CSG Systems International Inc (CSGS) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the CSG Systems, Inc. Q2 2013 conference call. (Operator Instructions).

I would now like to turn the conference over to our host, Ms. Liz Bauer. Please go ahead.

Thank you, Crescent. 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 judgement, 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 revisions to these forward-looking statements in light of new or future events.

In addition to the 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 in 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 our non-GAAP reconciliation tables on our website which will also be furnished to the SEC on form 8-K. With me on the phone are Peter Kalan, our Chief Executive Officer, and Randy Wiese, our Chief Financial Officer. With that, I would like to now turn the call over to Peter.

Thanks, Liz. And thanks to everyone for joining us for today's call. We had a very solid first quarter in what continues to be a challenging business environment.

During the second quarter, we were able to close several of the deals that we had anticipated closing in the first quarter and also start to build momentum around several key areas of our business. This quarter, we signed our first significant managed services contract with a tier one operator in the Asia Pacific region. We will help this operator move their legacy billing operations onto our single view platform for their enterprise services business and will also operate the solution for them in their data center.

It is a five year contract, and it represents a significant opportunity for CSG to demonstrate internationally what we have proven here in the United States. We know how to run large scale solutions to meet operational performance standards while also achieving cost effectiveness. These types of implementations are complex. But we are thrilled to be able to demonstrate what many of North America's leading communication providers already know. We are a good partner.

We deliver on our promises. And we are there day in and day out helping our clients achieve their business objectives. While we are not at liberty yet to disclose the client or the size of the contract, I can tell you that annually it represents a four-fold increase in what this operator has spent with CSG over the past several years for other solutions we have deployed with them. This type of managed services engagement is representative of our key strategy of getting broader and deeper in our clients' operations.

Let me provide some color on how we view this. Historically, a provider would purchase a software solution aimed at meeting a specific business or a technological need. Typically, a client would hire us to implement this software. Then after implementation, we would provide support to make sure that the solution continues to work as designed. When a client's business changes, we would help make sure that the solution stays up to date to meet their changing needs.

Historically, with our international clients, this would be the extent of the services that we would provide. However, with our North American cable and satellite clients, we provide and operate highly complex solutions for them insuring that it operates effectively and efficiently as well provide the computing environment in which the solution operates.

As in the case of the new contract win I mentioned earlier, we will not only provide the solution and ongoing support to ensure that it continues to meet the future needs of the client's business, we will also operate the solution ensuring that the system operates officially and effectively. By doing this, we work within a client's operational structure and learn first-hand how a client's businesses are evolving, and then we are able to anticipate their future needs and proactively come to them with solutions aimed at helping them maximize their revenues, profits, and their customer satisfaction.

This trust in relationship creates a strong foundation which enables us to do more for them. A good example of this is what we are currently doing with Comcast, to help increase their operational efficiencies and customer satisfactions with their installation of services at the customer's home. As many of you know, we developed the cable-industry's leading workforce automation solution, called Workforce Express. Historically, Comcast utilized our Workforce Express solution in all of their CSG markets.

Realizing significant efficiencies in the number of appointments the technician could complete in a day, decreasing cost of truck roles and, importantly, increasing the customer satisfaction ratings as a result of several items including improving the scheduling and fulfilling the service appointments. This quarter, Comcast has started implementing our Workforce Express solution in their non-CSG markets, standardizing their operations across their enterprise, and continuing to increase the customer's experience and satisfaction.

Our ability to develop solutions aimed at addressing the challenges and opportunities that an operator faces in delivering a differentiated customer experience increases when we are helping them manage and run the solutions that help deliver that experience. Another example of the types of challenges that we help our clients address is a project that we are doing with a major North American communications provider. This operator ran several marketing promotions aimed at getting new customers to sign up for various bundles and packages of services.

Now that the promotional period and pricing is coming to an end, the operator wants to convert those customers to the most appropriate bundle of services. We are working closely with their operations, customer service and marketing teams, to proactively identify those individuals, help determine the most appropriate package of services to those individuals, and then automate the type of outreach that is provided to ensure their continued business. By helping reduce customer churn, we are helping this operator improve their operating margins and profits.

