CSG Systems International Inc (CSGS) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the CSG Systems Q4 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, February 5, 2013.

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

Please go ahead.

Thank you, Mikayla.

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 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 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 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 to turn the call over to Peter.

Thank you, Liz.

And thanks to everyone joining us on today's call.

I am pleased to report that we had an extremely strong fourth quarter and full year for 2012.

For the fourth quarter, we generated revenues of $198 million and non-GAAP earnings per share of $0.67.

For the full-year 2012, we generated revenues of $757 million and non-GAAP earnings per share of $2.33.

While we had expected to come in at the high-end of our guidance with revenues targeted at $747 million and non-GAAP earnings per share of $2.15, the strength of our software sales in the fourth quarter contributed to strong out-performance.

To provide you with some perspective, we saw over a $10 million increase in our software services and maintenance revenues for the fourth quarter of 2012, versus 2011.

These increases spanned our billing, mediation and interconnect solutions, and were primarily associated with clients in emerging markets, such as Latin America, and Asia Pacific.

While I will spend most of today focusing on the opportunities we have in 2013 and beyond, I would be remiss in not mentioning how far we have come as a Company over the past year.

As many of you may recall, we had a very challenging and difficult 2011 as we began the transformation to a global leader in business support solutions.

Thanks to the hard work and commitment of over 3,500 employees, we forged ahead, focusing on what we do best, helping our clients be successful.

We made several decisions over the past two years which are now beginning to bear fruit.

We made changes to our sales leadership and personnel in Asia Pacific, brought in additional sales leadership in the Americas, and continued our investment in our products and our professional services organization.

We acquired a leader in training and routing, expanded our international presence with our content monetization platform, and invested in the organizational talent to expand managed services in a meaningful and thoughtful manner.

And finally, we continued to increase our on-site presence with our clients' operations, allowing us to earn a more -- more of a trusted advisor role.

While all these activities cannot change was going on in the macro environment, whether that be political unrest, financial uncertainty in parts of the world, or cautiousness in spending by global telecom providers, these activities position us to take a more -- will position us to take more than our fair share of our clients' IT spend by getting broader and deeper in their operations and enable us to now fully participate in emerging and growing markets.

During 2012, we saw strength in the Americas region come through in the form of increased spending by our cable and satellite clients on products and services aimed at helping them innovate and redefine their customer experience.

And a continued expansion in our relationships with leading North and South American Tier 1 telecommunication providers as they rolled out new products and services, and consolidated their technology platforms.

Importantly, our three largest clients all increased their spending with CSG last year, demonstrating the continued value that we provide to them and their operations.

During the year, we stabilized our performance in the APAC region with our new sales organization, which has strengthened our pipeline and increased our presence in several key accounts in that region.

In EMEA, we had several firsts last year, including closing our first Singleview deal in recent years, and our first international Content Direct transaction.

However, these successes were not enough to offset the pressure we continue to see as a result of the challenges that our clients in Western Europe, the Middle East and Africa faced.

Finally, as a Company, we entered 2013 with two significant client relationships up for renewal, Comcast and Time Warner Cable.

As most of you know, we extended our relationship with Time Warner Cable for another four years, through March of 2017.

This is especially gratifying for us, as Time Warner was our very first client back in 1982.

We are pleased to have been a part of Time Warner Cable's transformation from an analog television operator to one of the leading multi-service communication providers in North America.

Over the years, we have grown the number of Time Warner customers that we serve, the number of solutions that Time Warner utilizes, and expanded our ancillary products and services into Time Warner markets where we do not provide the billing platform.

On the Comcast front, we continue to work on a longer-term contract extension, as their contract expired on December 31, 2012.

In the meantime, we will continue to provide the high-quality service and dependability that Comcast has enjoyed for its 20-plus-year relationship with us.

While I'm sure both Comcast and CSG would like to have this contract negotiation behind us, we are both committed to ensuring that we secure a relationship that meets both our needs.

We enter 2013 in a much stronger position as a result of the many actions over the past several years.

We have a solid base of over 500 clients worldwide that depend on us to help them execute upon their business plans.

We've invested in our people, our products and our clients to ensure that we are well positioned to help them succeed.

We have demonstrated our ability to manage our costs in a difficult and challenging business environment.

And while we may take a short-term decrease to our operating margins as a result of the near-term impact of the significant contract renewals, we've demonstrated that we are able to expand the revenues and our margins over time as we continue to do more for our clients.

