CSG Systems International Inc (CSGS) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by.

Welcome to the CSG Systems first-quarter conference call.

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

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

(Operator Instructions)

This conference is being recorded today, Tuesday, May 3, 2011.

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

Please go ahead, ma'am.

Thank you, Christine, and thanks to everyone for joining us.

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

These include, but are not limited to, statements regarding our ability to meet our financial expectations as a result of an increased dependency on software sales, which are subject to greater volatility; our ability to meet our clients' needs through our products, services, and performance; our ability to successfully integrate and manage acquired businesses in order to achieve their expected strategic, operating, and financial goals; and our ability to successfully conduct business in the international marketplace.

While these forward-looking 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 statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release any revision to these forward-looking statements in light of new or 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 our most recently filed 10-K and 10-Q, which are all available on the investor relations section of 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.

We believe that isolating the effects of such events 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 and non-GAAP reconciliation tables 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.

With that, I'd now like it turn the call over to Peter.

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

For the first quarter of 2011, we generated revenues of $183 million, and non-GAAP earnings per share of $0.54.

This is the first full quarter of financial results that includes our recent acquisition of Intec Telecom.

While our top line financial results reflect a slower-than-anticipated start for the year, we've made progress in several key areas over the past several months that we believe are reflective of the strength of our business.

For example, we secured a long-term contract with our second-largest client, we've added several new clients to our extensive list of service providers worldwide, and we continue to deliver strong bottom-line results while increasing our investments in the business.

Since we closed the Intec acquisition in December, we have been intensely focused on meeting with our clients, partners, and employees around the world as we integrate that business with CSG's.

I'd like to share with you what we've learned.

Our clients have shared with us that their operations are becoming increasingly complex as they look to manage and enhance the entire customer experience from the first interaction to the actual purchase and consumption of various services.

As the consumption of services continued to increase across multiple networks and devices, providers are looking for an easy way to not only provide the consumer with more power and control over their consumption of services, but also ways to provide more targeted offers and products to those consumers based on their individual preferences.

A la carte or tiered pricing is gaining some ground in mature markets, while simpler pricing plans continue to be the norm in emerging markets.

We believe that our combination of highly scalable flexible solutions will enable operators to offer highly personalized and sophisticated content offerings in a rapidly changing market, while also helping those clients who are experiencing high organic growth.

Our partners have told us that globally, operators are starting to look for ways to monetize their investment that they've made in their networks and their infrastructure.

Operators realize they cannot build their way out of the incredible increase in bandwidth that's being consumed; in particular, the high bandwidth at peak times.

However, they can look for ways to give the customer more control and more say as to how they consume products and for what price.

This plays nicely into the investments that we've made into our broad and vast solution set.

Our partners have applauded us for the ease in which it is to do business with CSG, a theme that came through loud and clear with our clients as well.

Finally, our employees have reacted very positively to the integration in the various areas into 1 consolidated Company, focused on enabling our clients' success.

Our operational product, administrative, and sales teams are now consolidated.

Here is how those findings in the field are reinforced by our accomplishments for the quarter.

Clearly, securing a 7-year extension with our second largest client, DISH Network, is something we're proud of.

This occurred in January, and we discussed it on our call in February, so I'll not spend any additional time on it today.

DISH has been in the news quite a bit lately, and we believe that their decision to move to our Advanced Convergent Platform will position them to leverage their investments in network and content.

We believe that our continued investment in our solutions, both through internal R&D and also through acquisitions; and our investment in meeting clients' needs on a daily basis, was instrumental in the long-term commitment that DISH made to CSG and our solutions, as they continue to evolve their business and their offerings.

As we look at our cable and satellite clients, we continue to see strength in their businesses, as well as the continued focus on identifying alternative methods for providing more control and content to their consumers.

Whether that be through their own major M&A efforts to purchase content or spectrum, or leveraging the investments that they've made in their current infrastructure to provide more and more targeted and personalized experience, our cable and satellite clients continue to utilize our solutions to increase loyalty, decrease churn, and provide for a more meaningful experience.

And while the fears of cord cutting continue to get pressed, we ended the first quarter with 49 million customers on our processing solutions, basically flat from the end of 2010.

One thing that we know for sure -- our cable and satellite clients are not sitting around waiting for competitors to steal their customers.

They're innovating and creating a more robust and personalized customer experience, and we believe that with our newly acquired products and our well established products, we're in a good position to help them succeed.

Along with the new agreement with DISH this quarter, our Americas team had a solid first quarter across the board.

We signed a contract with CREDO Mobile, a US based mobile and long distance operator, to provide Singl.eView, our convergent prepaid post-paid offering, in a managed services basis for 10 years.

