounts receivable totaled approximately $114 million, up approximately $4 million from last quarter end, with the increase due primarily to the timing of client payments at quarter end.

The billed trade accounts receivable reflected days build outstanding, or DBO's, of approximately 59 days for the fourth quarter, consistent with our expectations, and with that from the most recent previous quarters.

As of the end of the fourth quarter, we had $230 million in contingent convertible debt outstanding, which matures in the year 2024.

Holders of these 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 flow from operations for the fourth quarter were approximately $20 million, which came in below our expectations, due to changes in certain working capital items at the end of the quarter, primarily related to the timing of payments for accrued payables and our accounts receivable balance at quarter end.

Our cash flow from operations remain very strong.

As I have indicated in the past, from time to time we do experience fluctuations in working capital items at or near quarter end, due to normal timing factors such that it can distort our quarterly cash flow from operations, both positively and negatively, which was the case this quarter.

However, generally over longer periods of time, the net impact of working capital changes is not significant to our cash flows from operations, which was the case for our full year 2007 cash flows from operations, as the working capital changes for the year were not significant.

During the fourth quarter, we completed our 350 million stock buy back plan, with the purchase of 2.8 million shares of the company stock at approximately $55 million, or approximately $19.54 per share.

In total, under this program, we repurchased 14.8 million shares, or approximately 30% of our outstanding shares when we began the program in August, 2006.

Next I'd like to provide you with an overview of our financial expectations for 2008.

However, before doing so I would like to let you know about a change in our guidance practices.

Going forward we intend to provide annual guidance only, which we will update as appropriate during each quarterly earnings conference call or as needed if circumstances so dictate.

Our shift to annual guidance away from quarterly guidance is consistent with the trend in the market, as more companies appropriately shift their focus away from the shorter term quarterly view to a longer term strategic view.

We are committed to providing a transparent view of our expectations for the business and we believe that moving away from quarterly guidance to annual guidance, better aligns investor's interests towards long-term shareholder value creation.

Now for the numbers.

For the full year 2008 we expect the following, revenues will range between $450 million and $460 million, which represents top line revenue growth of approximately 7 to 10% over 2007.

We expect income from continuing operations for 2008 to range between $1.63 and $1.70 per diluted share, which represents EPS growth of approximately 9 to 13%, when compared to 2007.

We expect cash flows from operations to range between $115 million and $120 million, assuming no significant net impact related to fluctuations and working capital items for the year.

At this time, we expect our capital expenditures for 2008 to be approximately $20 million.

We expect the total of our non-cash items of depreciation, amortization and stock-based compensation, to be approximately $45 million for the year.

This guidance reflects an operating margin expectation of approximately 19% for 2008, and an effective income tax rate of approximately 36 to 37% for the year.

Our operating margin estimate for 2008 is slightly less than our previous expectation, which reflects our commitment to further advance our products and solutions through continued R&D efforts.

As Peter mentioned earlier, we continue to invest in new products and solutions to help our clients solve real business problems.

With the completion of our 350 million buy back program, we no longer have a 10b5-1 plan in place.

As a result, as we have done in prior years under similar circumstances, we do not assume any stock repurchases in our guidance.

We will continue to evaluate the best use of our capital throughout 2008, which may or may not include additional share repurchases.

In summary, we closed out 2007 with a strong quarter to complete another successful year.

We continue to make the necessary investments in R&D and other support areas.

We completed our 350 million stock buy back program and we feel that we have positioned ourselves well to further grow our business and meet the challenges and opportunities that lie ahead.

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

Thank you, sir.

We will now begin the question and answer session.

(OPERATOR INSTRUCTIONS) Our first question comes from Tom Roderick from Thomas Weisel Partners.

Please go ahead.

Hi guys, this is actually Chris in for Tom this afternoon.

Hey, Chris.

Hey, how are you guys?

Thanks for taking the questions.

I just had a quick question, if you could remind me, sorry if I missed this on the last call, but I notice that sequential decrease in the software license and maintenance line, could you maybe give us a little color on whether that was related to, I don't know like how you are recognizing the acquisition related revenue or if there was anything that factored into that?

You are talking about the $9.8 million decrease down to 9.1 sequentially?

Yes.

There's nothing significant there.

It can relate to the timing of recognition of certain software sales so there's nothing significant that's going on between the quarters.