And finally, we have a solid business model that is based on highly visible, recurring revenues, resulting in strong cash flows.

As I look at 2013 and beyond, there are several investments that we are making that excite me.

One of those investments is Content Direct, our content management and modernization solution.

As the demand for video content is growing, and the number of users and connected devices is expanding exponentially, more and more service providers are looking for ways to generate new revenues and create an enhanced customer experience.

Our scalable cloud-based solution has enabled some of the world's leading content providers and aggregators to expand their reach, to increase their engagement with customers and grow their revenues.

This past quarter, we closed our first Content Direct deal in our EMEA region with Middle East Broadcasting Center, a media group based out of Dubai that provides information, interaction and entertainment to the Arab world.

Our Content Direct solution will help MBC expand their reach and availability of their programming over various connected TV devices.

In addition, in the first half of this year, Content Direct is helping several of North America's largest cable operators expand their over-the-top content initiatives by providing the commerce content management and member management solutions for their transactional online, on-demand store fronts.

Through a partnership with a major content distributor, customers of these operators will be able to access one of the industry's largest catalogs of content via their PCs, tablets or phones.

Our Content Direct solution is helping content providers, distributors and aggregators create and manage an entire ecosystem that demands strong partner management, flexible pricing, and agility to trial new and different business models.

We are at the forefront of enabling some of the world's leading names create an engaging and immersive content experience.

While Content Direct is not a big contributor to our business today, this solution has been growing at double-digit rates, and we believe that this could be a significant opportunity for us in coming years as clients and consumers respond to the evolving consumption of content.

Another investment that we're making in which we are optimistic about the potential is our international managed services offering.

We will formally launch this offering at the Mobile World Congress show at the end of the month.

Our international managed services offering combines our mediation, interconnect and billing solutions with our proven expertise in running large-scale, highly complex solutions.

As service providers continue to look for ways to minimize their capital expenditures, lower their operating expenses and free up skilled resources to work on new revenue-generating products, they're beginning to look for alternatives to running applications in-house.

Operators have traditionally turned to system integrators, network equipment providers and a small list of professional services companies to help manage their applications and technology platforms.

We believe that we are well-positioned to expand in this $11 billion market and that we could generate anywhere from $50 million to $100 million annually in the next three to five years from international clients.

Why do we believe that this could be a meaningful part of our revenue stream in the future years?

This is a logical and natural extension of what we do.

We have tremendous credibility with prospects when we discuss how we have been working with our North American cable and satellite clients in a managed-services model for over 30 years.

It is part of our DNA.

We have a history of strong management processes, application management strengths, system operational skills and client focus.

And we have proven over the years that when you are trusted in your clients' operations, you are able to generate new product ideas, establish additional relationships within the client, and create a stickiness that is difficult to displace.

Finally, before turning it over to Randy to review our financial performance and guidance for 2013, I'd like to reiterate a few comments I made earlier.

I am extremely pleased with the hard work, focus and commitment of our employees over the past year.

We entered 2013 in a position of strength.

We have strong relationships with over 500 service providers worldwide that are evolving and transforming their businesses.

And we continue to find new ways to help them to compete and prosper.

We are now participating in several growth markets, including Asia Pacific, international managed services, and content monetization.

We have a solid business with highly visible revenues and strong cash flows that allows us to navigate a challenging business environment.

And finally, we continue to be good stewards of the business, and strike a healthy balance between investing in the business and managing our costs.

Our clients depend on us for business-critical solutions that help them grow their revenues and their profits.

We will continue to maintain this healthy balance that serves both us and our clients over the long term.

With that, I'll now turn it over to Randy to review our performance for the quarter and provide you with a financial outlook for 2013.

Thank you, Peter.

And welcome to all of you on the call today to discuss our financial results for the fourth-quarter and full-year 2012, as well as our outlook for 2013.

We are pleased with the financial results in which we exceeded our financial guidance for the year.

This strong performance is a result of CSG doing what it does best, executing well on behalf of our clients, getting broader and deeper within the operations of our clients by helping them solve problems and take advantage of opportunities, and applying the same principles that we take to our clients.

Operating more efficiently, effectively, improving the quality of services in the customer's experience to our own operations.

We have an established reputation in the marketplace for being good operators and providing high-quality service.