We signed a contract with a major wireline and internet operator in Chile to replace a competitor's mediation solution.

And we completed the implementation of our Singl.eView and mediation solutions in MasterCard's operations, making our solutions the core of MasterCard's billing life cycle management process.

This implementation demonstrates the extreme flexibility of these solutions, and reinforces the point that we can use these assets to provide solutions to businesses that manage high volume transactions regardless of the industry.

Our APAC team signed a contact with Hutch 3G Hong Kong for a billing transformation project, in which our Singl.eView solution will replace its legacy billing solution.

Our EMEA team signed a new mobile operator in Africa, despite all the civil unrest that exist in neighboring countries.

The civil unrest in parts of the Middle East and Africa is creating a challenge, as decision making has significantly slowed down.

This has been a growing market for our solutions and continued delay or shutdown in decision making has an impact on our software license and professional services revenue streams.

Overall, we're seeing pipelines building in every region, although decision making -- in particular for large transformational projects -- continues to be long and drawn out.

While operators are looking for ways to leverage their investments in people, networks, and products, there's still a sense of cautiousness in spending more money in these times.

Moving on to the Intec integration, some activities are progressing as planned, and others have had to be modified, based on our findings over the past several months.

Our product teams are fully integrated and continue to work on both the domestic and international product road map that provides for both short-term benefits for our clients, while at the same time lays the foundation for a longer term product strategy that maxes the flexibility of our extensive solution set.

We've shared with several of our cable and satellite clients our long-term plans for the integrations of Intec's prepaid rating and charging solutions into our ACP platform, and have received good feedback.

In addition, our product teams are working to extend the content and subscriber management capabilities inherent in our content direct solution, to our international base of customer care and billing clients.

This will allow our global base of communications service providers to offer a more robust and seamless digital content offering to their communication bundles.

Our operation teams continue to look for ways to leverage our extensive international infrastructure, and implement consistent policies and processes across all of IT development and services organizations.

Our administrative teams have focused on ensuring consistency and compliance across the entire organization, to leverage the values and integrity of both organizations as we move forward on this transformational journey.

While all of this sounds great, as I've stated earlier, we got off to a slower than anticipated start this year in sales.

With the Intec acquisition closing at the end of 2010, we had expected that our 2011 revenues would be back-end loaded, based on the expected cautiousness that occurs in decision making on the part of any acquired company's client, and the natural ramping up associated with any large organizational integration.

As we worked through the first quarter, we saw that the 2011 targets would be more difficult to achieve.

And along with this, we determined that we needed to invest more in our sales, partner, and marketing organizations; and have added new leadership and sales staff in parts of our organization.

While it'll take some time for us to realize the benefits of these changes, we believe that this was the right thing to do in order to capitalize on the long-term opportunities that we're seeing.

As we continue to work through the integration of the 2 Companies, we've not uncovered anything in our first 5 months of owning Intec that make us less excited about our future.

As we look at the near term, this acquisition continues an important evolution for us, as we look to continue to help our clients manage their customers' experience in a way that enables them to grow and succeed.

While we have a lot of work ahead of us, and will continue to focus on doing what's needed to position us for the long term, I like our position.

We work with a vast and diverse group of clients who are leaders in a highly dynamic and changing market.

We continue to extend and expand our relationships with providers in the ever-changing communications market, as we demonstrated this quarter with our contract extensions and new client additions.

We've been able to take our solutions to new verticals when we see the right opportunity, as we did with MasterCard.

We have a sizable international infrastructure that provides us with a scale to take advantage of the opportunities that we're seeing in the market.

We have an extensive and broad product portfolio that will allow us to continue to be a meaningful partner to service providers around the world, and we've continued to invest in the business to help our clients be successful.

We're good operators.

We know how to manage the business to deliver strong financial results.

As I said earlier, we have a lot of work ahead of us as we transform this Company from a North American-focused partner to a global leader in providing business enabling solutions.

However, as I meet with our employees and clients across the globe, I really like what I see.

I'd like to thank our employees for their hard work and commitment to our united cause, and thank you, our shareholders, for your interest in our Company.

With that, I'd like to turn it over to Randy to go through our financial performance for this quarter.

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 of 2011.

This is the first full quarter of financial results from our recent acquisition of Intec Telecom.

We are making good progress on our goals to solidify and expand business relationships with existing clients, add additional product capabilities through our continued R&D investments, and integrate the capabilities of both businesses.

I'd now like to walk you through our financial results for the quarter in more detail.

Total revenues for the quarter were $183 million, up 41% over the same quarter last year, and up 19% sequentially over the fourth quarter of 2010, with this growth reflective of the first full quarter of financial results for Intec.