We fully expect that by moving into a multi-year managed services engagements like we have just done with an Asia Pacific operator, we will identify additional ways that CSG can help operators be successful. The world of content and how it is provided and consumed continues to evolve, and we are hoping new and existing providers look at new business models and approaches to engage with their customers with our content-direct solution. In the past, I have outlined how we have helped content producers like the WWE, NBC Universal Sports, and on-line gaming create interactive and engaging consumer relationships that can be monetized through a variety of avenues whether through advertising, subscription fees, individual event purchases, or even Facebook credits, to name a few.

We have also talked about how we are helping content aggregators and carriers like our cable and satellite clients expand their over-the-top content initiatives by providing the commerce, content management, and member management solutions for their transactional online content storefronts. Now we are expanding our content direct solution into an adjacent market -- big box electronic retailers.

This quarter, JB Hi-Fi, one of Australia's largest electronics retailers, lost a virtual storefront allowing customers to download or stream content to their PC, their Mac, Android tablet, Android phone, iPhone or iPad. JB Hi-Fi is utilizing the new standard for digital entertainment, called ultraviolet, and our content-direct solution offers a seamless integration between ultraviolet and JB Hi-Fi's virtual storefront. Our solution enables physical to digital redemption, e-commerce, shopping and payment capabilities, and provides the management of the content, entitlements, permissions, and security in real time for the retailer.

By utilizing our content direct solution, JB Hi-Fi is able to expand its digital footprint to create a unique market position by increasing their distribution beyond their physical stores to any person anywhere on any device through their virtual storefront. Many retailers are looking for ways to expand their customer base and extend their brand presence through digital media applications and Content-Direct is providing the enabling platform as retailers evolve and expand their businesses.

While the overall business environment continues to be challenging, I can say that I am very excited about the opportunities that we have in front of us today. The progress that we are making on our growth drivers can be attributed to several key factors we have in our Company. These include that we have the best employees who are committed to doing things right. We consistently deliver for our clients.

No one in the industry understands video services like we do, and finally no one understands managed services like we do. It is worth pointing out that a little over two years ago, we undertook a significant transformation of our Company. And I believe we have made solid progress with this transformation while improving our financial outlook. Today we have visibility in approximately 85% of our revenues entering each year, and our three largest clients representing close to 45% of our total revenues extended their contracts into 2017.

Next, over the past five years, we have on average generated approximately $115 million in annual operating cash flow from our business. And finally, we believe that with our strong balance sheet and the cash that we generate, we have enough capacity to make any future investments and acquisitions to help us drive revenue growth. As most of you know, at the end of June, we announced the initiation of a quarterly dividend. We made this decision based on the confidence we have in our ability to continue to execute on our growth initiatives along with the relative stability and predictability of our revenues and cash flows. We have always said that we are committed to delivering long term shareholder value, and we believe that the initiation of the dividend, combined with our successful execution on our growth strategies, delivers on that commitment.

Finally, before I turn it over to Randy, I would like to summarize why we believe that we have set this Company up to deliver revenue growth and operating margin improvements in subsequent years as we successfully execute on a number of opportunities. First, we have lots of prospects for growth by enabling our North American cable and satellite clients to navigate an increasingly complex and competitive business environment. Second, we have over 500 service providers worldwide that are transforming and evolving their businesses, and they depend upon us to help them be successful. This base of clients provides us with opportunities to create new revenue streams with our broad suite of products and services aimed at helping them compete and prosper.

And finally, we are actively competing and winning in several key growth areas including geographic markets like Asia Pacific and Latin America. New service offerings like our international managed services, and we are in the forefront of the evolution of how content is distributed and monetized from content creators and owners to traditional retailers, to cable satellite and communications service providers.

While the business environment continues to be challenging, I can honestly say that I believe that we are well positioned to succeed in this evolving communications market. I would like to thank our employees who work tirelessly every day to deliver the highest quality service to our clients, and our clients who have trusted us with helping them execute on their business objectives. With that, I would like to turn it over to Randy to review our financial performance for the quarter.