We look forward to building upon this reputation and performing in the coming years.

So let us begin.

Total revenues for the quarter were $198 million, up 6% over the same quarter last year.

Full-year revenues of $757 million exceeded the high-end of our guidance range, and were up 3% over the prior year.

Sequentially, revenues in the quarter increased $8 million, or 4% from the third quarter, primarily due to exceptionally strong software sales as the year came to a close.

Year-over-year, these higher revenues can be attributed to increased client spending on various ancillary services and software sales, and the additional revenues from our acquisition of Ascade in July.

Breaking down revenues further, in 2012 we had three clients that each individually generated revenues of 10% or more of our total revenues -- Comcast, Dish Network and Time Warner.

Together they were 44% of our revenues for the full year.

Additionally, for the full year 2012, we generated 9% of our revenues from the Europe, Middle East and Africa region, and 4% of our revenues from the Asia Pacific region.

Moving on, our non-GAAP operating income for the fourth quarter was $33 million, with a margin of approximately 17%, up slightly from the third quarter, due to the sequential increase in year-end software revenues.

For the full year 2012, our non-GAAP operating income of $136 million exceeded our guidance, with a reported margin of nearly 18%.

As anticipated, these full-year numbers declined from last year's results of $139 million, or a margin of 19%.

These year-over-year declines are attributed to our expected increases in expenses, mainly due to data processing and employee-related costs.

GAAP operating income for the quarter was $22 million, or a margin of 11% and $97 million and a margin of 13% for the full year.

For the fourth quarter, our adjusted EBITDA was $43 million, or 22% of our total revenues.

For the full year, our adjusted EBITDA was $177 million, or 23% of our total revenues.

Non-GAAP EPS for the fourth quarter was $0.67, which compares to $0.64 for the same period last year.

Non-GAAP EPS for the full year was $2.33, which exceeded the high-end of our guidance.

This compares to $2.25 for the prior year.

Both the fourth quarter and the full year of 2012 non-GAAP EPS included an unexpected benefit of $0.13 as a result of our non-GAAP effective income tax rate coming in at approximately 38% for the full year, which is better than our previous expectation of 41%.

The improvement in the tax rate is related to higher tax credits and a more favorable mix of domestic and international income than previously estimated.

GAAP EPS for the fourth quarter was $0.48, and $1.51 for the full year of 2012.

Foreign currency movements did not have a material impact on these results.

Now on to the cash flows and balance sheet.

Our cash flows from operations for the quarter were $19 million, bringing the full-year total to $127 million, which is towards the high-end of the range we previously provided.

Our cash generation capability continues to be strong, characteristic of our business model.

During the quarter, we refinanced our existing term credit facility to take advantage of improved market conditions since 2010.

Under the new agreement for $150 million of term debt, we extended the term from 2015 to 2017, reduced the interest rate by 175 basis points from the current levels, and generally improved the financial covenants.

In conjunction with this refinancing, we paid $18 million on our term debt during the quarter.

As a result, we ended the year with a total of $300 million in par value debt on our balance sheet.

Additionally during the quarter, we spent approximately $13 million on capital expenditures.

And we did not make any share repurchases under our stock buyback program during the quarter.

Overall, we ended the year with cash and investments of $169 million, which is down about $15 million from the ending balance last quarter, and up $10 million from the prior year.

Our strong cash generation over the past year allowed us to take several steps to strengthen our business and the financial position, while still maintaining a healthy cash position.

In 2012 we repurchased approximately 823,000 shares of our common stock for $13 million, acquired Ascade for $19 million, paid down our debt by $40 million, and made capital expenditures of approximately $33 million.

Our solid balance sheet provides us with the flexibility to continue to invest in our Company to create long-term shareholder value.

Now let's move on to our guidance for the full year of 2013.

Before I get into the details, let me provide some additional color to provide some framework around these expectations.

First, this guidance does not reflect any impact from an anticipated longer-term extension with Comcast, which is still under negotiation.

We intend to update guidance as needed when this agreement is finalized.

Second, our guidance reflects the pricing discount related to our recently announced four-year contract extension with Time Warner.

Third, this guidance reflects revenue decreases related to managing down certain legacy platforms, and the decision of one of our smaller cable clients to consolidate their previously split operations onto another vendor's customer care and billing platform.

Over time, as cable operators have consolidated, we have been the beneficiary of market share gains more times than not.