And, Chris, those are not coming from the acquisition because those business models are not software oriented.

So those are all, like all the revenues from Comtech and Prairie Interactive are going to go into the processing line.

Yes, entirely.

Just wanted to make sure about that.

And then two, if you could maybe let us know, because I know you modeled the lower operating margins and you mentioned you were going to do a little more R&D in '08, can you give a little color as far as what areas customers are asking to do this for, or what you are going to focus on?

And then also do you believe there's going to be any upside to the operating margins or are you pretty committed to spending that R&D?

Well, Chris, first of all, as we look at the marketplace and work alongside our clients, we feel like there are business issues that they are facing in the new competitive market that they haven't seen before, and we do want to make sure that we bring products to market on an accelerated basis to make sure that we are helping them in their customer service and in their delivery of products.

So we think it is important.

It is broadly across really the ACP platform with the new functionalities that we are bringing in and everything from the desktop that's used by the CSR all the way down to how orders are managed and how the interactions occur with the customer service rep.

So it's functionality that we are bringing to market that is core to what their needs are.

I don't anticipate at this point that the competitive environment that our clients are facing is going to change substantially, and that would cause us to slow down that investment.

Their business needs are changing, from everywhere from the consumer side to the business services side, and within that we think it's important to stay with them and in front of them on what their business needs are.

But if the business dynamics change, we will revisit that but we don't anticipate it at this point.

Great.

Great.

Fair enough.

Thanks.

One last one if I may.

So let's just assume -- let's not assume anything, but how well do you guys feel like you're positioned in the event you were to lose a customer, that you could reduce your operating expenses in concert with that?

Chris, I would tell you one, I guess the scenario that you're suggesting is that we lose a client and it would have to be first viewed that something like that if it was to occur, you have to determine what the client is taking away because much of our products are components and we do many different things for our clients that we could have, we believe, long lasting relationships of different forms dependent upon where our clients drive their own operations.

That being said, we've shown ourselves to be very good stewards of the business.

When we've had setbacks in the past, back in 2002, 2003, we did a very good job of managing our expenses to align our investment in the business with what the opportunities are in the marketplace.

So we've had a good history of that.

But that is not a near term concern for me because I think we've still got a lot of value that we intend to be delivering for our clients.

Thank you very much.

Our next question comes from Liz Grausam from Goldman Sachs.

Please go ahead.

Hey, thanks a lot.

A question and I don't know if you are going to be able to answer this directly but if you can provide some color, when thinking about forming your 2008 guidance, both in the top line and looking at your operating margin, what types of assumptions have you built in to those ranges on your contract renewal process, both in terms of timing of the renewals with your two major customers up this year, as well as potential changes in either price or scope that could happen through those renewals?

Liz, this is Peter.

That's a nice, complex question that you gave me for my first call, so thanks.

Our guidance, as the management team works on establishing what we think our opportunities are for the year, a lot goes into it.

We do have two large clients that are up for renewal at the end of 2008.

We take into account the market dynamics of how the economy is and what spending behavior is by our clients and their competitive environment, as well as any time you're in a renewal period there's always concessions about what you get paid for, new product versus how much they pay you for your existing products.

It's not an unusual situation for us to face, we've done it over many years and we build that all in.

I can't tell you that we assumed a certain specific assumption for any one client, but when we look at the opportunities, we look at it broadly and factor in all those macro aspects.

So we do consider that in our guidance, the dynamics of the marketplace and our clients, and feel comfortable that we can perform based on the market opportunities we have.

And do you think those contracts will still renew within the year?

Is it towards the front end of the year or is it really up until December 31, 2008?

I hate to speculate because the business needs and what drives our clients will vary from client to client.

Where Comcast is versus EchoStar is hard to try to pin down and I don't want to try to put an artificial date from my speculating what have I think will happen on that, so I'd prefer not to.

Okay.

And then in the revenue guidance, could you help us just understand the organic revenue growth versus that provided by the two acquisitions, so we can get a sense of what those acquisitions are contributing to the top line in '08?

We generally don't like to break it out in that format, Liz, but to help you out, if you look at 2007 and 2006, about half the revenue growth for year over year '06 to '07 was organic and the other half was from acquisitions, I think that's a fairly decent assumption that you can assume for '08 as well.

