CSG Systems International Inc (CSGS) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the CSG Systems Q1 earnings conference call.

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

Polling the presentation the conference will be open for questions.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, Tuesday, April 22, 2008.

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

Roger Metz.

Please go ahead, sir.

Thank you, 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, 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.

Currently the Company does not intend to update this information during the quarter.

In addition to factors noted during this call, a more comprehensive discussion of our Risk Factors can be found in today's press release as well as in our most recently filed 10-K and 10-Q which are all available on our website.

With me today on the phone are 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.

The first quarter provided a solid start to 2008 for CSG which is reflected in our financial results, our continued execution on our organic growth and acquisition strategies, and also in our sales results that we achieved.

Our revenues were approximately $114 million, and income from continuing operations was $0.45 per share.

Randy will share more details on our financial performance after I conclude.

Last week, we announced that we extended our contract with Mediacom Communications through the middle of 2014.

We are very pleased to have earned the opportunity to serve this important customer as a trusted business partner for six more years.

We are also excited that they have chosen to utilize several additional CSG products during that time frame.

Mediacom will begin using ACP or Advanced Convergent Platform to support its growing base of voice subscribers giving them the same benefits of the robust pre-integrated capabilities that already support Mediacom's existing video and high speed internet customers.

In addition, Mediacom has chosen to use CSG Statement Express an online statement image viewing system that enables customer service agents to view invoice in the same format as customers.

This makes the progress process of working through billing inquiries with customers faster and more accurate.

Finally, Mediacom will implement CSGs Order Workflow tool, a key enhancement to the desktop that allows agents to manage service calls, process new orders and sell bundles and upgrades more efficiently and accurately.

This contract extension is a testament to the quality of service and innovative solutions that we deliver to our valued clients.

Along with the Mediacom extension we had several other client successes in the first quarter.

Our interactive messaging capabilities continued to generate significant interest which has led to new contract wins both at our cable clients and in other industry verticals such as financial services and home delivery services.

In the cable industry clients are utilizing interactive messaging for appointment pre-calls and appointment verification as well as for surveys to receive feedback from consumers after service calls are completed.

Thereby providing our clients the opportunity to economically provide enhanced levels of customer service.

We continue to see success with our Order Workflow solution as you saw in the Mediacom extension press release last week.

Order Workflow which streamlines the customer service agents processes has been sold and deployed at several other client sites so far this year and is being evaluated at others.

We're also seeing interest in our Business Services Platform, product catalog, and offer management applications.

Our output solutions capabilities including our statement printing services continue to do well.

During the first quarter we signed new output solutions clients in the financial services and utility verticals within marketing services which provides channels for our clients to utilize the statement in the envelope as a vehicle to market their products and services.

Sales were strong this quarter as well.

Along with our video clients linear programming model, the cable industry and other content providers are developing new distribution methods and channels that allow consumers to access and buy content in different ways such as directly from the studios on an On Demand basis.

As these new business models evolve, CSG has taken steps to address these changes.

Last Fall we unveiled Content Direct, a new solution that allows video content creators, aggregators and distributer s to market, monetize and manage video and digital content to end consumers.

We recently signed and went live with our first Content Direct client, and are excited to have this solution up and running.

While we're very satisfied with the progress we've made both in integrating and moving forward with the operations of last years acquisitions, we are also excited to be furthering our strategy of growth through relevant acquisitions with our announced purchase of DataProse.

The acquisition of DataProse will build upon the strength of our existing output solution services.

Along with our strength in paper based presentment services, we see complementary growth in electronic presentment services.

We also believe that web solutions and self-care capabilities will continue to expand as natural extensions.

DataProse will enhance our already strong output solutions operations by adding additional expertise along with statement presentment technologies and software.

DataProse also gives us new expertise in direct marketing services including database management and marketing or market segmentation.

This acquisition provides us with West Coast and Southern facilities routing out our national footprint which will be a key competitive differentiator.

Finally, DataProse has a broad customer base that enhances our revenue diversification efforts including the utilities, financial services and telecommunication markets as well as the non-profit sector.

