CSG Systems International Inc (CSGS) 2009 Q3 法說會逐字稿

Welcome to the CSG Systems third quarter conference call.

(Operator Instructions) I would like to turn the conference over to Liz Bauer, Vice President of Investor Relations.

Please go ahead, ma'am.

Thank you, Val, and thanks to everyone 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 client's 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 differ materially.

Please note that these forward-looking statements reflect our opinions only as of the date of the call and we undertake no obligation to revise or publicly release any revisit to these forward-looking statements in light of new information for future events 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.

Also, we will discuss certain financial information that is not prepared in accordance with GAAP.

We use this non-GAAP information in our internal analysis in order to exclude significant items, that may have a disproportionate effect in a particular period.

Accordingly, we believe isolating effect of such event enables us as well as investors to consistently analyze the critical components of our operating results, and to have meaningful comparisons to prior periods.

For more information regarding our use of non-GAAP financial measures, we refer you to today's earnings release on our website, which will also be furnished to the SEC on Form 8-K.

With me today on the phone are Peter Kalan, our Chief Executive Officer, and Randy Wiese, our Chief Financial Officer.

I would now like to turn the call over to Peter.

Thank you, Liz, and welcome back to CSG.

Liz rejoined us a few weeks ago, and will lead our Investor Relations efforts with the help of Kathleen, Randy and myself.

And for those of you who have worked with Liz in the past, I'm sure you'll agree she bring a unique perspective and tremendous energy on our team.

Let's talk about the third quarter.

I'm pleased to report that CSG continues to execute very well in this difficult business environment.

For the third quarter, we posted revenues of $125 million and a non-GAAP EPS of $0.43 per share.

The non-GAAP EPS includes an unexpected $0.3 per share for tax benefit.

For the first nine months of the year, we generated cash flows of approximately $97 million and adjusted EBITDA of approximately $101 million.

We're proud of our ability to execute while continuing to invest over 14% of our revenues in research and development.

Our strong business model, prudent cost management, stable capital structure and long-term relationships with our clients provide us with comfort during these difficult times.

As I've shared throughout the year, CSG has committed to creating shareholder value by growing revenues, profits and cash flows.

We plan to achieve this by executing on three strategies.

First, we will expand our market share as a leading provider of interaction management solutions to North American communication providers.

Second, we plan on growing our relationships with providers in vertical markets where we already have relationships.

And finally, we'll improve the profitability of our business.

Let me give you an update as to how we're performing on these strategies.

I'm pleased to report that in the third quarter we converted 500,000 new customers onto our ICP platform.

We converted another 700,000 customers under our system since the quarter ended.

And we're confident that we will convert the remaining backlog of customer accounts onto ACP through the first half of 2010.

To put this in perspective, in the cable industry, this is the largest conversion of customer accounts since early 2000.

As you all know, this market has changed dramatically over the past ten years.

Back in 2000, we were converting accounts with just one and two lines of business.

Today our conversions include triple play and business customers.

These market share wins and subsequent conversions are strong endorsements of CSG products, services and support.

They represent a client's decision to expand the scope of their business with CSG.

thereby expanding our market share and leadership position.

It also reinforces our value proposition of providing reliable, time-tested solutions to meet our clients' mission-critical business needs, including helping them evolve their business and deepen their relationship with their customers.

I'm extremely proud of the people who have worked around the clock ensuring that our clients' business was converted with minimal disruption.

Anytime you move customer accounts from one customer care and billing structure to another, it's complex, time consuming and something that can't be taken for granted.

Congratulations, and thanks to everyone involved in helping make these conversions a success.

While our conversions represent pure market share gains, we also continue to increase the penetration of our products and services into our existing client base.

Last quarter, we shared with you our progress on increasing our footprint with our voice solutions and as expected, we crossed over the 8 million customer mark this quarter.

This represents a 15% increase in voice customers over the same period last year.

In addition, this quarter we implemented one of our financial service solutions across the national footprint of one of our large clients.

This implementation involved integrating our solution into CSG sites, and a competitor's billing system.

By modularizing and making our advanced solutions billing system diagnostic, we open up additional opportunity for CSG.