And then just last, in terms of the outlook for your share count, I know you are not including any more buybacks, should we essentially model our shares to look like the fourth quarter of '07 throughout 2008?

That would be a reasonable assumption.

Okay.

Great.

Thank you.

Our next question comes from Ashwin Shirvaikar from Citi.

Please go ahead.

Hey guys and congratulations, Pete.

My question is, is M&A still a possibility for you guys?

I mean you still have pretty good strong cash flow and you still have about $133 million left.

So how much is something you'd need to just have on your balance sheet to show clients and to make clients feel comfortable versus how much is available for any share deals like for inorganic initiatives?

We do believe that there's opportunities for to us to add to our capabilities through M&A and partnership activities, Ashwin, and that's something that, as I said in some of my general opening comments, that we think are important because, as both our clients needs change and their businesses get more complex, we don't believe the only way to solve those is through our own research and development activities.

And so we will look to add capabilities to our business that way.

But we'll also be looking, as we add capabilities, to be able to expand our addressable markets that we've already entered into through the Prairie and Comtech acquisitions.

In general, we look to get more diversity in our business and, if you were to look at 2008, you would probably, our revenues would assume approximately about 10 percent of our revenues were coming from non-cable and DBS markets, because we've already been able to break in to that, and that's something we want to continue to get some expansion into and some diversity.

So all said that those are things that we do view as important aspects of running this business, both from what we do for cable and DBS clients, as well as what we do for generating more opportunities for the broader business.

I don't have a set number of how much cash we should have on the balance sheet that says, and I don't think Randy does either, that says we should have x-amount.

We know there's always a certain amount you need for working capital, but as we look at it and in this marketplace, we think that it's very prudent to have cash that we can use to make acquisitions as well as to make investments from clients if those opportunities came.

And so at this point we do have a focus on making sure we do the right things with our cash towards investing in the business.

Got it.

And in terms of, from a strategic standpoint you mentioned this a couple of times but it seems clear to me that in three to five years from now you don't want to be a cable biller, not just a cable biller.

So is that any sort of a proportion of revenue target that you want to get X % of revenue from non-cable businesses and the 10% that you have right now, what do the margin and cash characteristics of that 10%, that's from non-cable, look like?

Well, first as we look out in the future, I don't like to try to predict how much revenue would be coming from outside the cable and DBS base because we still think we'd like to see ourselves get more market share there.

It's just difficult to predict that.

We would love to have even more of our client's businesses on our platform.

So if we were successful in all our efforts we could see that we grow the business and still have more business or have high levels of business from cable and DBS.

But we do believe that there's some capabilities and some, really some solutions that we can bring to other markets other than the cable and DBS market, and that's because we really believe that we facilitate customer service and the value of that customer service in our client's operations through our solutions and technology.

So I think that is all a future of what we see as the businesses continuing to build on what we do today but being able to address other markets.

Relative to the general cash and profit characteristics of what we do in the other markets, Randy, I think we would say it's fairly similar but if you want to do color a little bit on that.

I would say it's fairly similar to slightly less, but it's very comparable.

And one of the things we have not done in those other markets is get the same diversity of products into other markets as we have in the cable and DBS space.

So looking at it, we may add one or two products penetrated in one of these marketplaces, while in the cable and DBS it's much more penetrated across a broader spectrum, and we believe there's great value in the suite and the value that that integrated suite brings to our clients.

Those other markets also have the same characteristics of the core cable market, which is, they are usually long-term contracts with the recurring nature of revenue, so strong cash flow capabilities.

Okay, but when you say, fairly similar to slightly less, that's pretty wide range.

I mean, can you characterize it a little bit more, I mean is it 18% margin type of thing or 15 or--.

Ashwin, I don't know if we can be that specific, I think if you use comparable margins to slightly less, I think you get there.

Okay, and last question if I can squeeze one more in, I missed the RPU and sub count.

The sub count was the same as the end of the third quarter, Ashwin, it was 45.1, and RPU we haven't disclosed for several quarters, so we did not provide any RPU measure.

If you recall we went away from that a couple of quarters ago as the dynamics of our company were changing, such that the metric was less meaningful, so we have not provided that for several quarters.

Okay, I just thought you still would provide that on Q&A.

Okay.

Thanks, Ashwin.

Your next question comes from Scott Sutherland from Wedbush Morgan.

Please go ahead.

Hi, this is Kerry Rice for Scott.