But unfortunately, they do not all go in our favor.

Fourth, this guidance reflects the work we have done to lower our interest expense as a result of our debt refinancing in late 2012, and a lower effective income tax rate for 2013, as a result of several tax improvement initiatives we implemented during 2012.

And finally, after considering the impact of the revenue decreases I noted earlier, this guidance assumes that we grow the balance of our revenues in line with the market, which is in the low- to mid-single digits.

Now on to the details.

For 2013, we are initiating revenue guidance of $755 million to $775 million.

Our expectation for our non-GAAP operating margin is approximately 17% for the full year 2013.

This guidance is in line with our fourth-quarter exit rate, but is lower than our 2012 performance of approximately 18%.

This lower year-over-year margin reflects the revenue factors just mentioned, as well as our continued investment in our people and our products.

Over time, we believe that new revenue opportunities will translate into improved margins.

But in the near-term, a large portion of the revenue decline related to our recent contract renewal for Time Warner and the lost customers I noted will flow through to the bottom line.

We anticipate adjusted EBITDA to be in the range of $162 million to $167 million, or 21% of our expected total revenues.

Our expectations for 2013 full-year non-GAAP effective income tax rate is approximately 36%.

We believe that this is a sustainable rate as we move forward with our global business and execute on some of the tax strategies we implemented towards the end of 2012.

We are initiating guidance for our 2013 non-GAAP EPS in the range of $2.23 to $2.33 and our operating cash flows for the year in the range of $118 million to $128 million.

We expect capital expenditures in the $35 million range for the year, which is relatively in line with our historical spending levels.

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

Please note that our 2013 guidance does not anticipate any significant impact from foreign currency fluctuations since we generate a large portion of our revenues in US dollars, and because of the difficulty in predicting foreign currency rates for the remainder of our business.

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 year.

To summarize, we are pleased with our reported financials for 2012.

We believe these results are indicative of our solid business model, consistent execution and strong balance sheet.

We remain confident that our market-leading solutions continue to add value and enable our clients to compete and grow in a changing global communications industry.

Our mission-critical solutions and time-tested experience continue to provide us with opportunities to expand our solutions to service providers around the world.

The pillars of the strength -- the pillars of strength in our business model remain solid; recurring revenues, high visibility, strong cash flows and our ability to execute.

We look forward to sharing our continued successes over the coming year.

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

Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Paul Thomas from Goldman Sachs.

On the software contribution in the quarter, how much of that was from Ascade and how much of that was organic?

And how should we think about software's contribution in 2013?

Well, Ascade was -- about $7 million was our guidance provided when we bought the company.

And a very large portion of that is software, so you can do the math.

For the second half.

For the second half of the year.

Yes, so it's about $3.5 million per quarter.

A large percentage of that relates to software and services, so you can do the math on that.

I think as you look into 2013, that was a very strong fourth quarter for us.

There is a -- global software companies do have strong fourth quarters when people look to expend their money, their IT budgets for the year.

So we saw this as a very strong quarter for that reason, and probably not sustainable into Q1 and Q2 for that reason.

Anything else you want to add?

No, I think what -- when I think about our software performance for the fourth quarter, it's really a reflection of the diversity of the business that we have built.

With what we think is a broader pipeline.

And fourth quarter just had a strong success rate of close, higher than what we would normally have seen, and we think is somewhat reflective of fourth-quarter dynamics with clients with budgets to spend, and so forth.

Okay.

And then maybe on the Comcast agreement.

I guess in general, when you guys have gone through these negotiations with large customers, is it typical to have a couple of months extension?

Or how should we think about sort of the second month into extending the contract here?

I think this is -- could be viewed as atypical from what we have normally seen on Comcast.

Comcast are really all renewals.

But I think there are some uniqueness in this and that as we talked about in the fourth quarter when we had our third-quarter earnings call.

There has been a change in key folks involved in the relationship that were coming up to speed.

And we really got a later start to really the meat of the discussions than we normally would have.

And because it had to go over year-end, it was not unexpected that we would need to do a one-month extension.

And we feel positive about the opportunities here, that we will get a long-term agreement with them.

There is general agreement on the primary components of the key tenets of the deal.

But these are complex processing relationships, with a lot of specifics on the contract that just have to be worked out.

And it's just taking a little bit longer than what we would normally would have seen because we got a late start.