We've been successful with this approach in the past ,with products like our Workforce Automation, Product Catalog and Interactive Messaging, and expect this will continue in the future.

Another small but meaningful application that our customers have been seeing success with, is our Mail Trace solution.

This service can be used to accurately predict incoming payments from customers, lowering operations costs and eliminating unnecessary delinquency actions such as collection calls and service disconnects.

In addition, Mail Trace helps reduce the cost associated with rolling a service truck to reconnect service.

In a one-month trial that we conducted with a site of 750,000 customers, Mail Trace helped our client avoid over 1700 service interruptions and avoid an estimated 1300 inbound service calls.

When you consider the cost of an inbound call to a call center, is more than $5, and the cost to roll a truck a home that has been disconnected is approximately $75, this product saves our clients a significant amount of money and improves their customers' experience.

These are just a few of the ways that we continue to expand and deepen our relationship with the leading North American communication providers.

Next, let me share with you some recent successes we've had in cross selling our products into other vertical markets.

As we've discussed in the past, working to capitalize on our success and experiences the leading provider of customer interaction management by taking a subset of our solutions to new markets that have similar characteristics to the communications market.

We believe that we can leverage our experience from the communications market by delivering our statement, eCare and Interactive Messaging services to these new markets.

This quarter we leveraged our relationship with a large pharmaceutical company to cross sell our interactive messaging solution.

One division of this company markets the glucose monitors used by diabetics.

They are running national and print advertisements encouraging people to call a 800 number to order a free monitor.

Our interactive messaging platform collects the name, address, preference of monitor type, e-mail address and options to receive future promotions..

Our clients estimate they will save approximately 66% per call by using our Interactive Messaging solution first as having a live call center agent gather all of that information.

By gathering data like e-mail addresses and monitor types, this company will be well positioned to proactively reach out to those respondents, and remind them when it's time to refill the strips used in the monitors, or provide them with other relevant information pertaining to their health care.

Another win this quarter was with one of our print and mail clients.

in.

This client will upgrade to our secure eStatement solution, a recently announced enhancement to our Precision eCare solution.

Our eCare Solution gives customers the ability to view and pay bills online, upgrade services and deliver the right message at the right time via the customer's preferred communications method.

Basically, we're helping our clients maximize the impact of their monthly statement with accurate, personalized and relevant information via web-based online self care.

Our Secure eStatement solution will allow this client to send it's monthly invoice attached to a secure e-mail.

The attached statement is not a static document.

It offers new technology that enables the client to view and pay their bill directly via interactive features embedded in a dynamic PDF file.

The customer merely needs to open the statement, point and click, and pay their bill.

One of the largest providers of alert services to school districts will use our Precision Email solution to send out emails to parents, to the community providing updates on snow days, medical news, emergency school lockdowns as well as school newsletters.

These type of wins reinforce our ability to cross sell our solutions in the new vertical markets.

We're leveraging the relationship we've have with the clients that we've gained through acquisitions to expand our footprint within those clients with our world class services and products.

While it's early in this process, we like what we're seeing from an interest and an acceptance standpoint.

While we're seeing increased interest and activity with our Content Direct platform, this solution is designed to help the content distribution market by providing an easy way and effective way to market and monetize and manage content to the end consumer.

We're helping these companies engage the customer with more compelling and interactive content.

Most recently, we beta tested a new technology for a major sport brand to allow its customers to view its live events via the website in full high definition.

One of the biggest complaints of users watching sports online, whether it is live or archived is that the quality of the picture and the sound is not as good as what is available on TV.

This project is aimed at solving that problem by creating a much higher quality user experience, in addition to the interactive capabilities that we're already providing including chat and merchandising.

When a user logs onto the event, the system programmatically identifies the user's bandwidth and computer specs to deliver the highest quality video experience, up to full high definition quality, a first for this client.

While all of these projects are not significant contributors to our revenues at this time, they are significant contributors to our intellectual capital, and our experience in a dynamic, changing, complex and highly interactive digital world.

In addition, these opportunities position us well for future growth, as these markets mature.

This is an area where you have to be in the trenches with good solid partners, who's are willing to try new things and think outside the traditional business model.

