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, 2008 (our "2008 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.

Restatement of Prior Year Financial Statements Due to the Adoption of New Accounting Pronouncements

Effective January 1, 2009, we adopted two new accounting pronouncements:
(i) Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 470-20, "Debt with Conversion and Other Options" (formerly FASB Staff Position ("FSP") No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)"; and (ii) FASB ASC 260-10, "Earnings Per Share" (formerly FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities"). FASB ASC 470-20 changed the manner in which we account for our Convertible Debt Securities. As a result, we have recorded additional non-cash interest expense in the third quarter and nine months ended September 30, 2009, of $2.0 million and $6.3 million, respectively. FASB ASC 260-10 changed the manner in which we treat share-based payment awards with rights to dividends or dividend equivalents in our calculation of basic and diluted EPS.

Both accounting pronouncements were required to be adopted retrospectively. As a result, we have restated our Condensed Consolidated Balance Sheet as of December 31, 2008, our Condensed Consolidated Statements of Income for the quarter and nine months ended September 30, 2008, and our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008, which includes additional non-cash interest expense of $2.5 million for the quarter and $7.4 million for the nine months ended September 30, 2008, as a result of the adoption of FASB ASC 470-20.

See Note 2 to our Financial Statements for further discussion of our adoption of
FASB ASC 470-20 and FASB ASC 260-10.

Management Overview of Quarterly Results

Our Company. We are a leading provider of software- and services-based customer interaction management solutions that help our clients build commerce by better engaging and transacting with their customers. Our solutions enable our clients to build new offerings, to engage customers on those offerings, and to deliver them through effective and profitable customer transactions. Our clients maximize the value and minimize the costs associated with their customer interactions by using our solutions to conduct key business processes such as targeting prospective customers, rolling out and offering new solutions quickly, efficiently managing order processing, streamlining operations, managing field workforces, improving customer satisfaction, integrating actionable customer intelligence, developing marketing strategies, printing and mailing monthly statements, and electronically transacting with customers. Our solutions provide clients with favorable results through improved operating efficiencies, decreased churn rates, accelerated marketing effectiveness, lower overall costs, and increased profitability.

Our proven technology is based on more than 25 years of expertise in serving clients in several complex and highly competitive industries. These clients typically handle a high volume of recurring transactions and complex customer relationships through a growing set of touch points, ranging from call centers, on-line Internet access, emails, text messages, interactive messaging, service technicians, and monthly statements. Our solutions and services are at work behind the scenes of systems that support customer interactions of some of the largest and most innovative service providers in North America. Our heritage is in providing outsourced customer interaction management solutions to the cable and direct broadcast satellite ("DBS") companies, which represent approximately 87% of both our third quarter 2009 and 2008 revenues. Building upon those years of experience, we have broadened and enhanced our solutions to now serve an increasing number of other industries such as financial services, utilities, telecommunications, healthcare, and home security.

Our solutions are delivered and supported by an experienced and dedicated workforce of more than 2,000 employees. We are a S&P SmallCap 600 company.

Market Concentration. 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 service 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 Cable Inc. ("Time Warner"), and Charter Communications ("Charter").

General Market Conditions. Over the past year, the U.S. has experienced a significant economic downturn and difficulties within the financial and credit markets. The timing, duration, and degree of an economic turnaround are uncertain and thus, these adverse economic conditions may continue into the foreseeable future. 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.

All companies are likely to be impacted by the current economic conditions to some degree, including CSG, our clients, and/or key vendors in our supply chain. Some possible near-term negative consequences of the current economic environment to our business include tightening of client spending and/or extended sales cycles which could materially lower our revenues related to our clients' discretionary spending for such things as special project work, marketing activities, new product sales, and software and professional services projects.

We believe that our recurring revenue and predictable cash flow, 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. Also, our business model has certain economic advantages to our clients since it generally requires a lower initial capital investment, thus, allowing clients to utilize our advanced, integrated product offerings on a pay-as-you-grow basis. Additionally, we believe our key clients have business models that have historically performed well, as compared to other industries, in down economic conditions. However, there can be no assurances regarding the performance of our business, and the potential impact to our clients and key vendors, resulting from the current economic conditions.

Third Quarter Highlights. A summary of our results of operations and other key performance metrics for the third quarter of 2009 is as follows:

• Our revenues for the third quarter of 2009 were $124.5 million, up 5.6% when compared to $118.0 million for the same period in 2008. Of this increase, nearly three-fourths can be attributed to organic sources, resulting primarily from increasing the penetration of our products and services within our existing client base, with the remaining portion related to the year-over-year impact of the Quaero Corporation ("Quaero") acquisition on December 31, 2008.

• Our operating expenses for the third quarter of 2009 were $107.2 million, up 10.7% when compared to $96.8 million for the same period in 2008.

• Of this increase, approximately one-half can be attributed to our data center transition efforts. During the third quarter of 2009, we incurred $5.2 million of expense related to our efforts to transition our data center services from First Data Corporation ("FDC") to Infocrossing LLC ("Infocrossing"), a Wipro Limited company ("Data Center Transition Expenses"), which are discussed in further detail below.

