CSG Systems International Inc (CSGS) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the CSG Systems International first-quarter 2012 conference call.

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

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

(Operator Instructions)

This conference is being recorded today, Tuesday, May 1, 2012.

I would now like to turn the conference over to Ms. Liz Bauer, Investor Relations.

Please go ahead, ma'am.

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

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

These will include, but are not limited to, statements regarding our projected financial results, our ability to meet our clients' needs through our products, services, and performance, and our ability to successfully integrate and manage acquired businesses in order to achieve their expected strategic, operating, and financial goals.

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

Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligations 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 in the Investor Relations section of our website.

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

We believe that these non-GAAP financial measures, when reviewed in conjunction with our GAAP financial measures, provide investors with greater transparency to the information used by our management team and our financial and operational decision making.

For more information regarding our use of non-GAAP financial measures, we refer you to today's earning 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 to turn the call over to Peter.

Thank you, Liz.

And thanks to everyone joining us on the call today.

Last year I spoke about our transformation as a company into a global provider with business enabling solutions, building on the acquisition of the Intec Telecom business.

In February of this year, I shared that we had moved from the integration phase of this transformation into the execution phase.

Today I believe that we're making solid progress on this transformation and are beginning to see positive signs of this throughout our business, whether that be in sales, operations, or our financial performance.

Speaking of our financial performance, we executed very well this quarter.

We generated revenues of $185 million and non-GAAP earnings per share of $0.60, both of which were positive to our expectations for the quarter.

Four months into the year, I believe that we're in a good position to achieve the mid to high end of our 2012 financial guidance.

This confidence comes from a number of positive signs that we're beginning to see throughout the business.

Ranging from client feedback and validation of our product and services road map, sales successes, our continued strength in helping clients reduce their overall operating costs, and our prudent management of our resources.

One of our greatest strengths as a company is that our clients trust doing business with us.

By investing in our clients, whether that be in the relationships or in our solutions, we help our clients solve more problems and be more competitive.

That creates an enviable position for us in these challenging times.

And one of the key reasons that clients want us to do more for them is that we do what we say we're going to do.

For example, one way that we help our clients succeed is in the fundamental blocking and tackling of converting to a new billing system.

It doesn't sound like glamorous work but it's very complicated.

And if not done correctly, can be extremely disruptive to a provider's operations.

Well, I'm pleased to report that during the first quarter, we made history.

On March 31, we successfully converted our second largest client, Dish Network, from our Legacy Billing Solution to our Next Generation Advanced Convergent Platform.

Over 14 million customer accounts were migrated within a very tight time frame.

No company has ever converted that many North American cable or satellite customers onto a new billing system.

Most important, by moving to the industry's most deployed next-generation solution, Dish is now able to introduce new lines of business more quickly and seamlessly, tailoring packages of services to the unique needs of their current and future customers.

As I said earlier, conversions can be disruptive and introduce risk into one's clients operations.

However, our 30 plus years of experience in conversions in combination with careful planning, testing, and the tremendous cooperation of the employees from both companies, translated into a highly successful, minimally disruptive and low-risk project.

It's a significant milestone in our 17-year relationship with Dish and it is an example of what true teamwork in a partnership looks like.

Importantly, it provides us with yet another proof point as our -- to our ability to execute on our operational and client support goals.

Next we said it was important that we move sales opportunities through the pipeline in a timely manner, and that we continue to strengthen our relationship with providers in the communications industry by getting more entrenched in their operations with extended contracts.

I'm pleased to say that we saw more progress being made in this area as well this quarter, including transformational deals.

First we were chosen by Earthlink to consolidate several disparate business support systems onto our single view and intermediate billing, customer management and mediation platforms.

Earthlink is an existing customer in North America which provides IT services and communication solutions to both business and consumer customers.

Next, we're upgrading a large North American enterprise communication provider's existing billing systems to Single View Version 7, to more ably handle their massive volumes of transactions and lower their overall total cost of ownership.

After this initial implementation, we'll consolidate other billing systems onto this low cost of ownership platform.

Third, our mediation and interconnect solutions were selected to be deployed across the heartiest properties in Africa, expanding our footprint within this large communication provider.