We are planning to close this acquisition in a few days bringing the people of DataProse, their capabilities, clients and expertise into the CSG team.

During the first quarter, we hosted our annual executive client conference, which focused on change in the converging communications space.

The conference was well attended with representatives on hand from most all our clients.

It was a great opportunity for CSG to showcase some of our newer advanced products and functionality and provide an opportunity for the exchange of ideas and strategies between CSG and our clients and also among the clients themselves.

Our clients are seeing great successes in deploying advanced video, high speed Internet and now digital voice services to their customers.

They're also expanding their offerings to serve a growing number of business customers and pursuing new ways to deliver and monetize digital content.

With this growth in evolution comes a host of new challenges , everything from network upgrades to customer care.

Meanwhile our customers are seeing heightened competitive pressures from the traditional telephone companies and other new entrants in increasing number of their markets.

With consumers having more options than ever before, it's easy to see why our clients need robust applications to manage their customers, bundle and sell their services and elevate the delivery of customer services.

CSG solutions enable our clients to deliver a premium experience to their end customers while at the same time helping our clients become more efficient, reduce cost, and minimize customer churn.

Looking ahead to the remainder of 2008 we have several distinct priorities and objectives.

We are committed to ensuring our clients have the required solutions to maximize the value of each and every interaction with our customers.

With that in mind we will continue to invest in research and development and will also continue to look externally for complementary solutions to help our clients run their businesses more efficient and profitably.

We are also excited about the new industry verticals in which we now have expanded relationships such as telecommunications, utilities, and financial services, and we look forward to deepening these relationships.

We are very fortunate to have a strong balance sheet and recurring cash flows that allow us to make prudent investments in the future of our business.

As you know, two of our largest client contracts, Comcast and DISH Network are up for renewal at the end of this year.

While we don't have any news to report at this time we're working with both clients to build continued partnerships into the future and we'll let you know just as soon as we have any news to report on this front.

In summary we're pleased to have started this year with strong financial results and are encouraged by the traction we're getting with our products and services.

Our recent deals that I've mentioned are indicative of the fact that CSG continues to deliver the solutions that our clients need and want.

We look forward to continued strong performance through the rest the of the year.

Finally, I want to extend a warm welcome to all our incoming colleagues from DataProse that may be listening to this call.

We're excited that you'll soon be on board as an important part of CSG's future.

With that I'll turn it over to

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

I'm happy to share with you the financial results for our first quarter 2008 as well as our outlook for the remainder of the year.

Overall we are very pleased with the strong start to 2008 provided by CSGs first quarter results.

Our total revenues for the first quarter were $113.6 million.

This represents an increase of 15% when compared to $98.7 million of revenues for the same period in 2007 and is relatively consistent with the revenues reported in the fourth quarter 2007.

The increase in year-over-year revenues relates primarily to additional revenue from our recently acquired businesses with the remaining portion of the increase related to organic growth factors.

We finished the quarter with 45.6 million subscriber accounts on our processing system sequentially up from the fourth quarter by approximately 500,000 subscribers.

This increase was primarily due to additional subscribers, Comcast converted to our system following the dissolution of its partnership with Insight.

Revenues from Comcast and DISH Networks made up approximately 27% and 19% respectively, of our total revenues for the first quarter.

The sequential increase in the percentage of revenues generated from Comcast during the quarter reflects the former Insight subscribers converted to our system during the first quarter.

Income from continuing operations for the quarter was $14.8 million or $0.45 per diluted share.

This compares to $0.35 per share for the same period last year and $0.40 per share for the fourth quarter of 2007.

Earnings per share grew 29% year-over-year resulting primarily from the lower number of outstanding shares in the first quarter 2008 following the completion of our stock repurchase program in late 2007.

These results reflect an operating margin of approximately 20% for the first quarter of 2008 which is up sequentially from the fourth quarter operating margin of 18% and is relatively consistent with the same period last year.

If you remember from our last call, our fourth quarter operating margin included some one-time non-recurring charges that negatively impact our fourth quarter operating margin by approximately 200 basis points.