You touched on a couple of questions that I had and just wanted to follow up on those, previous question on the contribution from Comtech and Prairie Services for 2008.

You said it would be about 50% of the growth.

Should I assume that's similar to what occurred in Q4 or can you give any color on the Q4 contribution from those two acquisitions?

So, Kerry, you're asking how much of our growth in the fourth quarter would have been from the two acquisitions?

That's correct.

I would say the fourth quarter growth, you're looking at sequential growth, Q3 versus Q4?

Yes.

The growth was about 5%.

You can assume a little less than half of that related to the Comtech acquisition and Prairie combined.

And Prairie combined, okay.

And then on the subscribers, it's been, I guess this is the second consecutive quarter that's been about about 45.1, what should we look at or maybe you can describe or give us some color on the growth prospects there and what you see for 2008?

Kerry, the general dynamics that we face or what our clients are facing, they are interesting having a challenge on growing their absolute number of subs that they process for, they are generating or they've been losing some basic subs and are growing them at a slower rate than what they historically have.

But they've been able to push more products across their clients to be able to get triple plays and really the idea of the triple play is something that is changing because now they are pushing HD, DVR's, services over the net that are really changing the dynamics of their business.

So the sheer number of subs that they are providing services for is undergoing a dynamic change, which I think has the impact of us not growing a number of subscribers on our system in any sizeable way, unless there's market share shifts.

Is there a better way to think about, then with the growth of additional services versus subscribers, is there some other metric we should maybe focus on?

What I would tell you, Kerry, is is from my perspective and I will have Randy chime in, one of the reasons we went away from RPU is we didn't think RPU was the right way to look at the business because it tried to draw revenue directly to the number of subs.

And that's not always the best way because we are breaking out from having just pure subs on our system that we get revenue from in other markets.

And so for us we think that you have to try to look at the business differently than that.

The number of subs is still, I think, valuable for you to see how much market share we have and whether or not we are retaining or expanding our market share, as it relates to the clients we support.

But I don't know if I would use that as much as a driver for thinking about how our revenues come in the business, which is a similar situation of what our clients are facing.

Randy, would you--?

I would say, yes, I think you got the focus on the top line revenue growth aspects because the parameters, the linkage to subs is not a direct correlation to the top line revenue growth any more, so I think you have to look at some of our top line growth expectations and use those for your modeling purposes.

Okay, fair enough.

And then, as you talked about renewals for '08, I think historically the price concessions have been around 10 %, 10 to I think 15%.

Is that fair or can you comment on that?

I know you mentioned timing was hard to ascertain, so--.

I think it's hard to put any type of financial metrics of what the history has been because I think most people look back to some of the renegotiation that we did with EchoStar in 2005, in which there was some restructuring of the contract and some changes around the statement services we provide for EchoStar.

And so that was a unique situation.

I think it's very difficult to try to draw that history and correlate it to anything else, so--.

The only thing I would add to what Peter said, if there's a price concession, generally we also get something of value in return.

If you look back at the EchoStar renewal, even though there was some price concessions on the print and mail that Peter mentioned, we also got a longer term contract with EchoStar and also got exclusivity and some minimums.

So there's always a trade-off.

It's not all just one way with respect to the price concessions.

Okay.

And then I'm sorry, one, just one housekeeping, sales and marketing increased a lot in Q4.

I didn't know if that was particularly related to the acquisitions and integrating those.

But is that something that we should see stay at this level or can you just add some detail?

It went up about $2.8 million, I think is your reference there, it went from about 10% to almost 12% of revenues, and there's a couple of things, one is, I mentioned the impact of the retirement benefits from our CEO.

That's a big portion of it.

You also have the full quarter impact of the Comtech and Prairie businesses.

They were only partially in there in Q3, so you have that impact coming through.

Though if you look at those two components, those are the lion's share of that increase.

What you would expect going forward is the one time benefits related to the retirement benefits to go away.

So I think you will see that going forward, the SG&A will be more in line with the previous quarters, which is about 10% of revenues.

Okay.

Thank you very much.

Okay.

Our next question comes from Donna Jaegers from Janco Partners.

Please go ahead.

Hi, guys.

Two quick questions.

On the, Peter you mentioned during your first comments the business services platform that you had rolled out.

Can you talk a little bit more about whether you have customers sign for this product or whether, how many customers you have in test for the product?

