The information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto (our "Financial Statements") included in this Form 10-Q and the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2007 (our "2007 10-K").

Forward-Looking Statements

This report contains a number of forward-looking statements relative to our future plans and our expectations concerning our business and the industries we serve. These forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. Some of the risks that are foreseen by management are outlined within Part II Item 1A., "Risk Factors". Item 1A. constitutes an integral part of this report, and readers are strongly encouraged to review this section closely in conjunction with MD&A.

Management Overview of Quarterly Results

Our Company. We are a leading provider of outsourced solutions that facilitate customer interaction management on the behalf of our clients, generating a large percentage of our revenues from the North American cable and Direct Broadcast satellite ("DBS") industries. Our solutions also support an increasing number of other industries such as financial services, healthcare, utilities, telecommunications, and home security.

Our solutions manage key customer interactions such as set-up and activation of customer accounts, sales support and marketing, order processing, invoice calculation (i.e., customer billing), production and mailing of monthly customer invoices, management reporting, electronic presentment and payment of invoices, automated and interactive messaging, and deployment and management of the client's field technicians to the customer's home. Our combination of solutions, services, and expertise ensures that our clients can rapidly launch new service offerings, improve operational efficiencies, and deliver a high-quality customer experience in a competitive and ever-changing marketplace.

The North American communications industry has experienced significant consolidation over the last few years, resulting in a large percentage of the market being served by a fewer number of services providers with greater size and scale. Consistent with this market concentration, a large percentage of our revenues are generated from a limited number of clients, with approximately two-thirds of our revenues being generated from our four largest clients, which are Comcast Corporation ("Comcast"), DISH Network Corporation ("DISH"), Time Warner Inc. ("Time Warner"), and Charter Communications ("Charter").

General Market Conditions. In recent months, the U.S. has experienced a significant economic downturn and difficulties within the financial and credit markets, and these adverse economic conditions are predicted to continue into the foreseeable future. The possible adverse impacts to companies during these times include a reduction in revenues, decreasing profits and cash flows, distressed or default debt conditions, and/or difficulties in obtaining necessary operating capital.

Because of the severity and the far-reaching impacts of the situation, all companies could be adversely affected by the current economic conditions to a certain degree, including CSG and its clients. However, we believe our recurring revenue and predictable cash flow business model, our sufficient sources of liquidity, and our stable capital structure, lessen the risk of a significant negative impact to our business as a result of the current economic conditions. Additionally, we believe our key clients have business models that have historically performed well in down economies. However, there can be no assurances regarding the performance of our business, and the potential impact to our clients and the markets they serve, resulting from the current economic conditions.

Third Quarter Highlights. A summary of our results of operations for the third quarter of 2008 is as follows:

• Our revenues for the third quarter of 2008 were $118.0 million, up 9.7% when compared to $107.6 million for the same period in 2007, with approximately three-fourths of this increase related to the year-over-year impact of the additional revenues generated from the businesses we acquired in 2007 and 2008; ComTec, Inc. ("ComTec") in July 2007, Prairie Interactive Messaging, Inc. ("Prairie") in August 2007, and DataProse in April 2008 (collectively, the "Acquired Businesses"), with the remaining portion of the increase attributed to organic growth factors.

• Our operating expenses for the third quarter of 2008 were $96.8 million, up 12.6% when compared to $86.0 million for the same period in 2007, with approximately three-fourths of this increase related to the year-over-year impact of the Acquired Businesses.

• Income from continuing operations for the third quarter of 2008 was $21.1 million (17.9% operating margin percentage), compared to $21.6 million (20.1% operating margin percentage) for the same period in 2007. A significant percentage of the decrease in operating income margin between years is due to the impact of the Acquired Businesses.

• Other income (expense) for the third quarter of 2008 was $(0.8) million, down $2.8 million from $2.0 million for the third quarter of 2007. The year-over-year decrease is a result of lower interest and investment income due to: (i) the decrease in our cash and short-term investment balances between years, as a result of our stock repurchase activity in 2007 and the purchases of the Acquired Businesses; and (ii) a decrease in the overall rate of return realized on investments between years due to a deterioration in the interest rate environment.