This revenue growth and the underlying components of that growth reflect the size and the transformational nature of the Intec acquisition to CSG, and also reflect our long-term goal to grow revenues from both organic and inorganic sources, while still delivering solid operating results.

I would like to provide some additional color around our revenue profile, since this is the first full quarter with Intec's results included.

First, historically we have generated well over 90% of our revenues from our processing customers.

As a result of our expanded delivery capabilities from the Intec acquisition, our first quarter revenues consisted of 70% from long-term processing and managed services contracts that generate revenues on a recurring monthly basis.

The balance of our revenues came from software, maintenance, and related professional services fees.

Because of the close relationship on the sales, delivery, and certain cost components of these revenue streams, we will continue to report the revenues and the related costs of goods sold for software, maintenance, and professional services on a combined basis in our income statement presentation.

While our software and professional services solutions provide us greater diversity and capabilities in our delivery model, it also introduces the risk of greater variability in our operating results due to the inherent nature of this type of revenue stream.

However, because of the recurring nature of many of the services we provide to our customers, our 12-month revenue visibility is over 80% going forward.

Second, with the Intec acquisition, we have expanded our customer base and diversified our revenue sources.

Historically, we have had 4 material customers that each accounted for greater than 10% or move of our total revenues, and on a combined basis, represented approximately two-thirds of our total revenues.

This quarter we had only 2 clients that individually generated revenues over 10% of our total revenues -- Comcast at 19%, and DISH at 13% -- resulting in approximately one third of our total revenues coming from these 2 material customers.

Also for this quarter we generated 14% of our revenues outside the Americas, compared to none in the same period last year.

We believe that this diversification not only improves the risk profile of the Company, but provides us with additional opportunities for growth.

Moving on, our non-GAAP operating income for the first quarter was $33 million, which compares to $28 million in the same period last year, or an increase of 17%.

While this is solid year-over-year growth, this does represent a margin of 18% for the current quarter, compared to 22% margin for the first quarter of 2010.

This margin percentage reduction is consistent with our expectation, as it reflects the full quarterly impact of the lower margin profile of our expanded software and services business; the impact of several long-term investments we are making in our business, including our 7-year contract extension with DISH; the additional investments we're making in our R&D efforts; and the expansion of our go to market strategies.

We have proven to be good operators of our business, and you should expect us to apply the same discipline and principles to our now larger worldwide business, and seek ways to expand our margins over time as we gain greater scale and realize the benefits of our long-term investments.

GAAP operating income for the quarter was $24 million, or a margin of 13%.

Non-GAAP EPS for the first quarter was $0.54, which compares to $0.49 for the same period last year.

This represents year-over-year non-GAAP EPS growth of 10%, driven in large part by the increase in our non-GAAP operating results over last year.

GAAP EPS for the first quarter was $0.35.

We ended the first quarter with a cash balance of $167 million, which was down from our year-end balance of $216 million.

Let me walk you through the big items affecting our cash in this quarter.

During the quarter, we paid off our revolving line of credit of $35 million that was taken on as part of our financing of the Intec acquisition, and made our first scheduled principal payment of $2.5 million on our term bank debt.

As a result, we ended the quarter with long-term debt balance of $373 million, or $206 million net of cash.

Next, as we anticipated, our cash flows from operations for the quarter came in at a negative $2 million.

This was driven in large part by a $20 million negative impact resulting from a change in the monthly invoice timing for DISH Network, which was included as part of their contract extension terms.

In addition, we paid $8 million of accrued Intec acquisition expenses during the quarter.

And finally, our capital expenditures for the quarter totaled $4 million.

For the first quarter, our adjusted EBITDA increased to $43 million, or a 22% growth over the same period last year.

Based on our solid financial position, and our history of being strong operators, we are very comfortable with the level of debt that we have on our balance sheet, and the flexibility our capital structure provides us to manage and grow the business going forward.

Moving on to our guidance -- as a result of the lower-than-expected start to the year, we are lowering the top end of our revenue guidance to the mid-point of our previous guidance.

However, we believe we can still deliver our operating results at the high end of our previous guidance, as a result of our continued focus on solid and effective delivery of our solutions and continued prudent expense management.

One thing that we have proven throughout the years is that we're able to deliver bottom line results.

We do not anticipate that changing as a result of any of the factors that we discuss today.

Our revised revenues will now range between $757 million to $765 million for 2011.

We continue to expect our full-year 2011 non-GAAP operating margin to be approximately 18%.

We expect to operate towards the low end of our long-term target range of 18% to 20% in the near term.

With our proven history of execution, we believe that our long-term goals are achievable over time, while in the short term we continue to invest in the business.