And finally, we continue to increase the penetration of our ancillary products and services like our product catalog, marketing services, and customer self-service solutions.

These wins obviously help drive our revenue performance for the year.

However, they're important for more strategic reasons as well.

Getting broader and deeper into our clients' operations provides with us a better understanding of the challenges and opportunities that our clients face, through which we can develop additional solutions for helping them move their business forward.

This helps direct our R&D dollars and enables us to invest in our people to ensure that they have the right skills to help our clients succeed.

As a result, we have and always will continue to focus on how we can do more for our clients.

This approach to our clients strengthens our position in a market that is undergoing massive change.

Providers in the communications industry continue to search for ways to give the consumer what they want; a personalized, unique, and relevant customer experience for a fair price.

The days of unlimited usage of any service are limited as these companies have to have invest more in their networks, their operations, and in their labor force in order to deliver these types of experiences.

Our leadership and mediation, interconnect, and billing puts us in a strong position to help providers seamlessly and more easily create, track, bill and manage these evolving relationships.

As we look ahead for the remainder of the year, we continue to see certain cautiousness in decision making with service providers surrounding large, complex transformational deals and with operators in certain regions of Europe, the Middle East, and Africa.

Introducing any additional risk into one's business operations, whether that be upgrading legacy BSS and OSS solutions or moving to new delivery models, is resulting in additional steps being added to the decision making.

All based on mitigating the risk and disruption associated with such undertakings.

That being said, we're seeing some bright spots in this current environment.

The additional large transformational deals that we have in the pipeline continue to be active and progress.

Some providers are getting creative and breaking these large complex projects into smaller phases to help accelerate the decision making on their side.

Our APAC team is participating in more RFPs and working closer with partners in the region on a number of opportunities.

While the sales cycles are long, advancing these opportunities through the pipeline will be important to our second half 2012 and 2013 performance.

And our Americas team is embracing the strength and flexibility of our solutions and leveraging these into new verticals and new areas to help solve new problems.

We had a strong first quarter, and we're seeing some positive signs for the remainder of the year.

However, we still operate in a somewhat fragile environment in which service providers are continually re-evaluating what is must-have versus what is a nice-to-have.

We remain intensely focused on moving new opportunities through our pipelines and doing what we say we're going to do for our clients, or said another way, executing.

With that I'm going to turn it over to Randy to review in more detail our financial performance in Q1 and our expectations for the remainder of the year.

Thank you, Peter, and welcome to all of you on the call today to discuss our financial results for the first quarter of 2012 and the guidance for the remainder of the year.

Overall, we executed very well in the quarter, and we are pleased with our start to the year.

I will now walk you through our financial results in more detail.

Total revenues for the quarter were $185 million, up 1% over the same quarter last year.

Sequentially, first quarter revenues were down $3 million, or 1% from the fourth quarter, mainly due to normal seasonality in the software and services revenues experienced at year end.

Breaking down revenues further, during the quarter, we had two material clients that each individually generated revenues over 10% of our total revenues; Comcast and Dish Network.

Together they were 33% of our revenues for the quarter.

Additionally, in the first quarter, we generated 10% of our revenues from the Europe, Middle East, and Africa region, and 4% of our revenues from the Asia Pacific region, generally consistent with previous quarters in 2011.

We expected our operating results for the first quarter to be our strongest quarter for the year.

Our non-GAAP operating income for the first quarter was $38 million, which compares to $33 million in the same period last year for an increase of 16%.

The non-GAAP operating margin was 21% for the quarter compared to an 18% margin for the first quarter of 2011.

This increase is attributed primarily to the financial benefits of our restructuring activities undertaken during 2011.

GAAP operating income for the quarter was $29 million or a margin of 16%.

For the first quarter, our adjusted EBITDA was $48 million, or 26% of total revenues.

Non-GAAP EPS for the first quarter was $0.60 which compares to $0.54 for the first quarter of the prior year.

Our estimated non-GAAP effective income tax rate was 43% for the quarter, in line with our expectation.

GAAP EPS for the first quarter was $0.36.

Foreign currency movements did not have a material impact on the current quarter.

Onto our cash flows and balance sheet.