Absent the impact of these matters, our operating margin between the fourth quarter and the first quarter are relatively comparable.

Our effective income tax rate for the first quarter was 35.6% slightly better than our full year expectations of 36 to 37%.

With the improvement primarily due to the favorable adjustment of certain income tax accruals at the end of the first quarter.

The financial results for CSG include several non-cash charged related to depreciation, amortization and stock based compensation.

These non-cash charges for the first quarter totaled approximately $11 million or approximately $0.21 per share impact.

Turning to the balance sheet, as of March 31, cash and short-term investments totaled $147 million, up approximately $14 million from the end of the year.

Our net build, trade accounts receivable totaled approximately $125 million, up approximately $10 million from last quarter primarily due to a clients delayed payment for that amount until after quarter end.

Ordinarily, this payment would have been received prior to the cutoff at quarter end; however, this quarter it was received the first week in April.

Cash flows from operations for the first quarter were approximately $21 million, which were also negatively impacted by $10 million as a result of this delayed client payment.

Our cash flows 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 timing factors such that it can distort our cash flows from operations both positively and negatively on a quarterly basis 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.

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

Holders of the securities can convert at any time after CSGs 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.

We did not repurchase any shares through our stock repurchase program during the first quarter of 2008.

Next, I'd like to provide you with an update to our financial expectations for the full year 2008.

However, before I get into the numbers I would like to note that these guidance estimates include the expected impact of our acquisition DataProse on a GAAP basis which we expect to close by the end of April 2008.

We expect DataProse to add approximately $15 million of revenue for the remainder of the year and expect it to have a slightly dilutive impact to our results of operations on a GAAP basis and be slightly accretive on an operating cash flow basis.

The expected impact of DataProse includes estimates for certain acquisition related expenses associated primarily with our planned integration efforts and estimates for the amortization of the acquired intangible assets as we have not yet completed our purchase accounting for the acquisition.

Because of the inherent uncertainties in making such estimates the actual impact of DataProse on our financial performance for 2008 may vary from our current expectation as we work through our integration efforts and complete the purchase accounting during the remainder of the year.

We are providing these details around DataProse at this time to help you initially understand the expected financial impact to our business; however going forward we do not intend to provide separate standalone information on the actual or expected performance of DataProse.

Additionally, as Peter noted earlier two of our largest client contracts are (inaudible) at the end of this year.

While we do not have any news to report at this time our following guidance reflects our best estimates regarding the potential impact of these renewals at this time.

Now, on to the numbers.

Revenues are expected to range between 467 million and $475 million, relatively unchanged from our previous guidance except for the impact of DataProse.

This revenue guidance represents an increase of 11 to 13% for 2008 when compared to 2007.

We expect our earnings for 2008 to range between $1.55 and $1.62 per diluted share.

Our operating performance expectations remain relatively unchanged from our previous guidance; however, this revised guidance represents a decrease of approximately $4 million and our expected investment income for the remainder of 2008 or approximately $0.07 per share when compared to our previous expectations.

Subsequent to the establishment of our guidance in January, interest rates have dropped dramatically as a result of Federal Reserve activities.

This reduction in investment income reflects our current expectation of investment returns for the remainder of the year.

This guidance reflects an operating margin expectation of approximately 18% for the full year 2008, which represents a 1 percentage point decrease compared to our previous expectations.

With that decrease attributed almost entirely to the dilutive effect of the DataProse acquisition on a GAAP basis.

Although our first quarter operating margin of approximately [20%] was slightly better than our expectation due to the timing of certain revenue items in the quarter we anticipate that our operating margin percentage will trend down over the remainder of the year.

This trend is consistent with our prior expectations and reflects our committment to further investment in our products and solutions through enhanced R&D and other support efforts and now also includes expected GAAP dilutive impact of DataProse as I mentioned earlier.

We expect a slight improvement in our income tax rate from our previous expectations.

At this time, we expect the income tax rate for the year to be 35 to 36%, which represents approximately 1 percentage point improvement from our previous guidance.