Thank you, Peter, and welcome to all of you on the call today to discuss our financial results for the second quarter and our outlook for the remainder of 2013. Overall, our results demonstrate that we were able to sign several of the contracts that have slipped from the first quarter into the second quarter as well as the benefits that we are seeing in our Asia Pacific region as a result of the significant changes we made 18 to 24 months ago to the sales leadership and sales team in that region, and the initial traction that we are seeing with our managed service offering.

During the second quarter, we also reported an important milestone in our Company's history with our decision to initiate a quarterly cash dividend to our shareholders. This move not only demonstrates our confidence in our business model and growth strategy, but also our commitment to create long term value for our shareholders. We believe that the dividend is not only sustainable, but can be grown over time as we continue to successfully execute on our business plan. Our solid balance sheet, strong cash flow support this balanced approach to our capital allocation strategy.

I would now like to walk you through our financial results in more detail. So let us begin. Total revenues for the second quarter were $186 million, up 1% from the same quarter last year. Sequentially, revenues for the quarter increased $5 million or 3% from the first quarter.

In looking at these comparisons, let me highlight a few things to provide some additional color. First, this quarter was the first full quarter of the renewal discounts associated with the Comcast and Time Warner extensions from earlier this year. Second, as we discussed last quarter, we had a slower than expected start to the year.

Yet, as anticipated, we closed several deals in the second quarter that had been delayed in the first quarter. Breaking down revenues further, during the second quarter we had three clients that each individually generated revenues of 10% or more of our total revenues -- Comcast, Dish, and Time Warner. Together they were 43% of our revenues for the second quarter. Additionally, during the quarter, we generated 85% of our revenues from the Americas region, 9% of our revenues from the Europe, Middle East and Africa region, and 6% of our revenues from the Asia Pacific region.

Moving on, our non-GAAP operating revenue for the second quarter was $30 million with a margin of 16%. As anticipated, this represents a decline from last year primarily due to the impact of our recent contract renewals. The margin is up from the first quarter primarily due to the sequential increase in revenues. GAAP operating income for the first quarter was $22 million or a margin of 12%.

For the second quarter, our adjusted EBITDA was $39 million or 21% of our total revenues. Non-GAAP EPS for the second quarter was $0.57 which compares to $0.56 for the same period last year, and $0.48 for the first quarter of this year.

Our non-GAAP effective income tax rate for the quarter was 36%. GAAP EPS for the second quarter was $0.37. Now on to the cash flow and balance sheet. We had strong cash flows from operations for the quarter coming in at $39 million. We spent approximately $7 million on capital expenditures, thus resulting in $32 million in free cash flow for the quarter. We ended the quarter with $189 million of cash and short-term investments, an increase of $17 million from the ending balance last quarter, largely due to our strong cash flows this quarter.

We had a total of $293 million in par value debt on our balance sheet at quarter end. During the second quarter, we repurchased 166,000 shares of our common stock, for $3.5 million under our repurchase program, and we also declared our first cash dividend in the amount of $0.15 per share or approximately $5 million which was paid to shareholders on July 25th.

Going forward, we expect to pay dividends each year in September, December, March, and June with the amount in timing subject to board's approval. Our strong cash flow generation and solid balance sheet enabled us to both invest in our business and return capital to our shareholders. With our new quarterly dividend, and at our current level of share repurchases, we anticipate returning between 25% to 50% of our annual free cash flow to our shareholders while still having sufficient capital available to strategically grow our business.

This is an enviable position to be in. Now let us move on to our guidance for 2013. Overall, we are maintaining the full year guidance that we shared with you last quarter. For revenues, we are maintaining our revenue guidance of $740 million to $760 million.

Let me provide some additional color around these expectations. Effective July 1st, we divested of a small print center which was underutilized and serving small clients which were not considered core to our operations. This sale is consistent with our focus of efficiently managing cost and optimizing our asset utilization. Overall, we expect to see a reduction in our second half 2013 revenues of approximately $5 million, due to this sale, with minimal changes to our operating results.