Our cash flows from operations for the quarter were $48 million which benefited from the favorable timing of $19 million in working capital movements, with $15 million of this amount related to the timing of our income tax payment.

This $15 million benefit realized in this quarter will reverse itself when we make our quarterly tax payment throughout the remainder of the year.

We view our cash generation capability as a strong metric of our solid business model.

We ended the quarter with cash and investments of $189 million, which was up $30 million from the ending balance last quarter.

We repurchased 328,000 shares of our common stock during the quarter for $5 million, or a weighted average price of $15.84 per share.

We spent over $2 million on capital expenditures and made $7 million of required payments on our term loan to end the quarter with $333 million in par value debt on our balance sheet.

Now let's move along to our outlook for the remainder of the year.

For 2012 we are maintaining our revenue guidance of $715 million to $740 million.

As Peter stated earlier, based upon our first quarter's results and what we see going forward, our comfort has increased in our ability to achieve the mid to the high end of both our revenue and operating performance financial guidance.

Let me provide some additional color around these expectations.

Overall, we had a good start to the year and have improved our visibility to over 90% of our expected 2012 revenues, up from approximately 85% that I shared with you last quarter at this time.

The high set of our revenue guidance reflects the continued execution on various projects with our clients and requires us to timely close several of the larger pipeline opportunities over the next several months.

We are pleased with the progress that we have made relative to closing several deals that have been in our pipeline.

Importantly, we still have several transformational billing opportunities in our pipeline, and believe that we are in a very good position to win more than our fair share of these when decisions are made.

In summary, timely execution on our sales and delivery expectations is necessary for us to be successful in achieving our revenue expectations for the year.

We are maintaining our non-GAAP operating margin guidance of approximately 17% for the full year 2012.

Our expectations were always that our first quarter margin percentage would be our strongest for the year.

We expect downward pressure on our margin percentage going forward, mainly driven by higher employee and data processing costs as well as the loss of scale benefits related to the previously announced de-conversion of 800,000 Comcast customer accounts.

The impact of these items on our margin percentage is expected to be realized in the second quarter.

That being said, we are known for being good stewards of the business, and we will only incur additional costs if the business warrants it.

As a result, I believe that there's also an opportunity to improve upon our approximate 17% operating margin range for this year, if we continue to execute as we have done in the past.

We continue to anticipate adjusted EBITDA will be in the range of $164 million to $171 million or 23% of our expected total revenue.

We are maintaining our guidance for 2012 non-GAAP EPS of $1.85 and $2.00, which includes an effective income tax rate of approximately 43% for the full year.

We continue to work with outside advisers to evaluate different options to improve our income tax rate going forward.

While our operating performance for the first quarter puts us in a good position to possibly outperform our full-year operating results guidance, we still have a lot of work ahead of us for the year, and therefore we have decided to leave our full-year non-GAAP operating margin percentage, adjusted EBITDA and non-GAAP EPS unchanged from our previous guidance until we show continued execution in future quarters.

We continue to expect that we will generate between $110 million to $120 million in operating cash flows for 2012, which assumes no unusual fluctuations in working capital for the full year.

We're also maintaining our guidance for capital expenditures to be in the $30 million range.

Our guidance reinforces our solid cash generating business model and strong capital structure.

Please note that our 2012 guidance does not anticipate any significant impact from foreign currency fluctuations since we generate a large percentage of our revenues in US dollars, and because of the difficulty in predicting foreign currency rates for the remainder of the year.

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

And finally, consistent with our past practices, our guidance does not assume any share buybacks under our repurchase program for the remainder of the year.

To summarize, we are pleased with the solid start to 2012 as we continue to solidify our position as a leading global software and services business.

We remain committed to delivering world-class product offerings to service providers around the world who depend upon our mission critical solutions to operate their businesses and deliver a superior customer experience.

We look forward to sharing our successes with you as the year progresses.

With that, I will open it up to the operator so that we can take any questions.

Thank you, Sir.

We will now begin the question-and-answer session.

(Operator Instructions) One moment, please.

Our first question is from the line of Suhail Chandy with Wedbush Securities.

Thank you for taking the questions.

This is Suhail in for Scott.

Two questions.

Looking at the margin guidance and the non-GAAP EPS guidance, would it be fair to say that we see a change in Q2, and then that holds for the rest of the year, or would there be some more dynamic going into the second half?