We continue to anticipate adjusted EBITDA will be within the range of $177 million to $181 million, or 24% of our expected total revenues, which represents growth of approximately 13% over our 2010 adjusted EBITDA performance.

Moving on, we expect our non-GAAP EPS for 2011 to remain within our previous guidance of $2.24 and $2.32.

This non-GAAP EPS guidance continues to reflect and assume effective income tax rate of approximately 37% for the full year 2011.

As we work to implement our longer term global tax planning strategy during the year, we may see some volatility in our quarterly income tax rate.

Our 2011 guidance does not anticipate any significant impact from foreign currency fluctuations, since we generate approximately 80% of our revenues in US dollars, and because of the difficulty in predicting foreign currency rates for the remainder of our revenues.

We do have our portion of our foreign revenues and expenses in a natural hedge position, but we are still subject to foreign currency fluctuations in certain areas.

We continue to expect cash flows from operations for the year to fall within the range of $105 million to $112 million.

Although we experience negative cash flow from operations in the first quarter, this was anticipated when we established our guidance back in February.

Our expectations for 2011 capital expenditures has increased slightly, and is now expected to come in around the high end of our previous range of approximately $25 million.

To summarize, we continue to have a financially strong business that is driven by a solid base of recurring revenues, long-term relationships with global client base, and a broad and diverse product portfolio.

We are proven operators and have demonstrated through our actions that we'll make decisions aimed at creating long-term shareholder value.

We know that we have a challenging year ahead of us as we transition our business from a North American focused processing Company to an international provider with multiple delivery capabilities.

However, we believe that we have established a strong foundation to take advantage of the growth opportunities that the changing communication industries are presenting to us in the marketplace.

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

Operator?

Thank you.

Ladies and gentlemen, at this time we will begin the question-and-answer session.

(Operator Instructions) Scott Sutherland with Wedbush Securities.

Please go ahead.

Hi, thank you.

This is (inaudible) sitting in for Scott.

I apologize if I missed this, but could you possibly give us some specifics around where exactly you've seen the kind of [Vantage] slowing product this year?

We're having trouble hearing you on the question.

Can you repeat that, because it sounds like--

Sure.

Apologize, is this better?

Yes, that's great.

Thanks, (inaudible).

Okay, okay, sorry about that , Liz.

So I was wondering if you had mentioned, and I apologize if I missed it, that you said there was a slower than anticipated start.

Is there any specific geography or area that you're seeing this weakness and has this anything to do with-- more to do with maybe the recent contract renewal you had, and just trying to understand when would you expect would it be kind of a second half do you expect it to kind of come back

Well it's a great question and there's several pieces in there.

I guess first I want to stress that the impacts that we had from the contract renewal with DISH Network had nothing to do with our assessment.

We are-- that was communicated and built into the expectations that we had in the year for our original guidance.

And as I commented there, we always expected that the second half of the year would have higher sales revenues for us in the first half, and I won't go into the various specifics for that, but I will tell you where we've seen-- what we're seeing in the business that would cause us to be more cautious about what the opportunities are for the year.

There's been several things that have happened for us.

One is historically we've always been able to drive some revenues from our marketing and communications services which is discretionary by our clients on the processing side.

As we entered 2011 we were expecting that we would have some strength on that after a weaker 2010.

That's come in as we look to our outlook now we're seeing the behavior of our clients, we see that as being softer for 2011 than we anticipated.

We've also seen in our sales pipelines and the opportunities that we have around the world a few things that have happened.

One is large billing replacements have been delayed where we had comfort or expectations that we would win those earlier in the year and at this point they're looking delayed and because of the nature of how that revenue is recognized, both software and services, it potentially moves revenue much later in the year or potentially not in the year at all.

The-- as we've gone through the integration of the business in the first quarter, we've had a chance to dig deeper into the pipelines in some of the regions and in some cases we found the quality of the pipelines and the quality of the deals weren't as robust as we were expecting them to be, and through that that's caused us to recognize that we likely weren't going to see those mature into signable deals.

And lastly the political and civil tensions that are happening in Africa and the Middle East are definitely having some impacts from opportunities in those areas.

Those are areas where our international business historically has been pretty strong and those are pushing opportunities out and at this point we don't have a comfort of when that's going to settle down.

So that's been the drive on when you look at all of those.

It is not one single issue, one single region.

It is multiple areas that we look at some delays, some weaker pipelines than we anticipated and some behavior on discretionary spending by clients.

But I would just come back and tell you what we've done to make sure that we address some of the things that we've seen.

In the areas where we saw not as strong quality pipelines, we've made sure to introduce better sales leadership and made some people changes.

We've made sure that we added sales coverage to make sure that we were exploring all opportunities and not letting anything go by on a quality basis and so we've added sales staff.