• Our diluted earnings per common share from continuing operations for the third quarter of 2008 was $0.40, an increase of 2.6% when compared to $0.39 per diluted share for the third quarter of 2007, and consistent with the second quarter of 2008.

• Income from continuing operations for the third quarter of 2008 includes non-cash charges related to depreciation, amortization of intangible assets, and stock-based compensation expense totaling $10.3 million (pretax impact), or $0.20 per diluted share impact, as compared to non-cash charges for the third quarter of 2007 of $11.3 million (pretax impact), or $0.19 per diluted share.

• We continue to generate strong cash flows from operations. As of September 30, 2008, we had cash, cash equivalents, and short-term investments of $164.7 million, as compared to $148.2 million as of June 30, 2008, and $132.8 million as of December 31, 2007.

Cash flows from operating activities for the third quarter of 2008 were $27.6 million, compared to $35.7 million for the third quarter of 2007, with the fluctuation between periods related almost entirely to normal timing differences in operating assets and liabilities. See the "Liquidity" section below for further discussion.

Other key matters were as follows:

• In July 2008, we entered into a restated and amended Master Subscriber Management System Agreement with Comcast that extends our contractual relationship with Comcast through December 31, 2012. See our Significant Client Relationships Section below for further discussion.

• Our current processing agreement with DISH runs through December 31, 2008. See our Significant Client Relationships Section below for further discussion.

• During the third quarter of 2008, we invested $16.8 million, or 14.2% of our revenues, in research and development ("R&D") activities.

Significant Client Relationships

Client Concentration. Approximately two-thirds of our total revenues are
generated from our four largest clients, which include Comcast, DISH, Time
Warner, and Charter. Revenues from these clients represented the following
percentages of our total revenues for the third quarter of 2008, the second
quarter of 2008, and the third quarter of 2007:



                                           Quarter Ended
                            September 30,     June 30,     September 30,
                                2008            2008           2007
              Comcast                  26 %         27 %              26 %
              DISH                     18 %         18 %              20 %
              Time Warner              14 %         14 %              14 %
              Charter                   8 %          8 %               9 %

As of September 30, 2008, December 31, 2007, and September 30, 2007, the percentages of net billed accounts receivable balances attributable to our four largest clients were as follows:

                                               As of
                          September 30,     December 31,     September 30,
                              2008              2007             2007
            Comcast                  30 %             32 %              30 %
            DISH                     20 %             22 %              23 %
            Time Warner              11 %             11 %               8 %
            Charter                  10 %              9 %               9 %

Comcast. On July 10, 2008, we entered into a restated and amended Master Subscriber Management System Agreement (the "Agreement") with Comcast. Our previous contract with Comcast was scheduled to expire December 31, 2008. The Agreement is effective beginning July 1, 2008 and runs through December 31, 2012. The expected scope of the products and services to be utilized under the new Agreement is consistent with our previous Comcast contract and provides Comcast the option to expand its utilization of certain of our products and services not fully deployed in all of the Comcast markets we currently serve, or across Comcast's entire enterprise.

The fees generated under the Agreement are based on monthly charges for processing and related services per Comcast customer account, and various other ancillary services based on actual usage. The per unit fees are subject to annual inflationary price escalators. The Agreement includes various volume-based pricing incentives. When compared to the previous contract, there is a price reduction at several of the higher volume tiers, which in effect, reduces the fees we receive for such services at Comcast's current customer account levels.

The Agreement contains certain financial commitments associated with the number of Comcast customer accounts that are to be processed on our systems, with such commitments decreasing over the life of the Agreement, beginning in 2009. The Agreement provides Comcast with the flexibility to either add or remove customer accounts from our systems with sufficient written notification. However, if Comcast chooses to process fewer customer accounts on our systems than the committed amounts, the monthly fees to be paid by Comcast will be based on the higher number of committed customer accounts for the applicable billing period.