One area that we've been disappointed in, but not surprised, has been in the trend that we're seeing in the percent of revenues that come from outside of the cable industry.

This quarter, 13% of our revenues came from outside of the cable industry, as compared with 15% last quarter.

The change in revenues can be attributed to two factors.

First, we've been successful in growing our revenues in the cable industry.

Second, many of our solutions aimed at markets outside of the cable industry are more marketing type solutions and therefore are considered discretionary spend items.

As a result of tough economic environment that exists, these types of solutions are more vulnerable to non decisions resulting in a decrease of spending by clients.

We believe that once the economy rebounds, there will be a demand for these types of solutions as companies become more aggressive in their marketing and interactions with their customers.

In closing, I would like to share what we're seeing in the marketplace, as it relates to the tone of the business.

We continue to be optimistic about the remainder of 2009 and 2010.

We've been a trusted and a dependable partner to some of the largest communication providers in the world, and expect that we will continue to be for many years to come.

While sales cycles have lengthened, and decisions delayed, we like our value proposition and have had our value proposition validated by some of the the largest communication providers in North America.

CSG is at the center of helping our clients manage and optimize our customers' experience and the services being offered.

We continue to invest in our products and our people so that our clients can be successful in rolling out new product and services, compete more effectively, and provide a superior customer experience.

Also, we're well positioned to leverage our solutions and our experience into complimentary markets.

We have over 25 years experience in helping our clients maximize every communications opportunity that they have with their customers.

We're making progress in new verticals with our customer intelligence, interactive messaging, statementing and Content Direct solutions.

We're playing in some new spaces with assets that are a combination of both internally developed and acquired products.

It's too early to determine the size and winner in these new markets but it's important that we're playing in these new markets.

We believe that these markets have the potential to grow significantly faster than our core business.

When you combine these factors with our track record of delivering strong operational and financial results, we have reason to be optimistic.

We're pleased with the results that we've delivered to our clients, our shareholders, and our employees.

We appreciate your support of CSG, and look forward to the opportunity to share more news of our progress in the future.

With that, I would like to now turn the call over to Randy for the financial highlights from the quarter, and our outlook for the remainder of the year.

Randy?

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

I'm happy to share the financial results for the quarter, as well as our future outlook.

Overall we're very pleased with our execution and our continued progress for meeting our 2009 goals.

More importantly, our continued strong operational and financial performance has put us in a solid position going forwards as I will discuss in a few moments.

First I would like to review our financial results for the quarter.

Total revenues for the quarter were approximately $125 million in line with our expectations, and relatively consistent with our revenues for the second quarter.

This represents an increase of 6% year-over-year, resulting primarily from our continued success and increase in the penetration of our products and services within our existing client base with the remaining portion due to the timing impact of our 2008 acquisition of Quaero.

We're very pleased with our organic revenue growth, especially considering the fact this is the first year-over-year quarterly measure that reflects the impact of the Comcast extension that was signed in July, 2008.

Revenues generated from Comcast and DISH Network were relatively consistent with the second quarter, accounting for 25% and 18% respectively of our total revenue for the third quarter.

Our non-GAAP operating income for the quarter was $22 million, or an approximate 18% margin.

This non-GAAP operating income excludes $5 million of expenses relating to the transition of our data center services which began earlier this year.

Our 18% non-GAAP operating income margin for the quarter is consistent with the second quarter, but did come in slightly better than our full-year margin guidance of the mid to upper 17% range, primarily due to a slightly higher gross margin percentage, and our prudent management of expenses while delivering on our operational and financial goals.

Our GAAP operating income for the third quarter was $17 million, or an approximate 14% margin.

Our effective income tax rate for the third quarter was 30%, better than our previous estimates with the improvement due to the recognition of higher than expected income tax benefits during the quarter, realized in conjunction with the filing of our 2008 tax return during the quarter.

Non-GAAP EPS for the third quarter was $0.43, which compares to $0.39 for the same period last year.

The third quarter of 2009 includes an expected EPS benefit of $0.03, as a result of the lower income tax rate that I just mentioned.