As a result of this divestiture and the tone of the overall business climate, we believe that it is more likely that we will come in closer to the midpoint of our guidance range for the year. We are maintaining our expectations for a non-GAAP operating margin of approximately 16% for 2013 which is in line with our first half of the year performance.

We anticipate adjusted EBITDA to be within the range of $153 million to $158 million or 21% of expected total revenues. We are maintaining our 2013 non-GAAP EPS guidance range of $2.05 to $2.15.

We believe that more likely that will come in closer to the midpoint of our guidance range for these items consistent with our revenue expectations. We are also maintaining our guidance for operating cash flows for the years to be in the range of $110 million to $120 million. Our expectation for our 2013 non-GAAP effective income tax remains at approximately 36%.

We continue to expect capital expenditures in the $35 million range for the year which is relatively in line with our historical spending levels. And finally, consistent with our past practices, our guidance does not assume any share buybacks under a repurchase program for the remainder of the year. To summarize, we are pleased with the progress we made in the second quarter.

We delivered solid results, closed some key deals, broadened our footprint among our clients, and built upon our active pipeline. We also reaffirmed our commitment to providing shareholder value with the initiation of an attractive quarterly dividend. We believe these achievements are indicative of our recurring revenue business model, consistent execution, strong cash flow generation, and solid balance sheet.

We look forward to sharing our continued successes in upcoming quarters. With that, I will open it up to the operator so we can take any questions.

(Operator Instructions). Our first question comes from the line of Mark Sue with RBC Capital Markets. Please go ahead.

Thank you. Just a clarification on the -- if I look at the midpoint of the guidance for this year, we subtracted $5 million. Should we start thinking of adding the initial contributions from the contract win in Asia? Maybe you can give us some sense of timing of revenue with that particular new win.

Well, I will go first, Mark. The contract win -- the managed services was the type of business that we originally anticipated that we would win this year when we gave our guidance. And so it is -- I would not say it is additive to expectations for the year. Relative to the revenue recognition, Randy, I think if you were to talk about that, and how we would look at this type of contract.

Sure. This is a bit of a hybrid-managed services contract for us, in which we actually license and install the software, and then we operate the software and are paid for the operation of the software. So as the installation was taking place in the second quarter, we began recognizing some revenue on this, and we will recognize revenue as we complete the installation, and then we will begin recognizing the revenue for the managed services operation. So it is somewhat over the implementation period which is probably close to six to nine months, we will recognize that some ratable on a percentage of completion, and then ratable over the remaining balance as we do the managed services work.

Okay, understood. And then maybe at a high level, if we sit back and think where we are with the industry, and a lot of the service providers around the world, yet the focus has changed to more of customer acquisition and customer retention leaving the opportunity of operational focus to companies such as you guys. Can you give us some qualitative sense of the pipeline, the inclination to do more external outsourcing, and just kind of your ability to kind of grow faster than the market? Are you competing less with the internal folks and more with other traditional companies just to kind of get a sense where the industry is headed.

Well, Mark, several points on that. One is we are enthusiastic. On the pipeline, we are seeing build on managed services, and we think that our announcement of this contract is indicative of the type of things that we will see carriers wanting to do around the world, and our pipeline is building in most regions around the world for this. And it is driven by clients who want to focus on the areas of their business where they need the most internal focus, and that is the -- retaining customers and not focusing on internal management of systems. And so they believe and what I think they are seeing, and we are seeing is, through our assumption of those operations and making sure that the systems evolve and are responsive to their business, that it will be more advantageous for them in the way their systems operate across their enterprises.

So it is -- for us, we think it is positive, and we think for the clients we are seeing the shift in their mindset of how they invest in their businesses to give these types of opportunities to us as the experts. As it relates to growth, we are very excited because we think we will be taking on more of our clients' IT spend through international managed services, and then when we see things around the way that content is being -- how it is evolving and the way that it is offered and being consumed, and this is probably a long cycle, but the success we are seeing in the different parties who are involved in this evolution, and our support of that through Content-Direct. We think that is going to position us well to drive some growth as well and be in a position to help put us at or above the market growth rates for revenues. If we do that then we should be at a very strong point on bottom line results as well.