Consistent with the structure of the previous Comcast contract, the new Agreement contains certain rights and obligations of both parties relating to the following: (i) the termination of the Agreement under certain conditions;
(ii) various service level commitments; and (iii) remedies and limitation on liabilities associated with specified breaches of contractual obligations.

As of July 1, 2008, the beginning of the contract term, we had a $6 million Comcast client contract intangible asset that was previously being amortized as a contra revenue charge through December 31, 2008. As a result of the extension in the life of our contractual arrangement with Comcast, the amortization of the remaining $6 million has been extended through the end of the new contractual period of December 31, 2012. Beginning July 1, 2008, the amortization of the Comcast client contract intangible asset was $0.1 million per month, compared to the previous $1.0 million per month, which will result in an approximate $5 million reduction in contra revenue amortization in the second half of 2008, when compared to the first half of 2008. The net impact of this change in contra revenue amortization and the expected decrease in recurring monthly processing fees that we will be receiving from Comcast is not significant.

A copy of the Agreement, with confidential information redacted, is filed as Exhibit 10.21 to this Form 10-Q.

DISH. Our processing agreement with DISH runs through December 31, 2008, and provides DISH with the option to extend the term of the agreement for either one or two years beyond the end of December 2008. We are currently engaged in discussions with DISH regarding contract renewal options. Although we believe our operating relationship with DISH is good, there can be no assurances around the timing and/or the terms of any contract extension or renewal arrangement at this time. The DISH processing agreement includes certain annual financial commitments that we expect DISH to exceed based on the number of DISH customers currently on our systems. The DISH processing agreement and related material amendments are included in the exhibits to our periodic filings with the SEC.

Risk of Client Concentration. In the near term, we expect to continue to generate a large percentage of our total revenues from our four largest clients, Comcast, DISH, Time Warner, and Charter. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of clients. One such risk is that, should a significant client: (i) terminate or fail to renew its contract with us, in whole or in part, for any reason;
(ii) significantly reduce the number of customer accounts processed on our systems, the price paid for our services, or the scope of services that we provide; or (iii) experience significant financial or operating difficulties, it could have a material adverse effect on our financial condition and results of operations.

Stock-Based Compensation Expense

Stock-based compensation expense is included in the following captions in the
accompanying Condensed Consolidated Statements of Income (in thousands):



                                                Quarter Ended                         Nine Months Ended
                                      September 30,       September 30,       September 30,       September 30,
                                          2008                2007                2008                2007
Cost of processing and related
services                             $           897     $           945     $         2,572     $         2,397
Cost of software, maintenance
and services                                     136                 206                 464                 540
Research and development                         436                 400               1,222                 899
Selling, general and
administrative                                 1,571               1,723               4,350               4,217
Restructuring                                     -                   -                   -                   73

Total stock-based compensation
expense                              $         3,040     $         3,274     $         8,608     $         8,126

Critical Accounting Policies

The preparation of our Financial Statements in conformity with accounting principles generally accepted in the U.S. requires us to select appropriate accounting policies, and to make judgments and estimates affecting the application of those accounting policies. In applying our accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in our Financial Statements.

We have identified the most critical accounting policies that affect our financial condition and the results of our business' continuing operations. Those critical accounting policies were determined by considering the accounting policies that involve the most complex or subjective decisions or assessments. The most critical accounting policies identified relate to: (i) revenue recognition; (ii) allowance for doubtful accounts receivable; (iii) impairment assessments of long-lived assets; (iv) loss contingencies; (v) income taxes; and
(vi) business combinations and asset purchases. These critical accounting policies, as well as our other significant accounting policies, are discussed in greater detail in our 2007 10-K.