Just as a reminder, our non-GAAP EPS measures relates to continuing operations only, and excludes the expense related to our data center transition efforts, and the noncash interest expense related to the amortization of the original discount for our convertible debt securities.

GAAP EPS from continuing operations for the third quarter was $0.29.

Our adjusted EBITDA for the third quarter was $34 million, and for the first nine months of 2009 was $101 million.

Non-cash expenses related to depreciation, amortization and stock-based compensation included in the calculation of our adjusted EBITDA for the third quarter totaled $12 million, or $0.24 per share impact.

And for the first nine months of 2009 totaled $34 million, or a $0.65 per share impact.

Turning to the balance sheet as of September 30th, cash and short-term investments were $157 million, up $24 million from June 30th.

This sequential increase can be attributed to our strong third quarter cash flows from operations of $38 million.

Our year-to-date cash flows from operations were $97 million, well ahead of the pace needed to achieve our previous full year expectations.

We spent $10 million on capital expenditures in the quarter, including $2 million related to our data center transition efforts, consistent with our expectations.

During the quarter, we did not repurchase any of our convertible debt or outstanding shares.

We will continue to evaluate the best use of our capital going forward, which may or may not include additional debt and share repurchases.

Next, I would like to provide you with an update to our financial expectations for the full-year 2009.

Overall, our expectations are in-line with our previous guidance.

For the full year 2009, we expect the following.

Revenues will range between $498 million and $500 million.

This guidance reflects revenue growth of approximately 6% over 2008, with approximately half of that due to organic growth, and the remaining portion related to the year-over-year impact of the timing of our 2008 acquisition.

We are quite pleased to see this solid growth in our business, especially during a tough economy.

This growth rate reflects an increase over our initial guidance expectations we set earlier this year, and can be attributed to our market share wins and continued adoption of our solutions.

Based on our momentum exiting 2009, and the opportunities currently see going into 2010, we continue to believe our preliminary planning targets that I mentioned last quarter of mid single digit revenue growth for 2010 are reasonable.

Continuing on, we expect our 2009 non-GAAP operating margin percentage to be approximately 18%, which is a slight increase to our prior guidance, which reflects the strengths of our third quarter results and our spending expectations for the rest of the year.

We anticipate that our fourth quarter operating margin will decline slightly from our third quarter levels, to reflect certain operational investments related to personnel and equipment that we anticipate making as we head into 2010.

But we still see margin expansion opportunities that we believe we can accomplish during 2010, that will help us make progress towards our long range goal of achieving 18% to 20% operating margin.

Our 2009 non-GAAP operating margin guidance excludes the impact Data Center Transition Expenses that are expected to be $15 million to $16 million for the full-year.

This represents a slight improvement over our previous expectations, which reflect the progress being made on the project, which remains on target to be completed in the first half of 2010.

The negative impact of these costs on our GAAP operating margin is 300 basis points, resulting in an expected GAAP operating margin of approximately 15% for 2009.

Next, we expect our non-GAAP EPS for 2009 to range between $1.62 and $1.64.

This represents an increase to our previous guidance and is reflective of our third quarter performance including the $0.03 benefit from the lower tax rate and our outlook for a solid fourth quarter.

We expect our GAAP EPS from continuing operations for 2009 to range between $1.19 and $1.21.

Next, we are increasing our expectation for cash flows from operations to range between $120 million and $125 million, while maintaining our expectation for capital expenditures for 2009 in the $40 million to $45 million range, with approximately $20 million of this CapEx related to our data center transition efforts.

We expect the total of our noncash items of depreciation, amortization of intangible assets and stock-based compensation to be approximately $46 million for the year.

This guidance reflects net effective net income rate of 34% for 2009, slightly better than our previous guidance to reflect a lower tax rate recorded during the third quarter.

Going forward, into the fourth quarter and into 2010, we expect our tax rate to be relatively in line with the 35% reported for the first half of the year.

We do not assume any significant changes in our guidance for diluted shares outstanding for the current amount of 34.5 million.

To summarize, we are very pleased with our results for the third quarter and the first nine months of 2009, and expect to finish the year strong and enter 2010 with significant momentum.

Our business continues to operate solidly during these challenging times as evidenced by our continued revenue growth, operational excellence in profitability, strong cash flows, solid balance sheet and market share wins.