We expect the slight improvement in our effective income tax rate to be offset by the slightly dilutive impact from the DataProse acquisition such as on a combined basis.

These two events are essentially neutral to our previous guidance expectation.

We expect cash flows from operations to range between approximately 115 million and $120 million which are unchanged from our previous guidance.

This assumes there is no significant net impact related to unexpected fluctuations in working capital items for the year.

In particular this assumes we do not experience a large payment cutoff issue with any of our clients at year-end as we did at the end of the first quarter.

Although we do not expect a negative impact to our -- although we do expect a negative cash flow impact as a result of our lower investment income for the year that I mentioned earlier, this decrease is expected to be offset by the accretive cash impact of DataProse and a slightly better income tax rate.

At this time, we expect our capital expenditures for 2008 to be approximately 20 million to $25 million.

This is up slightly from our previous expectation and is highly dependent upon certain revenue opportunities we are pursuing.

Also, we are evaluating the possibility of making certain purchases in 2008 in order to maximize the tax incentives offered for Capital Expenditures under the most recently passed IRS economic stimulus package.

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

With the completion of our stock buyback program in late 2007 we no longer have a 10B5-1 plan in place.

A a result as we have done in past periods 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 feel the first quarter 2008 proved to be a strong start with the New Year for CSG.

We continue to provide the central products and services to our clients that fortify these business relationships.

We will continue to make the necessary investments in R&D and other support areas to further secure CSGs business growth and meet the challenges and opportunities that lie ahead.

I'll now turn it over to the moderator for questions.

Operator?

If you could check, there's some background noise from either somebody in your office or one of the callers.

If you could ensure everybody is in listen only mode I'd appreciate it.

Yes, sir all participant lines are on monitor only, it might be coming from one of the speaker lines.

Well, there's only one speaker line on, so thanks.

Okay, thank you, sir.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Ashwin Shirvaikar with Citigroup.

Please go ahead.

Hi, guys.

Congratulations on the quarter.

Thanks, Ashwin.

Thank you.

I want to actually talk about the non-billing side of the business.

You made all of these acquisitions over the last 12, 18 months.

Can you talk about sort of the growth characteristics, margin profile and economic sensitivity of those acquisitions?

I'll start and Randy could, I've got a cold, Ashwin, so I'm sorry if I'm a little raspy, but Randy will join in.

I guess the first part is when you look at the economic considerations of the acquisitions, they typically are reaching out to businesses that have consumer profile businesses and therefore, we believe generally, they're fairly recession proof but you're never completely recession proof but overall we believe from a market and economic perspective that they're generally well positioned.

They provide value-added services that generally decrease the cost of operations and within that, we think that they drive value for our clients and in these economic times our clients are seeking those types of focuses to how they elevate customer care, and their customer service experience as well as how they do it at a lower cost point.

Growth profile, I'll start is that generally they have higher growth profiles than what the historical or the core business of what you see from what we support the cable and DBS markets are.

From a profitability, Randy I don't know if you have any color to share on that?

Consistent with what we said in the past, Peter, is that the profitability of these enterprises as we bring them on on a GAAP basis have been diluted primarily because of the amortization from the acquisition; however from an EBITDA/cash flow perspective, they have been accretive and over time, we expect absent the amortization from the acquisition, we expect their operating performance to start to become more towards the operating performance of CSG.

But that will take a period of time anywhere from 12 to 18 months for many of the synergies to really kick in to get that operating performance.

Are they revenue synergies or are they more cost synergies that are in your control?

They include both, Ashwin.

In certain cases there are some revenue synergies that will get from within the businesses but there are also targeted expense synergies as well.

And when you say higher growth profile is there a range you could put--?

I would say, Ashwin, with the way I'd characterize it is the two print mill business that we bought are slightly greater than our historical 4 to 5% growers and the interactive messaging is probably slightly greater than that.

Right, and one last question on sub count, it's increased first time in many quarters.

Correct.

Was that the Insight?