Okay, thanks a lot, guys.

Ashwin Shirvaikar from Citibank.

Good quarter, guys.

I guess just going back to software.

How much of that would you say -- you know, you mentioned fourth-quarter strength and global software seasonality, that kind of stuff.

But is there any indication of an improved selling environment generally speaking, or was this entirely just 4Q budget-crush type of thing?

You know, Ashwin, I will take the first part of this.

When we think about the fourth quarter and the strength that we have had, I think it was reflective of a couple things.

One is, it's -- we are starting to see some benefits out of Asia Pacific from rebuilding that market.

Not the predominant piece, but one of the contributors.

The pipelines, as we have been talking about, have improved over time to be stronger pipelines across the business.

But it is still long sale cycles.

So in many cases, we see a lot of positives to either the potential in the business, but we also recognize that we didn't get a big bluebird.

We didn't get anything that was necessarily unexpected, except just the sheer number of deals that probably closed in the fourth quarter.

So I would say -- I am cautious to say that we are really seeing a different spending environment.

But we're seeing an environment where the strength of the pipelines, with the diversity of the number of opportunities, with the number of products that we have, gave us better potential in what is, I think, a normal, typically fourth-quarter strength.

All that to say -- I think when I look going forward, we've made some big strides on what the potential is in the business.

But this is not to say that fourth quarter is the new trend for all quarters going forward.

Okay.

And is there any flow-through from those sales to services and implementation into 2013?

Probably a little bit where you know you would get some incremental maintenance fees and some services, but nothing of huge significance that's going to drive a change in our kind of services revenue in the 2013 and beyond period.

Randy?

Yes, I would say, Ashwin, if you remember that most of our professional services engagements that have software tied to them are POC.

So these are more up-capacity, upgrade-type situations, so there's not a lot of services tied to them.

Okay.

The big elephant in the room asking me to ask a question about Comcast.

So are we going to see a situation here where you sign the Comcast deal and then we redo in a couple of weeks, redo this guidance?

I mean, can you go through the logic of what you are seeing here and what might happen to revenues?

If much of it is a pricing discount with Comcast, how does that affect EPS, the cost takeout?

And provide some color?

Yes, I think Ashwin our expectations are, yes, that as we finalize the renewal, that we would update our guidance as necessary.

As we've done in the past, when we have a material client like this, we will give you a full update as to kind of the outcome of the renewal and the expectations on the Company's performance going forward.

I think if you were trying to look at sizing this up, the most recent other large client we had like this was Dish back in 2011, and that ended up being a 10% to 15% discount.

And I think this is of a similar size.

Not to use that as a basis of prediction of how this is going to come out, but if you're just trying to get a sense as to the significance, the magnitude, the client sizes are about the same.

And Randy, from a -- the flow-through of how to think about that impacting the other aspects of guidance that is not incorporated into our guidance is the impacts to (technical difficulty) and GPS and so forth?

Yes, I think from a margin perspective, in the near-term we would expect a large portion to flow through to the bottom line.

Obviously we look at some of our expense commitments as a result of that to see how much of those we would adjust.

So it may not be a full flow-through.

But again, if you look at our strategy on this, it really is one of investment by CSG in the long-term relationship of that engagement, or of that client.

If you think about it, we have done a very good job over the years of really passing along some of the benefits that we really have developed, you know, whether it be cost of computing or more efficiency.

It's really kind of an exchange of that time of other renewal where the client looks for some of that benefit back to them.

And then we look for the commitments over the long period of time to really earn back and get deeper with our clients, and really expand the relationship over the long period of time.

And I think that has proven out very well, more recently on the Dish renewal.

And I think over the years, it has also proven very well with Comcast itself, in which we've given them pricing discounts.

And then we've done a very good job of building back up the revenue base and the profitability from kind of that reset.

Ashwin, I just want to add to what Randy said.

Is that we view these as foundational as we share back our operational efficiencies, as Randy talked about.

And it is not an action that we think we need to go out and do significant cost restructuring of the business because we've been able to achieve cost savings and benefits that we're passing on that we've already achieved.

But most importantly, when we've looked back on this -- and I think this is what is reflected in all our financials, our historical financials, that over the long term with these clients, we are generating mid- to high-single digit growth on these clients through their new services expansion of our products, and other pieces that really give us growth potential from this.