That is helpful. And then just on the balance sheet, on the cash flow. Any thoughts -- are there more consolidation opportunities? Any appetite to take on more debt to do another acquisition? And on the dividend, it is good to see that, while you are proactively reducing the share count, dividend payers particularly go on to become dividend growers. Any thoughts on how we should think about free cash flow over the longer term on an annual basis?

I will take parts of it, and then I am sure Randy will weigh in on some of the thoughts as how we look at the dividend and share repurchases going forward. First of all, we strive to have a very strong balance sheet so that we have flexibility of how we think about the business. We are always looking for opportunities to add to our capabilities whether it be in new technology, and new feature functionality of products through acquisitions and making sure that we have applications that have high volume capabilities.

But we are always also looking at what can we do to accelerate the scale of our business beyond the organic sales that we have. And so those are areas that we look to invest, but we try to be pretty prudent on that to make sure that these are things that are going to give us real market positioning and can leverage the infrastructure that we have in place.

So that is why we keep ourselves available from a balance sheet and cash on our books. And the strong cash flow that we have as a Company gives us the ability to continue to be very shareholder friendly in what we do with our shares. Randy, maybe you can talk about the outlook on how you think about that.

Yes, a couple of different things. On the operating cash flows, our working capital and our cash flow statement, you can see, is pretty insignificant over time. As we grow the bottom line, we think we can grow cash flows at least at the same pace. So I think that is the way you should look at the cash flow growth.

I think from the dividend perspective, a couple of points on that is that we initiated the dividend we thought was at a very compelling level. And also we took into consideration the ability to sustain at that level, but also grow at that level. As we grow our cash flows, we would look to maybe expand our dividend at the same pace. I think that answers your first question.

The other thing, Peter kind of touched on this, but to kind of round that out, is that we took a very balanced approach to our capital allocation strategy looking for the opportunity not only to deliver cash flow back to our shareholders in the form of dividends or share repurchases, but also retaining enough flexibility to invest in the business for growth. The strong cash flows with the balanced approach gives us plenty of capital to grow the Company plus we have a very strong balance sheet that we could leverage up if we needed more capital than we are generating from the business.

And we would still anticipate doing share repurchases as years go by to manage both the dilution that comes from incentive programs as well as opportunity to scurry about the stock price.

On the balanced approach, it is almost 50/50, as our framework. We would look for the dividends and the share repurchases over time to be in the 25% to 50% range with the balance to be invested back into the business. Some quarters it may deviate within that 25% to 50%, but over a longer period of time, we think that is a good balanced approach for us.

That is helpful. Thank you and good luck.

Thank you, Mark.

And our next question comes from the line of Tom Radwood with Stifel Nicolaus. Please go ahead.

Matt Leedon in for Tom. First question is just on overall industry trends that you are seeing, especially in your client base with some of the potential consolidation talked about and just kind of how you guys are approaching that. And kind of looking at the trends there longer term.

Well, Matt, I would start off by saying that the trends that we are seeing in the industry is reflective of an increased competitive environment between carriers and the need to continue to drive operational efficiencies and consolidation of service providers whether it be cable companies or telcos is reflective of trying to generate scale in their operations. And so we think that plays well to us because our success has been about delivering solutions that are cost effective for our clients.

We have got an incredible history of what we have done in the cable industry such that our -- cable and satellite industry, such that our cost of billing is probably somewhere in the range of about 1% of revenues while we have seen some of our efforts in sales and engagements that we have been involved in, that worldwide telcos who have businesses across geographies, in some cases, are running 5% to 6% of revenues.

And so when companies start thinking about consolidation and driving efficiencies, we think that plays well for us, and our managed services is a means that we can help deliver that. So that is an exciting part for us, and we think the evolving industry is going to be focused on those type things.