We're going to need to have you repeat the beginning of that, Suhail, because the line cut in and out.

I apologize, Liz.

Is this better?

There, that's perfect.

That's fantastic.

Thank you.

Sorry about that.

No worries.

So, the question was, given the non-GAAP operating margin, 13% of non-GAAP EPS, $1.85 to $2.00 that you are maintaining.

Just trying to understand, is the Q2 margin's going to dip and then maybe stay steady through Q3, Q4?

Or is there some more dynamic that we should see into the second half in terms of margin?

(multiple speakers) Yes, I think you should expect what you just said.

You should see it dip down in Q2 and stay relatively consistent across Q3 and Q4.

Great.

Thanks.

And a couple of big picture questions.

Number one, what's the demand that you're seeing for your policy and charging product from your carrier customers?

It's dependent upon where our clients are and the way that they're trying to go to market.

In some geographic markets there's starting to be interest in that, and we're responding to those inquiries.

In others, the market hasn't advanced, so I'd say in parts of Europe we're seeing interest.

In parts of Asia Pacific, and a little bit in North America, but probably not in the near-term as much in the Americas as we're seeing in EMEA and APAC.

Okay and last question, you've obviously been posting good cash flow numbers.

What are your thoughts on potential M&A and what areas would you be looking at?

Well, from an M&A perspective, it is one of our potential uses of cash.

We do believe that as we've built the business and have relationships and business around the world that we have a leveragable platform.

What we look to do is recognizing that the world of service providers is going to continue the way to change how they evolve their offerings and the way they market the experience with their customers.

That's going to bring more complexity, and through that they're going to need more intelligent, smart solutions, whether that be in charging, whether that be in policy -- in those areas.

So as we think about our areas of M&A, we look for tuck-ins that allow us to bring some capability that may be deployable across our large client base, and effectively add product and some potential scale.

Great.

Thank you.

Our next question comes from the line of Tom Roderick with Stifel Nicolaus.

Hey, guys this is Chris Koh in for Tom.

Good job on the quarter.

So just a quick question on the transformational deals.

So you mentioned a couple of deals, I think the Earthlink deal and then a North American communications provider upgrade it sounded like.

Would you consider either of those a closure of a transformational deal as you defined it earlier?

In terms of, when you say you still need to close some of those in order to continue solid execution, are there -- can you give us a sense of how many are in the pipeline, if you've actually closed any of them, and how well you did in that regard in the first quarter?

Thanks.

Well, I'll give you a couple points.

Both those that we announced, that I announced in my comments, both Earthlink and the Enterprise communication provider in North America, are transformational deals of providing a baseline of consolidating their systems, their legacy systems onto a new system.

So, those were big wins for us and ones that we've been pursuing for some time.

We do have more in the pipeline, Chris.

I'm not going to give specifics, but in that, our pipeline has actually some new opportunities come in, but they're longer term before we'll see them.

But we have others that we think are more near term viable for this year and we think it's important that we successfully close those.

So, that we bring visibility to the higher end of our numbers, as well as some visibility and strength into 2013.

Importantly, on the pipeline, we're seeing opportunities to replace legacy systems or really drive operational efficiency by consolidating platforms in all regions of the world.

We see opportunities in Asia Pacific, in some parts of EMEA, and continue to see some good opportunities in the Americas.

Great.

Sounds great.

So just as a follow-up on that, you spent a fair amount of time talking about how you're delivering on your client commitments.

Has there been any feedback from your clients that indicates to that you some of your competitors or other vendors may not be doing that right now?

We like to focus on what we do, and to the extent that other clients or prospects may be having challenges, it's not appropriate for me to talk about that on this.

Okay, I had to try there.

(Laughter)

That's okay.

Okay.

So, and then in terms of just a point that you've mentioned in past calls, is there were four legs that caused you guys to have a little bit of execution issues last year.

Discretionary spend, EMEA, APAC, and the transformational deals.

Sounds like the transformational deals maybe are picking up a little bit, but can you give us a sense of in terms of the revenue beat, which was roughly $4 million on our number, how much of that was due to each of that buckets?