We've been investing in our partner relationships to make sure that we have a strong partner organization, and we've been putting time and effort and people into our sales operations and sales management processes to make sure that we have good understanding on the quality of the pipelines as well as the progression of the opportunities in the pipeline.

So all that being said, you see a softness in the outlook on the pipelines and the nature of how this business is for revenue recognition, we thought it was prudent to reduce our top end outlook.

Thank you for the detailed color.

And just one last question, if I may.

What are the opportunities, and I think you kind of went over this briefly and on the analyst day, but the opportunities you're seeing in over the top content and obviously it's kind of disruptive, that you haven't really had solution in your content data, so what are the opportunities you're seeing there?

Well, a couple things domestically.

We're not seeing the cord cutting from our traditional clients.

We ended the first quarter with 49 million customer accounts in our systems which is consistent with where we ended 2010.

We're actually seeing our clients push to be able to provide their content really over the top as well providing their content onto new devices that aren't tethered to their proprietary network, so we're seeing that happen.

But we haven't seen that be destructive for the other over the top providers to our clients.

Equally important, though, is that we do recognize there is going to be an evolution of how content is delivered and how consumers take that content and consume it.

And we're actually seeing very good interest in taking the feature functionality of our content direct solution, combining it with some of our other billing assets that have been deployed around the world and we're seeing if the other markets and other carriers who historically have not provided content are going to want to be able to provide those -- that type of services.

And early on we're seeing interesting response, it's still very early on and one that we think we're well positioned for as the years go by.

Great.

Thank you very much.

Thanks.

Thank you.

Tom Roderick with Stifel Nicolaus.

Please go ahead.

Hi, guys, [Chris Growe] for Tom Roderick, good afternoon.

Hi, Chris.

Hello, so thanks for all the color, Peter, that's real helpful as far as why you guys might have had to pull in expectations a little bit.

But just in terms of maybe we could drill down a little bit more because back before you had acquired Intec, you had said there had been a couple quarters I believe where the marketing communication services was a little slower.

So if you could maybe help us understand how much of the kind of-- I mean it's a very small guide down in the context of the year but like how much of the weakness or caution is attributable to kind of core CSG versus the pipeline versus the Middle East?

Because I think that'll help us understand like how much of this may be a little longer term versus shorter term.

What I would tell you, Chris, is that without going into the specifics, because some of these start to blend together because there were opportunities that we saw to sell software capabilities into some of our traditional clients and so forth, the best thing for me to convey is that there's no one single one that was predominant.

It was-- there was a balance across it all when you look at what the opportunities are and because we have to recognize not in many opportunities have to be presented and a diversity of opportunities to have strength.

All of these being impacted in some form or fashion had an impact to how we looked at the guidance.

So I'm not here to tell you that when you look at our top line guidance that went down roughly $7 million or $8 million that X was associated with this and Y was associated with this, you have to look at the overall and recognize that there wasn't one predominant majority impact.

Fair enough.

So just to kind of-- I know you guys don't typically do quarterly, but just so we kind of get our expectations on maybe timing a little more aligned, if you kind of look at the factors that caused the increased caution this quarter and let's just say they extend out to Q2, do you guys think we could conceivably see something as weak as like maybe a flat sequential situation on the software line or is there enough confidence in the pipeline where you think there's enough to fill where it'll be an increase?

Chris, I think in Randy's comments one of the things that he laid out was there is variability in this business, one of the benefits of having a diversified markets and delivery models and products is it gives you greater areas to address it but it also increases variability.

We still see the second half as being the period in which we'd expect to still have more revenues the second half being greater than the first.

Relative to second quarter versus first, we're not giving specific guidance on that, Randy I don't know if you want to add anything?

No, I think you covered it well, Peter.

I would think you would expect revenues to grow over the year with the caveat that there is some variability in the near-term quarters, but the clear to second half of the year is what we're looking for a ramp up of the revenues.

Great.

Okay, thanks.

That's helpful.

And then just maybe a couple on the-- couple quick ones on the spending side.

So one in terms of the $7 million that you were looking to invest on the integration into the ACP platform of Intec's products, how much did you spend in the first quarter if you are able to share?

And then second, in terms of this investments in the kind of sales and marketing it sounds like improved the quality of the pipeline, can you give us a sense of like how much you had to do there, whether it was fairly widespread and it was widespread --

Yes, first of all, Chris, just to clarify the $7 million was a broad set of investments, it was R&D, it was go to market, it was some internal systems.

So it was a broad investment base and we had said that we expected to kind of spend more of that in the first part of the year as opposed to the second half of the year.

So you can expect that we were off to a pretty good pace in spending on that $7 million in the first quarter.