We are excited about the positive strides we are making, and believe we are well positioned to create shareholder value.

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

Thank you, sir.

(Operator Instructions) Our first questions comes from the line of Shyam Patil with Raymond James.

Please go ahead.

Good afternoon, this is Varun Chadha filling in for Shyam.

Hi, there.

Can you give us an update on the DISH renew?

Sure, this is Peter.

Discussions and negotiations with the management team of DISH continue, pursuing a multi-year deal.

I don't have this specifics to give you on expected timing though.

We are working hard and continuing in those discussions and negotiations.

Our goal is to build upon the 12-year relationship that -- 12 plus year relationship that we've had with DISH as they've grown their business.

And we're really focused on being a valued and trusted partner going forward with them.

And I'll tell you I'm confident we can be successful as we, as we work on this during the remainder this fourth quarter, and remain confident that we can be successful in achieving a multi-year deal.

We've been successful in continuing to bring new products to them over the recent years, and continue to support them from an operational and business perspective this year.

And we have confidence as we finish out this year.

Alright, got it.

Also, could you comment briefly on the gross margin?

How should we think about that going forward?

This is Randy.

I think if you look at this, I think I mentioned this in past quarters.

The software can be lumpy at times on the revenue side, so I think if you look over the last several quarters it's ranged -- if you include this quarter, it's been in the low 20s, up to the 40s.

It's highly dependent on the level of software revenues.

So I think as you look in your model, probably that range is what you're going to have to look at.

Got it.

Thank you.

Thanks.

Our next question comes from Ashwin Shirvaikar with Citigroup.

Please go ahead.

Hey, guys.

Welcome back, Elizabeth.

Thanks, Ashwin.

My question is, do you guys see any reason why free cash flow in 2010 should not be higher than in 2009?

I think you should expect free cash flow to grow in -- at the same relative pace as our revenue growth, Ashwin.

I think our margins look like they can be comparable year-over-year.

So there never is much change in our working capital, so I think if you use those two assumption us should be able to get to a pretty good answer.

Okay.

And is there a schedule that you can share with regards to when the remaining subscribers of Tier one are going to come on board, first quarter as versus second?

No, we're hesitant to try and get that exact in our projections and our outlook for you just because -- as we know there's a complexity of conversions can cause the actual definitive timing to shift.

And we just don't want to get ourselves in front of the expectations of what we can do with our clients.

So we'll just leave it as that general range that we gave you in the comments.

Okay.

One question I had this morning, away from the cable side of things.

If you sort of separate out cable versus non cable, what is each segment growing at?

And do they have similar adjusted EBITDA margins the way you define them?

Let me first take the perspective on the growth.

And then I'll let Randy talk about some of the other components of the profitability.

From a growth perspective, we believe that these other vertical markets/ the products we're bringing to those vertical markets have inherently higher growth potential.

One is, the diversity of the number of potential client and prospects that we can sell into.

As well as just the sheer size that we're starting with today, means that the growth rates should be higher, but there are more clients and prospects from which to sell to.

So we believe that can generate higher growth rate that what we're seeing in the traditional core market where we have a higher concentration of clients, but clients that are still very important to us and ones that we've been able to grow in their own right, by delivering more products and services.

From a profitability perspective, Randy, I would say--

The thing on that, Ashwin, is that these markets that we are in are not as mature as our core business, so you wouldn't expect the margins to be as good as our core business.

We are making improvements there, but right now they're not at the same level of profitability.

So if I tried to quantify that first in terms of growth, higher growth but what does that mean?

Are you talking upper single digits, are you talking low double digit growth.

And then on the margin, part of the reason I asked for an adjusted EBITDA, I thought maybe could wash out some of that lack of maturity in the market.

Does that help?

Well I think it does.

I guess first from me, kind of trying to give you some specifics of how to think about the growth, I'm hesitant to try to say one is a 5% and one is an X rate.

What that specific rate could be, because there's still a lot of economic factors in play.

The timing of when we think those sales could accelerate.

and so I'm hesitant to do that.