I mentioned that in my comments that it was primarily related to the former Insight subs that came under the ownership of Comcast this quarter as a result of their dissolution of their partnership.

Okay, thanks.

Thank you.

Thank you, sir.

Our next question comes from the line of Liz Grausam with Goldman Sachs.

Please go ahead.

Great.

Thanks.

Hoping to understand coming into the year and how with your revised guidance on interest rate if you could give us a sense of what your expected yield had been on your cash balance and what your expected yield is going forward, because it didn't deteriorate too much really in the first quarter, so what are your expectations going into the back half of the year.

A couple things, Liz.

The reason you didn't see a lot of deterioration in the first quarter is we had some, probably some 90 to 120 day paper that didn't really get impacted in the first quarter.

It was on some old yield rates so you didn't see a big impact in the first quarter.

As we roll those into new instruments in the out quarters you'll see the lower interest rates start to kick in.

And rather than give you kind of what our expected yield is I would say that probably it's best to look at the differential from what we had in the past versus what we're expecting and it's any where from 250 to 300 basis points as the differential.

Great and with the interest rate environment where it is and with where your stock is, does this make buyback activity now more attractive as the accretive qualities have increased?

I think, Liz, as we said last quarter, since our 10B5-1 has gone we look at many different things in the use of our capital, whether it be stock buybacks, debt buybacks, investment in the business through acquisitions or R&D and we've been evaluating those on a quarterly basis and I think we'll continue to do that going forward.

So it's difficult to predict what we're going to do in the out quarters.

I would say that evidence of our capital deployment is well evident I guess from the DataProse acquisition as we looked at different things out there, we did acquire that business for about $40 million so again, I think you got to look at it from a quarter to quarter basis and we'll see what's the best opportunity for us.

And Liz, those are investments that generate long term value for our shareholders and as we look at those businesses and what they do for us as our overall enterprise, we believe they have a significantly better return than what we could get by just repurchasing our capital or our debt, and we will continue to look for those opportunities to do that.

Okay, and then just on the near term dilution tolerance of the Company, clearly it looks like margins are heading towards about 17% operating, GAAP operating margins for the next three quarters in order to get to your 18% target for the year.

What is kind of the internal threshold that you're willing to take this business, given we've seen margin compression for several years.

I think one thing is to make sure you look at Liz on that 17% that you see there, there's probably close to 300 basis points of dilution from the acquisitions we did over the last 12 months so I think you got to take that into consideration, but going forward, our expectation would be to target improvement in operating margin going forward as opposed to a continued degradation.

And of that 300 basis point degradation, there's a portion of that associated with non-cash charges from tangible amortization.

Correct.

Well, probably most of the decrease is related to amortization of intangible assets, correct.

Well, then how do you think about the organic margin of CSGs business particularly as you're moving through some major contract renewals which can have puts and takes in terms of the margin?

Well, clearly as we've seen in the business, the consolidation of clients and the demands of what the marketplace is needing from solutions will put pressure on a business like ours as we go through renewals and so we recognize that as we've seen in the past that there are trade offs as part of doing renewals and extensions with our clients and what our job is to manage those trade offs to get the best long term return for our shareholders, but we recognize that those are issues that we have to face and overcome and we'll face those in the coming quarters as we have clients renew their relationships with us.

Great, thank you.

Thank you, ma'am.

Our next question comes from the line of Tom Roderick with Thomas Weisel Partners.

Please go ahead.

Hi, guys, this is [Chris Koe] in for Tom Roderick today.

Hi, Chris.

How are you doing?

Good.

Good job on the quarter.

Thanks.

Just had a quick question, you guys mentioned the Mediacom deal that you guys extended that they're taking on several services and you had also mentioned in the past that price per subs no longer is all that relevant given the fact you guys are getting more in the print and mail and interactive messaging.

I was wondering if you could maybe go into the pricing dynamic of what went into the Mediacom renewal and if the Media got in the way, the Mediacom deal played out is that reflective of what we can expect with your existing conversations with customers?

Well, Chris, we won't go into specifics of all that go into it because it's very difficult to look at any one piece and try to carve out price versus additional services.