And how would you characterize the status for each of those situations?

Let me give a little color first and then Randy can think about how to describe -- or best give you color on how the revenues came from.

We definitely saw progress as a company in the first quarter on the larger deals, the transformational deals, but those don't really generate that much revenue in the quarter.

From discretionary spending, we've seen a little bit of improvement in that, but nothing that's going to make us feel like there's an absolute return.

And then when you look at EMEA and the Middle East, for us those are still challenged markets.

The Middle East still has some disruption in it.

Then in Europe, we're just don't have the same strength that we'd like to there from handling the recession issues they're facing.

Randy, any chance to give some color about how the quarter came out?

I'd say that you've summarized it very well.

The transformational deals we've already touched on.

EMEA we've touched on and it wasn't as strong as we'd like it to be, you can see it in the numbers.

It's relatively consistent with Q4 but seeing the return of some growth in EMEA is just now coming forth.

APAC, we thought that was the second half of the year, you can see our first quarter revenues from APAC were down a little bit as we anticipated.

On the discretionary side we did see a little bit of strength on some discretionary spending in the first quarter, but it doesn't appear to be recurring into the second quarter.

So, there's some strength in the first quarter across the year -- I think Peter, again, touched on it is -- we see some bright spots once in awhile, but the consistent sustained recovery of that still is out a ways yet, I think.

Got it.

Great.

And then so, just to make sure I'm not missing anything obvious.

When you look at your customer accounts, I think it had a pretty nice uptick.

Was that related to a migration or is that something you had mentioned in the past?

(multiple speakers) No, Chris, I think if you look at the increase, if you look at how the cable and satellite providers have been providing their performance in the first quarter, they've seen some pretty solid improvements in their business.

Excellent.

Thanks, guys.

Our next question comes from the line of Ashwin Shirvaikar with Citi.

Please go ahead.

Hi, guys, this is actually Phil Stiller on for Ashwin.

Hey, Phil, you should have given your name, it would have been a little easier.

(Laughter)

Next time I'll do that.

I wanted to follow up on the margin guidance.

It seems like the guidance for the full year implies that you'll be roughly around 16% for the remainder of the year.

You know, you guys are coming off two quarters where you were around 21%.

You were 19% for the full year.

So as we think about this on a longer term basis, should we think about 16% as a new level?

Or can you eventually get higher to where you were last year or where you've been the past two quarters?

I think, again, if you look at the first quarter, it was expected to be our strongest quarter.

We did expect the margin to go down a bit into the second, third, and fourth quarters of this year.

You modeled 16%, you referenced, I think we've got an opportunity to, like I said, to maybe outperform the full year 17% if we have a couple of good quarters.

So, I think the 16% may be something better if we can pull off a couple of very good quarters.

I think long term -- 16%, 17% is not our long-term goal.

It's always been to return back to an 18% to 20% range, and we haven't taken our eye off of that.

Right?

We've got some work to do as we transform the Company.

We said that we'd make some investments as we transform the Company but we still have expectations of delivering better margins in the long term.

Okay.

Then I guess shifting to Comcast, the percent of revenue was up on a year over year basis implied growth there.

Can you comment on the timing of the market shift to Amdocs on that contract and what you guys are seeing in terms of spending from Comcast outside of that one market?

Phil, I'll take the first piece.

We originally were expecting the subscribers, those customer accounts would be converted off of us by the end of the first quarter but there has been some delays.

But we're projecting and expecting that in the coming months those will migrate off.

From where we saw spending from Comcast, Comcast to lift -- some of it's around discretionary, Randy, if you want to add any color of what you saw from Comcast from a year-over-year.

Yes, two things, one is that their annual CPI index takes effect the first of January so you have that built into there, Phil.

Then also I mentioned before about some discretionary spending on some communications items for the quarter and Comcast participated in some of that.

So, you see a little bit of fluctuation there.

Does your guidance assume any contract renewals based on your largest customers?

No, we have no expectations of renewal impact in our current guidance.

Okay.

Then just lastly, on Dish, I know you guys were optimistic about selling them new services once they got over to the new platform.

I just wanted to follow up on that, what we could expect on that front in terms of timing and then size.