But I think overall we do believe over the long-term, and we believe this strongly, that those markets can substantiate really more of the double digit growth rates than the single digit growth rates that we've been experiencing in our traditional market.

And last question.

That higher level of growth, should that -- will that in your opinion effect the cash flow characteristics of the Company?

I do not think it will change the characteristics of our cash flows.

Great, thank you.

Ashwin, one clarifying point on your very first question here.

Your question was on free cash flow.

My answer was regarding cash flow from operations.

I think the other component of your free cash flow calculation is probably the CapEx.

Right.

If you look at our CapEx for this year its about 40 to 45, So it's about $20 million high because of data center.

I think if you looked at 2010, you would not expect a similar amount of CapEx.

Probably more in line with our historical range of about 20 to 25 is probably a better estimation.

Thank you, very useful.

Thank you.

Thank you, and our next question comes from the line of Scott Sutherland with Wedbush Securities.

Please go ahead.

Hi, thanks.

Congrats on the quarter.

This is Suhail sitting in for Scott.

Hi, there.

How are you doing?

Good, thanks.

So two quick questions really.

Obviously you're seeing sustained cash generation.

Any color on plans for investment of this cash, internal versus external?

We continue to believe with that there markets we're supporting and changes going on in the cable and DBS market, and the directions of our solutions set, that there will be opportunities for us to continue to invest both from an R&D perspective that we've done in the past, and still continue to invest 14% of our revenues into supporting our future capabilities.

But we also believe that there's going to be opportunities, and strong opportunities for us to find acquisitions that can accelerate the time to market, that can accelerate the gains of market share, and bring some functionalities to the -- to our solution set that would be a use of our cash.

We continue to look at stock repurchases and debt repurchases, but number one our list is still acquisition as a priority use of our cash.

We like the markets we serve.

We think there's interesting dynamics happening in the near and immediate term, and we want to make sure we're well-positioned to really capture those, and maintain our leading position with those relationships.

Thanks, and if I may a quick housekeeping question.

So data center transition costs have been nudged lower to 15 and 16, so indicating maybe 6.3 for Q4.

So the transition, is it going to be completed by December 2009?

Or will there be any transition cost into 2010.

We expect to be be completed by the date center transmission by the middle of 2010.

So you should expect additional costs going into 2010 as well.

Okay, but there won't be any CapEx then.

But there is going to be transition costs.

There may be some CapEx that transitions over the end of the year, it depends on the timing of some of the acquisitions of some of the additional gear that we need.

But I would not, I would clearly not expect it to be at the same level of 2009 as I just mentioned earlier.

Sure, great.

Could you maybe -- some guidance on that.

Maybe as a fraction of the '09 spend, CapEx and also transition costs?

I think what you can probably do, just what make sense, is you should be able now to determine what the exit rate is out of 2009, and then make your estimations of that going into 2010.

Okay, great, thanks.

Thank you, and our next question comes from the line of Tom Roderick with Thomas Weisel & Partners.

Please go ahead.

Hey, guys.

This is [Chris Coe] in for Tom Roderick.

How are you guys doing?

Good.

Great, great.

Good to hear.

Just a quick question as far as the subscriber migrations you mentioned.

With that, I think it's about 1.2 million now, and I know you don't want to commit to an exact timing.

But is that faster or slower or about on target with what you were expecting as far as the speeds internally?

It's pretty much on track with what our expectations were.

And I think we're pleased with how they've gone because of the session we've had with supporting the client.

But as I commented earlier, Chris, we're very cautious of making sure we set the right expectations with our clients of what to do on this, and how they progress forward.

And so they're on track with what we expect, and we still have a lot of work in front of us for the remaining subscribers we have to convert from now and the first half of next year.

Can you disclose whether the migrating subscribers are all Charter, or was it a mix of 2 million Charter, plus 1 million other market share wins?

The majority of it is Charter.

I don't want to get into any specifics.

But because the vast majority of the subs that were scheduled to convert were Charter, that would also play into what was done in the first quarter, and the first couple weeks of this month.

Okay, thanks guys.

And also on a follow-up, on the DISH Network -- I know that's everyone's favorite topic -- but as far as -- would you guys be open to another one-year extension if you're unable to get price point that you're looking for?