And we look at this as being a foundational level once a renewal is done, from which to drive meaningful growth.

And we have done this with all of our major clients -- Time Warner, Dish and Comcast, historically.

Okay, I'll follow up after.

I do have a couple of questions.

Thanks.

Sterling Auty from JPMorgan.

Hi, guys.

This is Lauren Choi for Sterling Auty.

Another question on the software.

I guess the upside.

I just wanted to make sure.

So, I wasn't clear.

Was it related to Ascade?

Or it was kind of various products across the board?

I think the question on Ascade was more probably year-over-year quarterly improvement to see how much of that increase came from organic versus inorganic, not so much sequentially because Ascade was here the middle of July.

Right, okay.

And Lauren, the revenues are really just the strength of the broader, diverse opportunities we have both from clients and products.

But it is not a one-month catch-up that we didn't -- or a run rate adjustment associated with Ascade.

Okay.

Yes, just wanted to make sure there.

And then, I think you did mention something about -- was it mostly related to APAC and Latin Am, relationship stuff that is going on?

Those were areas that we saw strength in.

We also saw some benefits in EMEA as well.

But when we saw APAC and Latin America, those were some of the areas that we had some nice strength in the fourth quarter.

Okay.

And again on the Comcast, so you know, between the first extension versus the second one, would you say there is any kind of changes to the way that you are thinking about the revenue run rate?

I don't want to get into any specifics, but there has been no significant change to our -- to how we are looking at the relationship and the run rates and what we are expecting out of this agreement.

Just, we need more time.

Okay, got you.

And lastly, just around the margins.

So in terms of the margin guidance, I guess, how much of it is coming from the revenue reduction versus the investments that you are making in 2013?

I guess I am just trying to get a sense of, is it mostly revenue reduction that's creating the margin, you know, coming down?

Or is a good portion also you investing heavily?

It is primarily as a result of revenue reduction.

If you look at the discount on Time Warner, that flows pretty much through and you lose some pretty significant scale benefits when you lose clients off your software platform.

So I would say, I would focus probably more on the revenue as probably causing some of the pressure on the margin as opposed to expenses.

Okay, great, thank you very much.

Tom Roderick from Stifel Nicolaus.

Hi, guys.

This is Chris Koh for Tom.

Good job on the quarter.

Just a quick question on the consolidation competitor platform.

If you could maybe help us a little bit in terms of the magnitude of that transition, and maybe some of the reasons as to why that occurred?

I will talk about the dynamics.

The client had -- it's a smaller client in the marketplace, you know, but we are not giving out the specifics of names.

But it is not one of our major clients, it is not a reduction of our footprint that we are doing for major clients.

But it is a smaller client that had business on other platforms.

And they decided they wanted to consolidate onto a single platform, standardize on a single platform.

And as we've said before, it is unusual for us to lose a client.

But they chose -- they wanted something that was more of an in-house solution.

And even though we've got a more diverse platform today and offerings than we had in the past, they chose to go that route.

Clearly anytime you lose a client, it is a disappointment.

But as we recognize, we can't be all things to all people.

And this is one that we wish them the best, supported them as they went through their migration, and look forward to continue to build our business on the rest of the clients we have.

Great.

And so is it fair to say that this is not -- you view this as an isolated incident and this is not like indicative of a broader trend or anything like that?

Oh, absolutely, we think it is indicative -- or not indicative of a broader trend.

(laughter) This is, we think -- you know, you've got to prove yourself every day with your clients, you've got to perform.

And it is a history that we have of continuing to build those relationships and bring more value.

So we don't take anything for granted.

But when you do have somebody step away, you make sure that you are very focused on supporting all your clients and where they are going as a business.

But this is not indicative of any trend that we see in the business.

Got it, great.

And then maybe piggybacking on Lauren's question.

If you look at the margin difference between 2012 and '13, looks like it is about 1 point.

So how much of that is due to this client loss versus the Time Warner stuff, if you can break that out?

Well, I will just give you kind of general specifics.

I mentioned on Lauren's question that the biggest portion relates to revenue.

If you look at it, revenue is relatively flat, right?

And you've got other revenue growing at market rates.

So you can see kind of the downward pressure that you would be getting from this loss of revenue.

And a lot of that flows through the margin, so I think you can attribute a large percentage of it to that.

Okay, great --

To the combined revenue loss.