We do have a customer signed for the product and we are just waiting for deployment of it this year.

Can you, has that been, the name of that customer been announced?

No, we have not provided the name of that customer yet.

Is that a sizeable, a big customer.

I think it's a way for us to get comfortable that the client can operate the comfortably on it and, importantly, they have a sizeable business operation and we think that's a good thing.

Great.

And then on the E-care product that you guys offer, I think that's the name of it, where you do online customer subscriber management?

Our Care Express product.

Yes, Care Express.

Does Comcast use that product currently and --

Yes, they do.

How do you typically, do you charge, is that sort of like a price per sub kind of charge or how is the, how do you charge for that product, how is that structured?

Yes, it's generally on a price per subscriber, it's registered subscribers.

So as the consumer signs up we charge them on that account.

It's not across the whole subscriber base.

It's by usage.

Okay.

Any sort of guidance as far as what sort of price per subscriber ballpark that you guys, that you guys charge on that.

You know, in the past we've talked about the different ancillary products.

Products of this nature we usually get pennies per subscribers, so it's in that range, it's not the nickels or dimes.

It's smaller amounts.

Thanks a lot, guys.

Our next question comes from Karl Keirstead from Kaufman Brothers.

Please go ahead.

Hi, good afternoon, a couple of questions just to dig a little deeper on some of these issues.

On Comcast in particular, if memory is here correct, on the last call you mentioned that you might be in a position to update the street, even with some general comments in the first half of '08.

Can you update the timing that you might be in a position to offer some news, is it still the first half, is it second quarter?

Thank you.

Well, Karl, this is Peter, I think it's premature to try to say that there is a timing of when we think we will have something to announce on where our relationship with Comcast goes as part of the renewal.

We will update every quarter of how we are doing with those that we continue to think that we will have a business relationship outside of the contract that expires in 2008.

We think that there's a lot that we provide to them in value.

But I'm not ready to say that we think it's three or six months or nine months away from getting completed or what we believe the financial terms of those services would be.

Okay.

Thank you.

And then secondly, you've had a couple of questions on the organic growth but let's just be specific.

On the last call, I think you said Comtech in the fourth quarter was going to contribute 5.5 million and Prairie 4.9 million, for a total of 10.4 million.

Can you just indicate whether that's where those two acquisitions came in so we can back it out and get to an organic growth?

Thanks.

I don't think we gave the specific amounts, I think it was more in the $9 to $10 million range and I'd say that they came in at the lower end of that range.

That's helpful.

And then lastly, given that you are shifting to an annual from a quarterly guidance, can you just take this occasion to give us some notion as to whether the quarters throughout '08 are going to adhere to similar seasonality as in the past and specifically if you do plan to increase R&D, will it be sort of steady throughout the year, will it be weighted to the front half or back half, just a little bit of color on the quarter to quarter without of course giving specific quarterly guidance?

Sure, a couple of modeling tips for you on the revenue side.

I would say that you should model the revenue growing ratably throughout the year.

I would say that the first quarter of your starting point you should look at the range of the guidance we gained for the fourth quarter and look at the range for the fourth quarter as maybe the midpoint or the lower end of that range, as a good starting point, just to give yourself a modeling starting point and let it grow ratably throughout the year.

On the R&D, I would expect it to ramp up ratably throughout the year, probably more towards the end of '08.

Okay, thank you very much.

Our next question comes from Todd Rosenbluth from Standard & Poor's Equity.

Please go ahead.

Hi.

Thank you, Peter, and congratulations.

I will chime in on that as well.

Thank you.

Real brief on it, the gross margins seem to have dipped a little bit in the fourth quarter.

I'm wondering if that was as much related to the timing of some of the software license recognition or is there more going on in the business we should be aware of?

No, there's two sources.

One is, you mentioned the software services, but the bigger portion is that the fourth quarter had the full impact of the two acquired businesses.

Their gross margins are slightly less than the historical business.

So the full quarter inclusion of those brought it down a little bit.

And then, as it relates to Prairie, can you talk about how take rates may have picked up, the deal closed in the middle to end of the third quarter, as it progressed through the end of the year, with some of your key customers.

Let me make sure I understood the question, Todd, you are saying, what's the take rate?