Well, our focus and goal is, and as is the goal for DISH, is to do a multi-year agreement that really meets the business needs of them and us.

We weren't wanting to do a one year agreement at the end of last year, but we thought it was the right thing to do for the Company.

Dependent upon how things progress, we will evaluate that at that point.

But I don't want to speculate right now, what we would be willing to do by the end of this year.

Okay, if I can just come at it from another angle then.

It sounds like tone-wise that things are still not quite (inaudible) the head.

Has there been a difference between the larger cable providers versus the smaller guys in their willingness to spend discretionary or not on software?

Well I don't want to just package it down to software, but I think we really have to look at all of our solutions.

Our clients, whether they're our large clients, or some of our medium size or small clients, we've had success of rolling out products and feature functionality to all of them.

That the footprint capability has expanded.

We've pretty much grown revenues across all of our cable clients.

Really all of our cable and satellite clients have all embraced and grown with the amount of services and revenue, that we then get for those services.

I don't want to say that there is anything that I can think of that's disproportionate one way.

But every company, whether it's a cable or satellite operator, or any industry you're looking at, in these economic time is really watching how they spend money, making sure they get return on it, and making sure it's something they really critically need for the operations of their business, and the operations of their customer relationships.

So there is cautiousness by all businesses that we've come across.

And especially around those solutions that are more marketing-oriented, because those are the ones that right now, it seems like companies are very focused on retention, and deepening those relationships, versus how do they go out and get the next big slug of new customer growth because that's been more difficult these days with the economic situation.

Thanks, guys.

Good job.

You bet.

Thank you.

And our next question comes from the line of Shaul Eyal with Oppenheimer & Company.

Please go ahead.

Thank you, hi, good afternoon everybody, and Liz, welcome back.

Thanks a lot.

Two quick questions -- three as a matter of fact from my end -- you guys talked in the past of kind of taking your billing platforms in some additional direction.

You guys probably know Convergys, and these guys have taken their billing and rating engines towards the utilities.

What is kind of your thinking on that, and are you also thinking of being active in pursuing similar opportunities?

Well, Shaul, we are very focused on growing in new vertical markets.

And we've been taking capabilities such as Interactive Messaging, our statementing our CI capabilities and those types of solution sets to those markets.

We think very highly of our advanced convergent billing platform that we have, and that we have widely deployed in the communication space.

But we don't think that's the right asset to go to those other vertical markets and it's never been our focus to try to take it to those places.

We're leading with what I would call the solution sets that are really closer to the actual interaction with the consumer.

And then we'll work to deepen those relationships and see how we progress forward from that.

Got it.

That's fair enough.

On the business intelligence side, what's the current status, what's the current thinking ?

The customer intelligence piece?

Yes, Customer/business intelligence.

BI, yes.

We have a customer analytics focus that allows us to go through and do analytics for analysis, and working on -- in conjunction with our clients to have solutions that would give us, and our clients the ability to determine the success of their marketing and retention programs, to understand what is the next product most likely to be sold or taken by their customer set.

And this is focusing again in the cable and DBS space.

And we've been working to get the Quaero capabilities that we acquired at the beginning of this year integrated into our solution set, and we're make good progress on that.

We think there's a strong need for this in the marketplace, as our clients advance from where they are from a marketing and sales perspective.

And it's really part of the overall strategy of how we help our clients in managing their business and customer service.

We don't have anything to announce from our first rollout or success or win on that.

But we still believe this is a strong business proposition, and we continue to invest in that integration of our acquired business to solve that.

Fair enough.

I might have missed that in your prepared remarks, as I was a little late to the call.

Have you talked about capitalization?

I know that's a question that keeps coming back quite regularly given your very strong cash flows, cash generation, other than buyback, M&As, that's pretty much it.

So I did comment a little bit earlier.

It wasn't in the prepared remarks as much.

But from a capital structure, we feel very fortunate to have the strong balance sheet that we do, with the strong cash balance, and a good solid capital structure of our equity, and our debt in place.

Our focus on the use of our cash flow and our cash balance is to, first and foremost, look for ways to grow the business.

We would do that through continuing to invest in our business as we've done from internal R&D.