Yes, to the combined revenue loss.

I mean, just to note that in my comments, I noted that not just this small cable operator, there were also some planned managing down to smaller legacy platforms that we had.

So I think that is also in there, where you have to keep that in mind as well.

Yes, Chris, we won't probably break out profitability by client for you.

You will or will not?

Will not.

(laughter)

Okay, fair enough.

I had to try, though.

Thank you very much, I appreciate it.

Daniel Meron from RBC Capital Markets.

Congrats on the solid execution here on the fourth quarter and throughout 2012.

So as we look into Comcast, just to clear this, did you receive the consolidation to the Amdocs platform of the $800,000 that was carried through from early 2012?

No, there has been no change in that marketplace.

Those subscribers are still on us.

Okay.

Is it part of the negotiation, or it's irrelevant to that?

I'm not going to be getting to any specifics, but -- of markets and such.

What we see is a large, broad platform, and a large, broad set of subs and markets that we are going to continue to be supporting.

But specifics about one market or another, are not for discussion in the open markets.

Okay.

And just to clarify.

Once -- I understand that the Comcast decision-making has been pushed out.

By now it will be a couple of months by the time it will be announced.

Could the new terms be retracted in a sense?

Or it would be starting from the day they -- it would be signed?

No, I -- no, we won't be retroing those terms.

And it is really why we are both interested in getting the deal concluded, and why we are only doing -- you know, did a one-month renewal because it is very focused on starting to generate benefits on a go-forward basis.

Okay.

Understood.

So, and right after you conclude Comcast, basically, you have no renewals up until 2017?

Is that right?

Randy?

The next largest client would be Charter, which would be at the end of 2014.

But they are less than 10% --

Yes, less than 10%.

We don't report on them anymore because they have fallen below the 10% as the company has gotten larger.

Right.

So it sounds like after this thing, on your anniversary, that there should be a pretty open road, with no renewals for several years out.

I like these open road comments.

(laughter)

We have got a lot of smaller clients, but they are not material to the impact of the financials.

Those will be renewing at different points.

But yes, open roads and sunny skies.

(laughter)

Okay.

And as I follow up on that, and look at the longer-term outlook for the Company, what kind of growth rate pass those renewals, as we anniversary those, starting 2014, say fresh?

What kind of growth rate should I expect on the carrier side versus the cable side, or software versus the processing services?

Can you give us a sense on what kind of growth rates should we expect from that?

And then where do you think that the margins go eventually, on the operating margins and the cash flow margin as well?

Well, that's quite the compliment.

(laughter)

We need more of that geographic --

Yes, first of all from the revenue perspective, we are not going to break down what we think about growth on one piece of business versus others because we really look at this as being a consolidated business.

But we do see certain opportunities for us to be able to meet, if not exceed, the market growth rates, the broader market growth rates.

Our goal is to get more than our fair share of the spending that is taking place in the marketplace.

And so however the broad market grows, we look to get that or better.

We think we can do that because we are now in a better shape around broader offerings, our managed services offerings, our ability to go back into our traditional clients and build growth off of the resets on the pricing.

The over-the-top activities that we're seeing around Content Direct and the content evolution, as well as what we are starting now to see out of Latin America and APAC, we think these are all areas where there is growth.

Those are areas of growth that we should get our share on, and therefore we should be able to meet the market growth rate or better.

From a margin perspective, I think as Randy said in the past, growing revenues is what helps drive margin growth.

So I mean, I --

I think, you know, we have been talking about 2013 (technical difficulty) as kind of the reset year.

We had two large renewals that we knew were going to take place.

We will invest in those renewals.

And we believe that we will be very well-positioned starting in 2014 to look for opportunities to expand our margin.

It may take us a couple of years to get back to our targeted 18% to 20%.

But we feel very good about our position.

And in 2014, we will look for ways to continue to expand that margin back up towards our goals.

You know, Daniel, the thing I would just add to it, is that we believe we are in the long-term evolution of this business.

And through that long-term evolution of the business, that is why we have been investing in solving APAC, getting stronger in Latin America, being in a position with our managed services to build that out so we can support it around the world.

And that long-term evolution is not to try to get a fast pop.

We are trying to get steady, consistent growth.

It is why we are refinanced the debt, to make sure we had a strong capital base so that we could do organic and inorganic growth in the marketplace.

So all of these things are pieces that we are really building for long term.