Okay, and then just in terms of the sales investments like are these kind of a situation where you had to like pay higher quality folks or hire more people just to get feet on the ground, just want to understand that a little bit better?

There's a few points.

One of the things as we went through a metered approach to how we integrated the sales organizations to not be disruptive to any of the near-term sales activities and took region by region, Chris.

And as we did that we found out that there had been some delays in hiring sales staff that had been debated for many times by the previous Management, and we-- once we got more actively involved in the local management of that, we found that we needed to get that moving because we weren't getting sales coverage.

It was anticipated in our expenses for the year but it was taking longer for them to pull the trigger and we said we need to do that.

This is not a question of having undermanned quality, it was a question of having enough in that perspective.

We-- from a sales leadership perspective, we wanted to make sure that we had the right people and we've moved one of our strongest sales leaders into the Asia market to take advantage of the growth out there.

And then we brought in somebody from-- that we've had history with that's experienced both in the communications space and the software space that very strong but not a more expensive person but somebody that we have great faith in to back fill that other move.

So the key is, Chris, I would tell that we didn't have to radically change our level of investment from where we originally were planning but we needed to make sure that we were-- when we saw the problems that we needed to correct them as quickly as possible.

Because we view this as long term of the business, we aren't going to cut back on those critical investments that are going to position us for the long-term opportunities that we still see in this marketplace, the communication space is going through great transformation and we believe being a part of it is a great opportunity for us and we to wanted to make sure that we were there.

Great.

Thanks.

That's real helpful.

Thanks.

Thank you.

Daniel Meron with RBC Capital Markets.

Please go ahead.

Hello, Peter, Rand and I Liz.

First question, Peter, can you (inaudible) with more examples of the CSG progress, sorry the (inaudible) progress with CSG?

And maybe on the percentage basis or any other basis, where are you guys with internal integration and also with (inaudible) meaning reaching out to clients, discussing the terms with them and trying to see what's the up sell to any--with those?

Sure.

Well, I guess I will give you some color on multiple aspects on that, Daniel.

One is we spent the last 3 to 4 months in all parts of the world talking to clients and partners and there's lots of situations where myself and other members of the Executive Management team have engaged with clients to see how we're performing for them as well as what they see their business evolving to.

And I can tell on you a consistent basis whether it's international providers or domestic, they all are facing the same thing, increased bandwidth demands, new products and services, more choice given to the consumers and hence more complexity in their own business operations.

And whether you're a company that's having high organic growth rates where you're just bringing in new subs or if you're one that's more mature trying to monetize your networks, they all have a common message in that.

And we've had several situations where clients have, in EMEA a large client stressed the quality that we've provided them on our billing solution, the Singl.eView solution into their operations and they're migrating more of their billing operations onto our solution.

And I-- and there was 2 situations when I was in EMEA under those conversations.

Domestically in the US had great discussions with MasterCard after we completed the implementation of Singl.eView into their operations and they were extremely excited about the quality of our services staff that helped to work with them on that as well as the flexibility of the product to use what is a billing system from communications into other verticals, and it's now the core system of what they're running.

And then if you go to our traditional clients, the cable clients, we've had a couple of situations where we've had some recent meetings with them.

One is when we talked about what their near term business issues are, they continue to stress that the simplicity of the way they interconnect and interact with their customers is what's important because they need to take the complexity out for the consumers and through that take out the cost of their own operations.

And that's one of the things that we've been very successful in doing over time.

Now, that all being said, their business is also changing going forward, and what I would tell you is that we've gone out to them and talked to them about how we're going to bring realtime charging settlement solutions, capturing events out so that they can really provide more flexibility and how they charge for their services.

And that's all about bringing the Singl.eView assets to be an extension of our ACP platform and they have given us good feedback.

They like where we're going with our solutions.

And when you can build that on with the history of where we've been on providing month-to-month operations for them and solving their business problems from all the day going back to analog to where we've evolved them to the days now where they've got triple and quad plays, I feel good about it and we're hearing good feedback from our clients that we're making the right investments.

Okay, that's helpful, Peter.

Also, if you can maybe if we can step back on the geographical trends, now that you've gone through the whole talking to all the customers and all of that, do you see any particular regions or segments that seem a little bit more appealing or hold more potential than you thought going into the (inaudible) deal?

I think the only thing is that I would tell you is we haven't seen necessarily a shift of where opportunities are.

I mentioned earlier in some of my prepared comments that the pipelines are still building, I mentioned that there was lack of quality in probably some of the pipelines that we looked at and hence why we made some of the changes that we did.

And so there are some deals that we were a little disappointed to find the pipelines weren't as robust and quality as we said, but that didn't temper us from those markets of saying those are strong markets.