But we would also look to augment that like we've turn over the last two or three years with acquisitions.

That's our highest priority, but as we've done earlier this year, we've been willing to repurchase some debt.

You'll see it in the press release, or from Randy's comments that we didn't purchase any in the third quarter.

But that's an area that we've been willing to do in the past, and we've repurchased shared past as well.

But when we put all of the priorities together we look and say, reinvestment in growing this business and growing the markets we serve, is the top priority and where you should look for us to use our capital going forward.

Okay.

Thank you very much.

You bet.

Good luck.

Thanks.

Thank you.

(Operator Instructions) And our next question comes from the line of Karl Keirstead with Kaufman.

Please go ahead.

Hi, this is Shatil filling in for Karl.

Hey Shatil, how are you doing?

Hey, how's it going?

Good.

A question on growth.

This quarter you said -- well growth was about 6% on the top line.

Organically last quarter we backed into about 3.5%.

Is it safe to say that growth is upticked in this quarter?

It's probably about three fourths of the 6% so slightly greater than the 3.5.

Okay.

And are you still comfortable for 2010 about 5% to 6% growth.

As I said in my comments earlier, we feel good about the momentum we've developed here in 2009.

And we're excited about some of our opportunities.

So the preliminary planning targets of mid single digits of 5% to 6% are still pretty good.

We think they're very reasonable targets at this time.

Okay.

Great and then on the margin line.

Margins came in a little bit higher than we expected.

Want to drive out what helped you out there.

It could have been Comcast deal and maybe less pressing pressure.

What exactly might of helped you out?

Well, the margin is relatively consistent with the second quarter.

It's only about 20 basis points higher, so there's not a significant change.

So it's very consistent.

I think if you were to look at two things.

I think if you look at the gross margin on the processing side, it jumped up pretty good this quarter.

Mainly because of more profitable jobs so nothing you need to look at but it did provide a little bit of uptick to the overall margin.

And we continue to control our costs as we continue to deliver on our operational financial goals.

So I think its a couple things, Just good prudent management of the business.

Okay.

And last question on 2010 margins, margins are going to be comparable to maybe slightly up.

What have you baked in for the DISH contracts, did you bake in a multi-year contract, or have you baked in a single year contract into your margin expectations for 2010?

We've got multiple scenarios, as you do with any targets.

You look for different scenarios to make sure you have them covered.

I would say that either a single year, multi-year would be covered by that.

But I think as Peter mentioned, we think that it's in the best interest of both parties to look for a multi-year, and I think -- there's many other factors than DISH than 2010

Thanks for taking my questions.

You bet.

And our next question comes from the line of Larry Berlin with First Analysis.

Please go ahead.

Good evening, guys.

Welcome back, Liz.

Hey, Larry.

You sounded too happy, Liz, reading the legal stuff up front.

Yes.

I'm always good with the legal stuff, Larry.

Yes, I know.

Just a quick question on the software maintenance and service revenue line.

We had a bit of the jump in the June quarter, and a bit of the dropoff from there.

And just curious what was in the June if you could remind me that's not occurring in the September.

And then should we look forward to -- which line should we better look at towards September?

I think Larry, from the second quarter, I think I mentioned this last quarter, there were a couple of larger software deals that happened in second quarter.

Those were very much dependent on discretionary spend pictures client.

They're difficult to predict.

The other thing is that the timing of some professional services projects can sometimes cause that amount of revenue to fluctuate between periods.

I think if you look at the last three to four quarters, you can kind of see that it's generally in the 7.57 to 8.57 range and I think that's a good estimate going forward.

Okay.

Thanks for the reminder.

Appreciate it.

Thank you, Larry.

Thank you.

And I show there's no further questions in the queue.

I will turn it over to management for closing comments.

Thank you and thank you to all of our investors and analysts who are on the call.

We continue to perform well.

We look forward to a fourth quarter where we'll continue to perform both operationally and financially.

And we look forward to January of next year when we report our results.

And until that time we'll continue to keep our heads down and focused on performing for all of our constituents.

Thanks.

Thank you sir.

Ladies and gentlemen, that does conclude today's CSG Systems third quarter conference call.

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