Yes, now that Prairie is yours, and now that you've been offering the product for, or the different services for, going on six months now, as it's become part of the sales forces' offerings, the pick up if there has been in that time period.

I think we have to first start to say that there was, I'm cautious to use the word combined sales activities before we acquired Prairie but through the partnership we worked together to explore what the opportunities are within our clients.

We've seen a strong interest in the products from our clients, as any sales cycle is, you'll have ebbs and flows and some sales cycles will take longer with clients versus others that can be more accelerated.

But what I will tell you, Todd, is that we have great enthusiasm for what this product does for us and how we'll be able to explore and expand the capabilities of Prairie and their messaging services into other ways of our clients in other parts of their business.

So we are still very enthusiastic and excited about having Prairie as part of this and we think there will be great opportunities with our clients.

Okay, thank you.

And one last, if I may, you mentioned to an earlier question being comfortable with your cash level but you are generating a nice amount of operating cash flow or free cash flow after the Capex.

The stock is pulled back since you completed your share buy-back plan.

Can you just talk about thoughts as we move into 2008?

First I will comment, and then Randy, it seems like everything in my investment portfolio has pulled back since we completed our stock repurchases, it seems like the whole market has made some move.

We look at this as being a time that there could be good opportunities for us to expand what our investment or acquisition opportunities could be, and we think it's appropriate to make sure that we take a cautious approach of how we deploy our capital.

And so that's something that you will look for us to do as we go through 2008.

We think this is a great time to really look at what we are doing as a business and how we can expand it.

And Randy,--.

I would say one other point to note is that the $350 million stock buy back was kind of an unusual situation, if you recall that money was really sourced back to the divestiture of our International Business back in '05, though we were in a unique position with a lot of excess capital.

Made a commitment to disburse $350 million of that capital and set up a 10b5-1, so that was the completion of that program, so now we are probably back to more of a normal assessment of the use of capital for deployment into the business as opposed to buying shares.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS).

We have a follow-up question from Carl Keirstead.

Please go ahead.

Hi, sorry guys, if we, on the total revenue side, pull out what you indicated was the revenue contribution from the acquisitions, we are left with an organic growth rate, by my calculation, of 7, 8%.

That's up quite a bit from the year over year growth rate in, throughout '07 and quite frankly '06.

Could you talk a little bit about where the strength in the business was to get you up to that organic growth rate or are my numbers wrong?

Thank you.

Are you specifically looking at the organic growth rate of the fourth quarter.

I am yes, so year over year it looks like 8%, which is quite high historically.

You have, during the fourth quarter we had an outstanding quarter on the marketing services side.

And not necessarily a normal growth rate that you can expect going forward but they had an outstanding quarter, mainly client driven requests.

So the organic growth rate for that quarter is higher than normal, I guess is the way to put it.

Okay, that's very helpful.

Thank you.

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

Please go ahead.

Hi, just two quick follow-ups.

On the cash flow for the fourth quarter, you commented that it was due to change in working capital.

Last time when this happened it was due to sort of a client sort of shifting their payment from fourth quarter into first quarter.

I was just curious if that payment has been received already in the first quarter and if that was sort of a similar situation?

A couple of things, Donna, is I think the one you referenced there was probably three or four quarters ago, we had a large client that let a payment slip across quarter end.

If you look back at the third quarter, I think we had a positive working capital increase of about 7.5 million, and that was a multitude of items and this time it was also a multitude of items.

I think of the $10 million, we missed our guidance by about, say half of it relates to AR and it wasn't one specific client and I will tell you that most of that cash was collected within the first week of January.

So, again, just normal timing items, nothing of great concern.

As I mentioned in my comments, if you look at the cash flow from operations the last two years, 2006 and 2007, the working capital net impact for the full year I think for 2006 was less than 2 million, and I think it was less than 2 million for '07.

So again, over long periods of time the working capital items do just balance out to essentially an insignificant amount.

Great.

And one other quick question, Bend Broadband, was that a customer of your guys?

Bend, it was, yes.

Okay.

Thanks.

There are no further questions.

Please continue with any closing remarks.

We want to thank everybody for their time on the call today.

We continue to be very focused on operating and managing CSG Systems for the long-term to do the right thing for our clients and for our shareholders, and we look forward to very positive results in the coming quarters.

Thank you.

Ladies and gentlemen, this concludes the CSG Systems Q4 earnings conference call.

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