Well, I think it's safe, Phil, to say that the selling effort started almost from the point that they announced that they were going to migrate over.

But their willingness to really think about new platforms are going to be based on a successful migration, which is what we had as of March 31.

We did see -- as we announced, at the end of our 2011 results, that they did buy some of our solutions that we picked up from the Intec acquisition, the Intermediate Interactivate solutions.

Now that we've got them on the new platform, we think there will be opportunities to support them as they continue to evolve their business.

It's clear that between Spectrum and other businesses that they have, they're trying to rethink about how they go to market with offerings and what they have to bring to the consumer.

They now have the foundational platform from which to be able to drive that going forward, and that should benefit us well as we go into future quarters.

Okay, great, thanks.

Our next question comes from the line of Julio Quinteros with Goldman Sachs.

Please go ahead.

This is actually Gio for Julio Quinteros.

(multiple speakers) Good quarter, congratulations on the excellent quarter.

Just a couple of questions.

Can you talk about your stock buyback plans, and how you expect that to go forward for the rest of the year?

Well, right now we still have 3 million shares authorized under the program, so after the 328,000 we bought this quarter, we still have some left authorized.

You can see in our most recent history what we've been doing is really buying back the shares at the level we issue under our incentive programs to the employees.

As we continue to transform this Company, make progress in the Company, it's going to give us more opportunities to take a longer term view and a shorter term view of use of our capital.

But I think in the near term, I think our past last couple of quarters probably give you a good indication of what to expect.

Okay.

On the operating margins, for first quarter, I believe you had some benefit year-over-year from the restructuring that was done.

Do you expect that benefit to stay on for the next three quarters, to offset some of the headwinds on the operating margin, from the loss of the contracts?

Yes, that was already built into our guidance expectations when we established our guidance back in February.

We had that -- we already had visibility into that, so it's built into the guidance.

I mentioned this a little bit in February and a little bit last year.

Some of those restructuring programs were done to really redirect some of the investment in the Company.

And that's really what you're seeing going forward in Q2 and Q3 and Q4, is reinvesting some of that benefit that we achieved.

You saw it come thorough in Q1, but now you see it's reinvesting back into Q2, Q3, and Q4.

Could you also remind us when the Comcast contract comes up for renewal and when the negotiations start?

The term of the contract expires at the end of this year, 12/31 of 2012.

Okay.

The negotiations usually start earlier?

Well, we're having discussions with Comcast.

I don't think it's appropriate for me to talk about any expectations or what we expect to come out of that, but the conversations have started.

We have confidence that there's a long relationship that we'll go forward on based on the long history we've had going back.

Excellent.

That's all I have.

Our next question comes from the line of Doug Rosenberg with RBC.

Please go ahead.

Congratulations on good results.

Well, you touched on this a little bit.

I just wanted to know on the geographical, if you can give a little more color just on if any of the areas, or specifically more towards transformational deals, is there certain areas where you see big deals versus discretionary?

Doug, are you talking about in the pipeline or that we actually closed?

No, in the pipeline, I'm sorry, looking at -- when you're looking at opportunities.

Okay.

Thanks for that clarification.

Well, we do see transformational deals in the pipeline, and we see them across all geographies.

With the presence that we have in the Americas, that gives us some of the biggest footprint from which to work from, but we see it in the EMEA region, and we see it in APAC, although APAC is probably longer in the development of the pipeline just because of what we've had to do to rebuild.

But the key is, clients are starting to address the needs to move off of legacy platforms and move on to platforms that will allow them to drive standardization and operational efficiency through their business.

That's one of the things that we think we're well positioned to win our share.

Okay.

This also in APAC and also in Europe, and also in Africa or in [MANA]?

Yes.

Thanks.

During guidance you mentioned that you see closer to mid to high end of the guidance.

I was wondering if that's dependent on any -- without giving the information, any one specific deal, one transformational deal, or those are more long term and it's just ongoing execution?

Well, one of the things, it's based on what we achieved coming out of the first quarter, both on sales and our actual operational performance.

That gives us confidence that the midpoint and above is something that we can achieve.

It doesn't mean that we're completely away from risk in the business, but it gives us great visibility.