So the Asia-Pac market still continues to be a large growing market for us, developing nations in EMEA, which is a broad territory, are still good opportunities for us.

The Latin America markets are going through growth and going through change in their communication space, we still feel good about that.

And then when you get to North America, there's more competition going on and probably more creative activity going on with the traditional cable and wireless providers that we look at and say change is good for our clients and change is good for CSG.

So in summary it's-- we still see the markets all having good opportunities and there's been no shift in where we think our strength is.

Great, thanks, Peter.

Good luck.

Thank you.

Howard Smith with First Analysis.

Please go ahead.

Yes, good afternoon.

Wanted to follow up, you partially answered this but I wanted to drill down on the investment relative to keeping guidance where it is on the bottom line, it sounds like you had budgeted these, it's not a change in budget, but it's a change in timing of when you're making switches or maybe you could elaborate?

I'll comment first, Howard.

Is that one is there are certain areas where we believe were critical in the investments that we make as a Company.

One was that we make sure that we invest in the product integration, that we invest in some of the sales integration, and the sales and marketing activities, and some we thought we were going to be underway and we just found out that some things were being delayed that we didn't anticipate.

So there's not a conscious delay on our part because of the delays in revenues and those areas where product integration needs to take place and Company integration, we're going full bore on that.

Yes, I would say that I agree, Peter, the one thing I'd note is Peter talks about the sales leadership that we modified, that was really a shifting of costs.

There was not necessarily an incremental costs there, so that didn't have any impact on the margin for the first quarter.

And I'd also say that we're making the right level of investment.

We may have accelerated some of the investment on some of these sales staff but with a business like CSG we got a lot of scale, we're good operators, we can adjust some of our other expenses accordingly without having any impact on the business.

So that's how we deliver the results.

Okay.

And in the Middle East and Africa what's your -- as you modify your guidance, is your assumption that the unrest continues and it's kind of difficult throughout the remainder of the year or do you have expectations that some of these decisions start to be made?

The way you go through pipeline management, Howard, is that you weight deals on a probability basis of advancing forward.

And I would just tell you that we're very cautious about things settling out in the Middle East and especially the northern parts of Africa.

And based on the US and their success of what's happened over the last couple of days in Pakistan, I'm not sure if we're going to see more stability have in some of these countries, so.

But there is at this point we'd expect that there is still going to be some cautiousness out of that even if some of the civil unrest comes down, the delays in decisions on the nature of this business is going to have impacts to the recognition of revenues, so it's going to be an impact to us in some form or fashion.

Okay.

And just one quick clarifying question.

This quarter had the full impact of the new pricing of DISH for the full quarter, I just want to confirm that.

No, just 2 months, Howard.

Okay.

It was effective February 1.

Okay.

Thank you.

Thank you.

Ashwin Shirvaikar with Citigroup.

Please go ahead.

Thank you.

Hi, Peter, hi, Randy, hi, Liz.

Hello, Ashwin.

So my first question relates to again just going back to visibility for the remainder of the year, so as I look at Q1 revenues, if I just average out what you need to do for the next 3 quarters to be at the middle of your current range it kind of comes out to $193 million a quarter, and I know you said it's back end loaded.

But from $183 million to let's call it $190 million and then closer to $200 million to make the middle of the range, it's a reasonably big jump, so what's your visibility into that?

Well, I'll go first, Ashwin, and then Randy can chime in.

As we've done an aggressive review of the pipelines after we've seen some of the softness in the pipeline that we talked about and taking into account, we have opportunities assigned or identified and a broad group of opportunities that can help bring this forward to hit these numbers, but it's not a walk in the park.

Our sales organizations have to perform, our delivery organizations have to deliver those products so that we can recognize the revenue.

And history has shown that the organization can be successful doing that, and I think we after we've gone through the pipelines we think there is good visibility of deals that can bring these types of results.

I would say the only thing I'd add is Peter is your other comment about some of the discretionary spending around marketing and communications, right there still is some expectations that there's some nice revenue from that in the future, if that doesn't come into fruition it will make the quarters more challenging as well.

Okay.

And it was a fairly long list, and thank you for the detail, but it was a fairly long list of items that you laid out, Peter, to be taking out just $7 million of top line.

So should we kind of assume that part of what is going out is for just to use the technical term your top line sandbag is basically gone?

Oh, ouch.

I didn't know that was a technical term.

Any time you're running a business you look to have a broad set of sources to be able to fulfill the numbers, and so what we've seen is that the variety of areas that we had, which is a positive to us as a Company, when you have a wide variety of areas to be pursuing growth and pursuing relationships with clients and prospects, that gives you opportunities for growth but because we've had impacts in several areas, it's diminished that growth for the year.