It's clear that we saw the opportunity with Mediacom to add a lot of new types of services to their operations and lock them up for a significant amount of time and we believe that that was valuable both to our business as well as to what they're trying to accomplish and whether that we rolling out our ACP platform to support their voice services along with what they do on video or data or their call center customer service reps applications to get them to be more efficient, we saw an opportunity to really drive a long term relationship out of this, and I think we would be looking the same way with both EchoStar and Comcast as they come up.

We have a breadth of services that our clients are providing and we have new services that we've been delivering to them, and we'll look in those to see how we can see kind of the length of committment and visibility of the relationship as well as the committment to protects between the two renewals that we have remaining.

So I think they will be similarly -- similar from a dynamic from that perspective and we've shown a strong history when we get to renewals to be able to bring a lot of our capabilities to cement those relationships going forward and give visibility for our operations and for our shareholders in what this business looks like.

Great, great.

Thank you very much.

And then if I may ask, you mentioned, I think on the last call, you mentioned the Comtech and Prairie acquisitions came in on the lower end, I was wondering if you could maybe help us with is that improving or are those picking up a little bit for you?

I would say on the top line and bottom line they're both improving as we expected.

Great.

Thanks.

Thank you, sir.

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

Please go ahead.

Great, thank you, and good afternoon.

Hi, Scott.

So, kind of on the first question, I mean you've evolved into all of these new services, Workflow Manager, presentment and -- Bill Presentment and the Order Management.

Your revenues kind of flat sequentially and your wins need applications.

Can you talk about what's happening with the core base CSG business and is that kind of shrinking modestly and are these new applications kind of new growth drivers?

And how material are these new applications and how fast are they growing?

Well, we're seeing that, Scott, that these applications are being supported and we're seeing good embracing of them as commented by the interactive messaging being rolled out and being signed up for with our cable clients.

Some of those aren't getting the full rollout yet but we're seeing support of that into our revenues or into our client base to drive future revenues.

We're seeing some of our order work flow that we're seeing people sign up for that and we've got commitments to roll those out in the coming quarters, so we've seen success in the past and we think we have visibility to future growth.

Between the sequential aspects of Q4 and Q1 I'm going to let Randy get in on that.

I'll give you a couple data points to look at, Scott.

If you look sequentially revenues were about flat but if you remember the fourth quarter was a very strong quarter for us and actually Q1 is generally from a seasonality standpoint on certain of our revenue streams a bit lower than the fourth quarter.

So with it coming in relatively flat, but actually, we think that's a very good strong performance for the quarter.

I think also the other data point is to look at year-over-year.

If you look year-over-year as I mentioned in my comments we had a 15% increase in revenues.

Probably two-thirds of that is related to acquisitions and about the other third is through organic means so we are getting some organic growth over time as well.

Maybe another way to ask this, I mean I think you answered about half of my questions on that growth in new applications.

As you look forward maybe 20% of revenues in these newer applications and you expect it to grow like 10 or 20% year-over-year, what is your forecast for these new areas you're moving into?

I'm not sure if I understood that question, Randy?

I don't understand the question either.

Can you rephrase that?

Yes, what I'm just trying to look at is these new areas of the Bill Presentment payments and the Workflow and Order Management.

How material is it to all revenue at this point and kind of growth projections within your overall guidance do you think these applications grow?

I mean, one is, Scott, we don't give revenues by product line and growth by product line but I can tell you from a general commentary is we are seeing our clients in the new markets embrace interactive messaging presentment services.

We are seeing our clients embrace Order Workflow which are going to drive future revenues for us that then drive other applications to be plugged in.

Randy?

I would say that, let me say that differently, Scott, is that from these new applications if you remember from the past as we talk about our growth profile from an organic perspective is that the volume in pricing increases that we used to see over the past years have somewhat gone away.

So our revenue growth from an organic purposes is really coming from new product use, so the 4 to 6% you see from our organic growth is coming from these new products.

So does that help answer the question?

Yes, that's all I was hoping for, some additional color.