It's one of the things we talked about at the end of 2011 when we provided our 2011 results is that, a good start to 2012 from a sales performance and then from a delivery perspective would allow us to get more comfortable with our guidance.

We've done that starting out.

To hit the higher end of our guidance, we need to have some more success and wins and delivery.

And that's something that with the pipeline, it gives us optimism, but we still to have perform on those.

Okay.

But it's not dependent on any one customer or any one deal?

No.

Okay.

Also you talked about, in other words that you want to return to the operating margin, obviously of 18%, 20%.

When do you expect that 2013 goal?

Is that further out or --?

I think it really depends upon the progress and the base with which we make more progress on the transformation of this Company.

I think it was our expectations that 2012, clearly, would be a transitional year for us and expectations of going forward.

I think 2013 and 2014 is the new view of where I'd look to the 18% to 20%.

That is helpful, thanks.

Last question from me just on -- I was wondering on the overall view of the market, do you still -- do you see any changes in the market?

In other words, you guys had some really nice wins this quarter, and then you talked about a healthy pipeline and a good start to the year.

Do you see any change in the market, or do you still see the mild 3% [of free] growth for the market?

I would say is that we definitely come out of Q1 feeling better about what we've seen on our ability to execute on a sell side.

But the market is still difficult.

I shouldn't send any other message except to say that, there's still cautiousness about how people think about spending, the competitive environment that they're facing and whether or not they want to bring risk into their business operations, going through changes.

But in some cases clients don't have a choice and they're deciding they have to move forward.

But it's not an overall shift of confidence that people are spending dollars and incorporating risk into their business.

That was very helpful.

Thanks.

Thank you, Doug.

Ladies and gentlemen, if there are any additional questions, (Operator Instructions) Our next question comes from the line of Sterling Auty with JPMorgan.

Please go ahead, sir.

Hi, guys this is [Hayman Jolla] here for Sterling.

Thanks for taking my question.

I have a few -- a few of them are answered already so only one.

Were you able to cross that annual Intec as set into your existing base this autumn?

So I think your question was were we able to sell any of the Intec solutions into our existing base this quarter.

Is that correct?

Yes.

I don't think we had any specific wins that we're ready to call out at this point.

Okay.

That's it from my side.

Our next question comes from the line of Howard Smith with First Analysts.

Please go ahead.

Yes, good afternoon and congratulations on the strong quarter.

Thanks, Howard.

I guess I would have thought with T-Mobile being completed so quickly, that the cost of carrying them on two platforms and the expense of migrating them would let up as you go into Q2, and maybe help a little bit on the margin side.

So obviously -- maybe you could comment on whether that's happening.

Then maybe get a little more granular on some of the increased cost of processing you're expecting as you ramp throughout this year and where that pressure is coming from.

Well, Howard, first of all, we wish T-Mobile was our client, but they're not.

(Laughter)

I'm sorry, Dish.

I've got too many companies going on, my apologies.

I understand.

So, on Dish Network, I think the question was whether we should see more improvement in our margin by the elimination of duplicate processing.

We really didn't have a duplicate operating environment where it was costing us twice as much because they were only live on one system.

We incorporated some savings last year as we went through our business management to take out of some of the redundant costs when we were in the fourth quarter.

From an operating environment going forward, it is a -- we think we had a solid base as we entered the year.

The ACP platform is a more expensive platform to run going forward as well because of the complexity and the operations that our client can use in it.

So that's something that would have offset any near term small gains.

Randy?

I think you summarized it very well.

You trained me well.

(Laughter)

That's perfect.

Okay, thank you.

Good luck on getting T-Mobile sometime.

Thank you.

Thank you.

Mr. Kalan, there are no further questions at this time.

Well, Lilly, I will close with this for the group.

We started this year with guidance, and an expectation on the business that was cautious.

As we finished the first quarter, we felt like we've made good strides, and I hope you can see that.

We believe that our business is starting to execute, but we do work in a broad worldly economy that still has a lot of uncertainty, and so we think we're well positioned.

We look forward to continue to report strong results as we move forward.

We're excited about this as a business.

So we thank you for your support, and we thank you for the support of our clients, as well as our employee base around the world.

Thank you.

Ladies and gentlemen, this concludes the CSG Systems International first quarter 2012 conference call.