Okay, and then just one more follow-up on the new managed services deal that you talked about in Asia Pacific region. What kind of timeframe are you expecting, or maybe looking at to sort of prove out your capabilities that you talked about internationally and really helping to drive maybe some incremental contracts or additional services provided to existing clients.

Well, the first part is that we think we go in with a pretty strong resume of what we can do. And one, knowing the product, knowing the industry that it serves, and then getting to know the client, those facets allow us to be very excited about having confidence that we can succeed for this Asia Pacific client, and the client, I think, has very strong confidence in us as well. What happens is that as you get into the business operations, it takes a little bit to have that foundational relationship before you start incrementally adding new products or new services.

But as I talked about in my comments -- my opening comments about what we are doing with Comcast, and what we are doing with another North American communications provider, they turn back to us and ask us to do more or give -- we get the opportunity to offer more to them anticipating what their future needs are. So I am not ready to say we are going to see something incrementally out of this Asia Pacific client this year, but our history has been when we perform for clients and work alongside their operational folks the business comes our way.

Great; thank you.

You are welcome.

And our next question comes from the line of Lauren Choi with JPMorgan. Please go ahead.

Hello, guys. I was just curious if you could give us some background on this tier one carrier, actually. When did this relationship originally start? Did it come through Intech, one of your acquisitions? In terms of did you have to go through a formal RFP process and were there any kind of competitors out there that you went against? And I guess lastly, also, just curious if this was a wireless or cable and satellite customer as well.

That is a loaded question. Let me see if I can handle that.

Thank you for not asking the name.

Yes.

And you would like that, I am sure. But I am not at liberty to disclose yet. A few things. One, this was an existing client that came through the Intech acquisition, and they -- it was a client that was using -- that was not using Single View but was using other applications. It is a client that has an enterprise business services business that needed to get off of a legacy platform, and it was a competitive environment for us.

So this is not just a upgrade of an existing Single View application, and then turning into managed services. This is a new install. And the client is trusting us after we went through the RFP process and showed what our solutions could do for their business versus the competition. It is a traditional telco. It is not a cable and satellite provider.

So you would think of it as someone in kind of the traditional marketplace of where Intech has played. All that being said, I can just - - we are so excited about what this shows as a benchmark of where we think we can go with our international managed services. So new installs, but we think we can also go back to existing clients who have our systems deployed and show what we can do to elevate their performance through our relationship which is incremental revenue for us as well.

So very excited for it. I think I hit all your points.

Yes. That is very helpful. And another follow-up. Some of these, I guess, Asian carriers, when they are emerging markets, and I do not know if this one is, but their economics on deals are a little different than the developed worlds. Randy, I am curious about that, and also if, given that this is managed services, how this can maybe impact your operating model?

I guess, first of all, we are not going disclose whether it is emerging or non-emerging. You start getting this narrowed down like you are Columbo. But, economically, Randy, you want to talk about how you think about it?

I would think about the managed services offering more generally, Lauren, is that I think it's a great opportunity for us to -- as we get broader and deeper with our clients what that allows us to do is it allows us to really leverage our current infrastructure and servicing that client, and also allows us to leverage some of the assets that we invested in. In this case, the one we are talking about is Single View. As we do more and more managed service contracts, I think that will give us a great opportunity to leverage some of our R&D investments in the products, utilizing those products without additional R&D. And, also, if it is an existing client, the sales cost would not be normally what they would be if you were chasing a new client. So I think this provides us a great opportunity to leverage R&D in our SG&A line item such that this could be accretive to the bottom line operating results as we get greater scale in this offering.

That is helpful, and just last question. So your software maintenance and services line was up a bit in June, and I know you mentioned the three clients that kind of got pushed into June, that closed. Would that jump back, or is it also this implementation of the tier one carrier?

It is multiple things. Some of those that we had slipped from the first quarter went into the second quarter, but some of this was also expected growth in other areas. So I would not say there is anything terribly unusual; multiple things going on in the second quarter.

Okay, great. Thank you very much.

Thank you, Lauren.

And our next question comes from the line of Howard Smith with First Analysis. Please go ahead.