And we think by doing these things, it puts us in a position to meet the growth of what the market offers and what opportunities there are, and really be in a position to outperform that.

Okay, thank you, Peter, good luck.

(Operator Instructions)

Howard Smith from First Analysis.

Question on APAC.

Obviously strong on the software side this quarter.

I'm trying to get a sense -- do you feel that this quarter's results reflect the full rebuilding of the pipeline and team there?

Or was the strong results off of, you know, a not completed effort?

And if everything had been done earlier, it might have been even stronger?

You know, Howard, I would say that what we are starting to see is, I think we have got now a strong pipeline.

We have a strong organization that is active in the marketplace that is building the services and relationships out.

Do I think it is -- you know, we are winning the fair sure that we expect to?

We had a strong fourth quarter, but we still have expectations that we will have stronger results out of APAC than what we saw in the fourth quarter.

I don't know if we are on the inflection point, that it is about to take a material change.

But we are definitely participating in more opportunities than we were a year ago.

And it showed up in some of our financial results of the fourth quarter.

And I think it is showing up in the type of things in our pipeline going forward as well.

Okay.

And just a follow-up, unrelated topic for your traditional North American cable operators.

You have talked in recent quarters about discretionary spending maybe getting a little bit better, but still quite challenged, relative to history.

I was just wondering if you could kind of discuss what you are seeing on that macro?

I think as we look at 2012, we actually saw a little bit better performance in 2012.

I am hesitant to try to say how the outlook is.

But from what we saw in 2012, we saw clients focused on improving the customer experience, engage with the customer experience more.

And all those things contributed to a stronger 2012 than what we saw in 2011.

Okay, than you much.

Adib Motiwala from Motiwala Capital.

I just had a couple of questions.

One is, from looking at the -- I've been following this Company for a year and a half or so.

The Company pays a very good, stable cash flow and good free cash flow.

And the stock is quite undervalued, in my opinion.

What are your plans for doing buybacks?

I see there were some buybacks, and there weren't any buybacks in the last quarter.

Do you have a particular target in mind, a target price where you want your next buyback?

Well, our strategy on our use of capital and what we did in 2012, and what we did really in prior years, 2011, is to make sure that first and foremost that we take any dilution that comes from management incentive programs that use stock, to make sure that those do not add to the shares outstanding.

So we look to repurchase those as part of our stock buyback.

Beyond that, we have been very focused on making sure that we have a strong balance sheet and a capital source so that we could be in a position to invest back in the business.

Because as I said in some of the previous comments, we are in the early stages of evolution.

And we really do believe that our ability to add to our functional and technological assets that we have to go cross-sell into clients, the ability to get more scale, and the ability to really invest in new offerings, such as over-the-top and managed services, puts us in a position from this strong capital base not to be limited, and it allows us to be opportunistic.

We don't get into specifics about what our target price is on stock buybacks.

We don't get into specifics of expected volumes that we are going to buy.

Those we leave just to our treasury function to take care of those as part of their normal operations.

Okay.

And then in terms of -- given the recurring revenue base and cash flow, do you have any plans of putting in place a regular dividend?

I think, consistent with my other comments, our focus right now is very much about how do we invest to continue to broaden our self, and make sure that we are a significant player in the marketplace for what we see are the opportunities that are in front of both our clients and in front of us?

Do you see other participation deals, that you might acquire some other companies?

We fully expect that we will look to be a participant in any opportunities to add functionality and capabilities to our offering, whether they are small tuck-ins or if something can be broader to give us bigger scale.

We do believe that the Intec acquisition that we did in 2010 was a significant transformation of our Company, and really puts us on the path for a much broader evolution, and ability to participate in the broader market in a more meaningful way than we have ever been able to do.

Okay, thank you.

Thank you.

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

You may continue.

Well, I just want to thank all our analysts and those who are on the call as investors, employees who happen to be listening in.

We are very, very pleased with 2012.

We performed not just equally strong, and not just well on the financial performance, but in being successful in the marketplace.

And I think it portends a strong future for 2013 as we build on the foundational renewals that we are putting in place, and the broader spectrum of clients that we have around the world.

So we look forward to reporting in about three months the success for first quarter, and how we progressed through the year.

Thanks.

Ladies and gentlemen, this does conclude our conference for today.

We thank you all for your participation.

And at this time, you may now disconnect.