Results of Operations

Total Revenues. Total revenues for the: (i) third quarter of 2008 increased $10.4 million, or 9.7% to $118.0 million, from $107.6 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 increased $42.6 million, or 13.9% to $348.4 million, from $305.8 million for the nine months ended September 30, 2007. Approximately three-fourths of the increase in revenues between periods relates to the year-over-year impact of the additional revenues generated from the Acquired Businesses, with the remaining portion of the increase attributed to organic growth factors. The components of total revenues are discussed in more detail below.

Processing and related services revenues. Processing and related services revenues for the: (i) third quarter of 2008 increased $12.8 million or 13.1% to $110.6 million, from $97.8 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 increased $46.4 million or 16.7% to $324.1 million, from $277.7 million for the nine months ended September 30, 2007. Approximately two-thirds of this increase in processing and related services revenues between periods relates to the revenues generated from the Acquired Businesses (as all of their revenues fall within this revenue classification), with the remaining portion attributed to organic growth resulting from increased utilization of new and existing products and services by our clients, to include such things as higher usage of marketing services and various ancillary customer care solutions.

Additional information related to processing and related services revenues is as follows:

• Amortization of our client contracts intangible assets (reflected as a reduction of processing and related services revenues) for the: (i) third quarter of 2008 and 2007 was $1.0 million and $3.6 million, respectively; and (ii) nine months ended September 30, 2008 and 2007 was $8.2 million and $10.8 million, respectively. The decrease in amortization expense between periods is due to the change in life of the Comcast client contract intangible asset as a result of the extension of the contractual arrangement with Comcast, effective July 1, 2008, noted above. See the Significant Client Relationship section for further details.

• Total customer accounts processed on our systems as of September 30, 2008 were 45.4 million, up slightly when compared to 45.1 million as of September 30, 2007.

Software, Maintenance and Services Revenues. Software, maintenance and services revenues for the: (i) third quarter of 2008 decreased $2.4 million, or 24.5% to $7.4 million, from $9.8 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 decreased $3.7 million or 13.3% to $24.4 million, from $28.1 million, for the nine months ended September 30, 2007.

Over the most recent quarters, our software, maintenance and services revenues have decreased as a result of lower professional services revenues and lower software-related revenues. This recent decrease in our professional services revenues is the result of the timing and type of work our professional services team has been engaged in (e.g., longer term implementations which may require the fees be deferred upfront and recognized over the life of the service agreement).

Cost of Revenues. See our 2007 10-K for a description of the types of costs that are included in the individual line items for cost of revenues.

Cost of Processing and Related Services. The cost of processing and related services for the: (i) third quarter of 2008 increased $7.9 million, or 15.5% to $58.5 million, from $50.6 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 increased $28.9 million, or 20.9% to $167.5 million, from $138.6 million for the nine months ended September 30, 2007. Approximately three-fourths of the increase in cost of processing and related services between periods relates to the impact of the Acquired Businesses (as all of their cost of revenues fall within this expense classification), with the remaining portion related primarily to: (i) the impact of annual employee wage increases that are implemented in August of each year; and (ii) increases in variable costs related to the delivery of products and services (e.g., data processing, print costs, etc.), which directly correlate with the increase in revenues related to these products and services.

The gross margin percentage for processing and related services was: (i) 47.1% for the third quarter of 2008 compared to 48.2% for the third quarter of 2007; and (ii) 48.3% for the nine months ended September 30, 2008 compared to 50.1% for the nine months ended September 30, 2007. The decrease in gross margin percentages between periods is due to the impact of the Acquired Businesses, as the Acquired Businesses currently operate at lower gross margin percentage levels than our historical business operations.

Cost of Software, Maintenance and Services. The cost of software, maintenance and services for the: (i) third quarter of 2008 decreased $1.6 million, or 26.1% to $4.4 million, from $6.0 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 decreased $4.2 million, or 22.4% to $14.4 million, from $18.6 million for the nine months ended September 30, 2007. The decrease between periods reflects a reduction in personnel and related costs assigned internally to software maintenance projects.