Yes, good afternoon, and congratulations on a solid quarter.

Thank you, Howard.

You know, in the news very publicly, CBS and Time Warner are having a dispute and without getting into specifics on Time Warner or a specific client, this is just representative of something that has been happening with a number of the cable companies and satellite companies over time. How does that -- does that cause any inserts or attention, or things that spurs marketing efforts or things that translates into business to you or affects you in some way?

Boy, that is an interesting question, Howard. One is, I do not think that those types of events, when we have those types of differences and kind of activities going on, it is not going to be material to anything we are doing from communications on behalf of our clients. But from a bigger picture perspective, it is really interesting to us to see play out what we have started focusing on and investing roughly five years ago.

We really see a changing market that is going to take several years to continue to evolve, and it may get faster, but whether it is changing to the economics and the higher cost of content, or the consumer habits, we really think the intimacy of personalization to the end consumer is what we are going to see continue to evolve, and us investing in Content Direct, and us investing through M&A to make sure that we have billing and charging platforms that can be more responsive to the data demands that clients are going to have, make this a very interesting opportunity for us to be a part of as it goes forward. And that is why we are very optimistic that any time that there is a change in the marketplace, of how people think about doing business, it bodes well for us because we have typically done a good job of helping our clients not only manage their existing businesses, but utilize new systems to deploy for their new businesses.

That is what we are seeing. I do not know how fast it is going to happen, but just that piece, or -- I think there was an article in the Wall Street about Jim Dolan and Cablevision of what some of the things he sees in the future. It is a changing world. And one that we think we are well positioned. So in the long-winded answer, I do not think we see immediately impact through some of our marketing services, but, strategically, we think we are well positioned.

That is very useful color. Just a quick housekeeping item. Other income seemed to jump a little bit, and it may be in this detail that it read, but was there anything specific there?

Probably the biggest thing, Howard, is we had a little bit of currency gain. When you revalue some of your receivables and payables that are denominated in something other than dollars, you get a little bit of gain this quarter because the dollar strengthened against several currencies. That is probably the biggest piece. If you look at it, it's probably up $1 million over the first quarter. That is primarily what the increase is.

Great; thank you.

And our next question comes from the line of Paul Thomas with Goldman Sachs. Please go ahead.

Thank you for taking my question. You piloted several growth opportunities. What do you think the growth can go over the next two or three years? I think in the past you talked about getting back to mid -- to upper single digit type of growth. With the opportunities you are seeing, how long is the horizon to get back in that range given the contract resets you have just gone through?

The contract resets give us a -- what we have is a certainty of a base business. That is going to -- it is going to be important to us. I am very cautious of trying to predict an absolute number, but what we focus on is, if the market's growing at a certain point whether if the market was growing at 4% to 5%, we would look to see if we could exceed that based on some of the areas where we have strength. Taking more of the IT spend from clients who view us as a better operator to do certain things, taking advantage of the evolution of content and the way that, whether it is traditional cable and satellite operators who want to start new ways of doing business, or even if it is telcos that want to leverage, or big box retailers, or content owners.

We think that dynamic is going to help us grow at a higher rate than the general market for IT spend among communication providers. But not knowing how fast that market is going to evolve makes me hesitant to try to put an absolute percentage on it.

That is helpful. And then, I think you talked about some of the deals that slipped from 1Q, and then closed in 2Q. Did you capture all of those, or are there still some of those out there in 3Q? Thanks.

There is still a couple. We had some good success in Q2, but there are still some that are out there that we are chasing. I think he hung up the call. So operator?

There are no further questions at this time. Please continue.

Well, I just want to close this earnings with a thanks to our clients and to the shareholders and analysts who are participating. But, most importantly, I want to thank our employees -- our long-term employees who have been here and watched us and supported us as we go through the evolution, but also the new employees that we have brought on that are excited about what we are doing. We look forward to continued success as we really provide compelling answers to the marketplace. So with that, goodbye.

Ladies and gentleman, this does conclude the CSG Systems Q2 2013 conference call. We would like to thank you for your participation. You may now disconnect.