And I don't think I'd call it sandbag, it's diversity of areas for us to be successful, we still have a diversity of areas but they're just not as big as what we thought before.

Okay.

Think that (inaudible), not a sandbag.

Randy, did you say that you're looking at-- was there a comment in there about how high end of operating results?

About high end of operating results?

Something like that, did you mention that?

I think what I said, Ashwin, is that we're currently at 18% margin and that we would-- the way in which we can get to the 18% to 20% long term is by greater scale and long-term return on some of our investments.

I said in the near term, we should probably-- we're going to be operating at the low end of the range, I think that's the nature of the comment.

Our EPS expectation for the year are still more in line with what our original range-- the high end of the range.

Right.

The full range of those.

Right, right.

Now corresponding to the, and last question, I promise, corresponding to the removal of the top line that you experienced, are there specific cost actions that you still need to take going forward, I know you made incremental investments in sales and so on, but is there ongoing stuff that we should expect in coming quarters?

I think the way you should look at it Ashwin is the way we manage the business, the top line came down by $7 million and I kept the operating margins the same, so that implies that it's a little over $1 million of operating margin that we're able to absorb in another manner.

And if you look at our cost structure, that $7 million clearly has some variable costs related to it, whether it be marketing, services or communications, our delivery, there is some variable costs that likely are associated so that comes out naturally.

And the balance of that to keep the margin the same is just us managing the business.

It's just what we do.

Great, thanks for that perspective, Randy, the relative sizing helps a lot.

Okay.

Thank you.

[Jonathan lar] with Steinberg Investors.

Please go ahead.

Hello, guys.

Two quick questions.

Are you guys able to give any color on the MasterCard deal in terms of sizing or terms of that deal?

Not from a financial perspective and, Jonathan, the key for us is much of that revenue would have been recognized under the previous ownership when Intec was the stand alone company.

The key for us is that on a-- the flexibility of the asset was showing it can do.

Okay.

So it's more symbolic than financial in terms of the implications?

Yes, and the nature of it, the work had been done for the-- the vast bulk of the work on the implementation had been done previous to CSG.

Got it.

Okay.

And then similar to the questions just asked, if you guys had to do let's say a little bit over $190 million for the next 3 quarters, how much of that would you say is what you expect to get based on the pipeline versus what you have sort of good visibility on?

Is it sort of the same 80%, 80% is pretty much locked in already and then the remaining 20% of that is just what you expect?

I think that's a logical assessment since we generally on a go-forward basis we got a pretty good deal of 80% of our revenues.

So that's a good logical approach.

Okay.

And just finally, in terms of can you provide a little bit more specific color on when or how we can get to that 20% of the higher end of the margin range?

I know it is relates to scale, but anything more specific in terms of timing or detail there?

No.

I think I'd look at it this way is that in the near term we're going to be in the 18% range in the near term.

We've got some significant investments going on from every where from the DISH migration in some of the investments in our go to market strategies on the combined business.

So I think in the near term our expectations are to be in the 18% range.

I think the way we get to the higher end of that range overtime is by greater scale, being able to get greater scale on some of our fixed costs on a delivery side whether it be better leverage on the R&D, whether it be better leverage on our sales and marketing group, I think that's the way in which this business can deliver higher margins is the scale and the ability to scale up the revenue model.

Got it.

And then just one final question.

In terms of the business is obviously generating a significant amount of cash flow, any further thoughts on what you guys plan to do with it in terms of buybacks or anything of that sort?

I think we're pretty consistent with our expectations where still our top priority is to invest back into the business so we're looking for opportunities to invest in R&D, invest in partners, invest in products, so I think you should expect us to invest back in the business.

We will always continue to look for ways to deliver capital back to our investors in the form of either debt pay downs, whether it be stock buyback, so we're looking at those as well just as we always do.

I will kind of remind you of one thing, this year we did have some significant debt service costs this year.

We had about $75 million of debt that needed to be paid back, $35 million of it was a revolver which was paid down in the first quarter.

We've got our 2004 convertible debt that is putable to us in the middle of the year which is about $30 million and then we've got 3 more scheduled payments on our term debt which is about $7.5 million.

So there is some debt service this year, but we still generate a significant amount of cash so we've got opportunities.

Okay.

Great.

Thanks, guys.

And I'm showing no further questions at this time.

I'll now turn the call back over to Management for any closing remarks you may have.

Well thank you, Christine.

We thank you for your participation today and we look forward to continuing to report how we evolve the business and deliver results on a go-forward basis.

Thank you.

Ladies and gentlemen that does conclude our conference for today.

We'd like to thank all of you for your participation.

You may now disconnect.