The gross margin percentage for software, maintenance and services was:
(i) 39.9% for the third quarter of 2008, as compared to 38.6% for the third quarter of 2007; and (ii) 40.8% for the nine months ended September 30, 2008, as compared to 33.8% for the nine months ended September 30, 2007. The increase in gross margin percentage is attributed to: (i) a decrease in personnel and related costs assigned internally to software maintenance projects; and (ii) the change in mix of revenues between periods. Variability in quarterly revenues and operating results are inherent characteristics of companies that sell software licenses, and perform professional services. Our quarterly revenues for software licenses and professional services may fluctuate, depending on various factors, including the timing of executed contracts and revenue recognition, and the delivery of contracted services or products. However, the costs associated with software and professional services revenues are not subject to the same degree of variability (e.g., these costs are generally fixed in nature within a relatively short period of time), and thus, fluctuations in our software and maintenance, professional services, and overall gross margins, will likely occur between periods.

Gross Margin (Exclusive of Depreciation, Shown Separately Below). The overall gross margin percentage (exclusive of depreciation) for the: (i) third quarter of 2008 was 46.7%, compared to 47.4% for the third quarter of 2007; and
(ii) nine months ended September 30, 2008 was 47.8%, compared to 48.6% for the nine months ended September 30, 2007. The decreases in the overall gross margin percentages between periods is due to the impact of the Acquired Businesses.

R&D Expense. R&D expense for the: (i) third quarter of 2008 increased $1.4 million or 8.7% to $16.8 million, from $15.4 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 increased $6.4 million, or 14.8% to $49.7 million, from $43.3 million for the nine months ended September 30, 2007. The increase between periods is due to an increase in personnel and related costs on R&D projects, reflective of our increased focus on product development and enhancement efforts. As a percentage of total revenues, R&D expense was 14.2% for the third quarter of 2008, compared to 14.3% for the third quarter of 2007, and 14.6% for the second quarter of 2008. We did not capitalize any internal software development costs during the quarter or nine months ended September 30, 2008 and 2007.

Our R&D efforts have been focused on the continued evolution of our products, both functionally and architecturally, in response to market demands that our products have certain functional features and capabilities, as well as architectural flexibilities (such as service oriented architecture, or SOA). This product evolution will result in the modularization of certain product functionality that historically has been tightly integrated within our product suite, which will allow us to respond more quickly to required changes to our products and provide greater interoperability with other computer systems. Although our primary value proposition to our clients will continue to be the breadth and depth of our integrated solutions, these R&D efforts will also allow us to separate certain product components so as to allow such components to be marketed on a stand-alone basis where a specific client requirement and/or business need dictates, including the use of certain products across non-CSG customer care and billing systems.

At this time, we expect our future R&D efforts to continue to focus on similar tasks as noted above. In the near term, we expect that our investment in R&D will be in a range comparable with the second and third quarter of 2008, with the level of our R&D spend highly dependent upon the opportunities that we see in our markets.

Selling, General and Administrative ("SG&A") Expense. SG&A expense for the:
(i) third quarter of 2008 increased $2.1 million, or 20.4% to $12.7 million, from $10.6 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 increased $6.1 million, or 18.8 % to $38.4 million, from $32.3 million for the nine months ended September 30, 2007. The increase in SG&A expense reflects the impact of the sales and marketing costs of the Acquired Businesses. As a percentage of total revenues, SG&A expense was 10.8% for the third quarter of 2008, compared to 9.8% for the third quarter of 2007.

Depreciation Expense. Depreciation expense for the: (i) third quarter of 2008 increased $1.1 million, or 30.6% to $4.5 million, compared to $3.4 million for the third quarter of 2007; and (ii) nine months ended September 30, 2008 increased $2.8 million, or 29.9% to $12.1 million, compared to $9.3 million for the nine months ended September 30, 2007. The increase in depreciation expense is due to the increased capital expenditures made over the past year (mainly related to statement production equipment) and to the acquired property and . . .