Okay.

Thanks a lot.

Sorry we had trouble with your question.

That's okay.

Thank you, sir.

Our next question comes from the line of Karl Keirstead with Kaufman.

Please go ahead.

Hi.

Yes, good afternoon.

A couple of questions.

Earlier in your comments you mentioned your '08 guidance reflects your best guess of the effect of the Comcast and DISH renewals.

I just wanted to be clear given that those contracts don't terminate until year-end, by saying that are you implying that the new terms could take effect before year-end?

That's my first question.

Thanks.

Karl, this is Peter, yes.

We -- when we look at our overall business we look at the scope of services that we provide for our clients and everything that comes up during a renewal period and what services they want to buy.

We have historically had situations where clients have agreed to new terms before the expiration date of their contract, that's not atypical because nobody wants to be on 12/31 getting their final agreement and in cases, some clients will seek to get some benefit in the current year and our expectations for this year try to account for a myriad of aspects of renewal that could take place so we've tried to estimate something to that extent.

Randy, would you add any color on that?

I'd just say it was our best estimate, not our best guess, Karl.

The other thing I'd say is, all kidding aside I think what I'd say is that the two contract renewals are a little bit different in that the Comcast contract has an expiration date of 12/31/08, so it would be expected that that would be renewed before the end of the year.

The EchoStar contract has two one year renewals that they can exercise at their discretion, so that one doesn't have the same pressure point as does the Comcast from a timing perspective.

Secondly, given that ex the recent acquisition, your revenue guidance in fact hasn't changed from where it was on your last earnings call.

Can I infer that you're not expecting any significant change to the revenue stream that you derive from Comcast and DISH in '08?

No, what you should read from that is our expectations for those are the same as they were in the first quarter as they are now.

Okay.

Thank you.

And then second question on the organic growth rate.

You mentioned on this call that at least in the first quarter it ran sort of 4 to 6% if I heard you correctly, and then on your call last quarter, when you set your top line guidance at 7 to 10%, I believe you mentioned that your assumption for '08 is that organic growth would come in at about half that or let's call it 3 to 4%, so it seems like you're tracking through the first quarter in terms of organic growth above your year average and I just wanted to ask if you're still comfortable with that call it 4% organic growth rate assumption for '08?

I am.

The revenue for the first quarter was probably slightly higher than my expectations were internally but my expectations of what I told you back in the fourth quarter on the acquisition versus the acquired versus organic growth is the same.

It is slightly different now if you remember my guidance, I did make the statement that now with the DataProse included our growth expectation is now a little bit higher.

It's 11 to 13% now versus the 7 to 10 and it's mainly because of DataProse so the profile has changed a little bit.

Probably two-thirds of that 11 to 13% is now acquired growth with the remainder amount being organic but that also should equate to the 4 to 5% as well.

Got it.

That's helpful, thank you.

Yes.

Thank you, sir.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Donna Jaegers with Janco Partners.

Hi, guys.

A quick question on how you're counting organic versus acquired.

If Prairie Voice sells their capacities to Comcast or to an existing customer, is that organic because you're selling a new service into that existing customer or is that acquired?

The way I define organic, Donna, is that the base revenue that we got from the acquired business is what I would call the acquired and if they grow their revenue subsequent to the acquisition by CSG, I consider that to be organic because it's being basically driven by the management of CSG.

Okay, great.

Thanks.

That's helpful.

Thank you, ma'am.

(OPERATOR INSTRUCTIONS) Gentlemen, we do not have any further questions.

Please continue with any closing remarks.

I would like to thank all our shareholders for their support during the first quarter which was a rocky, tumultuous time in the investment markets.

I also want to thank our employees for their continued efforts of everything they do every month and every day for our clients, as well as what they do for each other.

So we look forward to moving into the second quarter and as we already have started and look forward to delivering results to you come July.

Talk to you then.

Ladies and gentlemen, this concludes the CSG Systems Q1 earnings conference call.

You may now disconnect.

Thank you for using ACT Teleconferencing and have a pleasant day.