• Operating income for the third quarter of 2009 was $17.3 million (13.9% operating margin percentage), compared to $21.1 million (17.9% operating margin percentage) for the same period in 2008. The decrease in operating income margin between years can be attributed to the impact of the Data Center Transition Expenses, which had a negative impact of 4.1% on our operating margin percentage.

• Operating income for the third quarter of 2009 includes non-cash charges related to depreciation, amortization of intangible assets, and stock-based compensation expense totaling $11.9 million (pretax impact), or $0.24 per diluted share impact, as compared to non-cash charges for the third quarter of 2008 of $10.3 million (pretax impact), or $0.20 per diluted share.

• Our diluted earnings per common share from continuing operations for the third quarter of 2009 was $0.29 per diluted share. This compares to $0.34 per diluted share for the third quarter of 2008, with the year-over-year decrease reflective of the lower operating income discussed above.

• We continue to generate strong cash flows from operations. As of September 30, 2009, we had cash, cash equivalents, and short-term investments of $157.0 million, as compared to $132.9 million as of June 30, 2009 and $141.2 million as of December 31, 2008.

Cash flows from operating activities for the third quarter of 2009 were $37.9 million, compared to $27.6 million for the third quarter of 2008, and $43.6 for the second quarter of 2009. See the "Liquidity" section below for further discussion.

• During the quarter, we converted approximately 500,000 new customer accounts onto our systems, bringing the total number of customer accounts processed as of September 30, 2009, to 46.1 million.

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 indicated periods:



                                           Quarter Ended
                           September 30,      June 30,      September 30,
                               2009             2009            2008
             Comcast                  25 %          24 %               26 %
             DISH                     18 %          19 %               18 %
             Time Warner              13 %          13 %               14 %
             Charter                   9 %           9 %                8 %

The percentages of net billed accounts receivable balances attributable to our largest clients for the indicated periods were as follows:

                                               As of
                         September 30,      December 31,      September 30,
                             2009               2008              2008
           Comcast                  29 %              30 %               30 %
           DISH                     19 %              17 %               20 %
           Time Warner              11 %              14 %               11 %
           Charter                  10 %              10 %               10 %

In the near term, we expect to continue to generate a large percentage of our total revenues from our four largest clients mentioned above. 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 solutions, 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 (including possible impairment or significant acceleration of the amortization of intangible assets).

DISH. Our processing agreement with DISH runs through December 31, 2009. We are currently engaged in discussions with DISH regarding contract renewal options. While there can be no assurances that we will enter into a renewal agreement with DISH, the complex nature of customer care and billing services are such that we believe our on-going service and support of DISH will continue beyond the end of 2009. The DISH processing agreement and related material amendments are included in the exhibits to our periodic filings with the SEC.

Charter. On February 17, 2009, we entered into a new processing agreement with Charter to expand the use of our solutions supporting Charter's national video, high-speed data, and telephony footprint through December 31, 2014. Our previous contract with Charter went through December 31, 2012. The new processing agreement contains minimum financial commitments over the life of the agreement. Prior to this new agreement, we provided print and mail solutions to 100% of Charter's residential customers and customer interaction management solutions to approximately 60% of Charter's residential customers. Under the new processing agreement, Charter plans to convert its remaining residential customers to our customer interaction management solutions. We began converting these remaining residential customer accounts to our Advanced Convergent Platform ("ACP") during the third quarter of 2009.

On March 27, 2009, Charter filed its pre-arranged bankruptcy and restructuring plan (the "Plan") with the U.S. Bankruptcy Court. Subsequently, the U.S. Bankruptcy Court approved Charter's request, subject to certain terms and conditions, to pay trade creditors, including us, in full for pre- and post-petition invoices payable in the ordinary course of business. On October 15, 2009, the U.S. Bankruptcy Court announced that it would confirm the Plan and issue a confirmation order within the next several weeks. Charter has stated that it expects to emerge from Chapter 11 shortly thereafter.

At this time, Charter has paid all of our pre-bankruptcy receivables, and remains current on their post-bankruptcy receivables. In addition, Charter has publically indicated that it has sufficient liquidity to continue to operate its business without disruption. Based on this information, we have determined that no reserves are necessary at this time related to: (i) our outstanding Charter receivables; or (ii) possible claims of preferential payments.

Going forward, we are positioned to be a key partner in helping Charter achieve its operational goals under the terms of our agreement. However, as discussed in Part II Section 1A. Risk Factors below, companies involved in bankruptcy proceedings pose greater financial risks to us, and therefore, there can be no assurances as to the outcome of any bankruptcy case until the terms are finalized by the U.S. Bankruptcy Court.

Data Center Transition

We currently utilize FDC to provide the data center computing environment for the delivery of most of our customer care and billing services and related solutions under a contract that runs through June 30, 2010. FDC has provided these data center services to us since the inception of our company in 1994. In December 2008, we entered into an agreement with Infocrossing to transition these outsourced data center services from FDC to Infocrossing prior to the expiration of the FDC contract term. The term of the Infocrossing agreement is five years beginning on the date of full conversion of our computing environment from FDC to Infocrossing.

We began our transition efforts to the new Infocrossing data center in the first quarter of 2009, and expect to complete the transition project in the first half of 2010. We are tracking the costs attributable to our decision to change data center service providers in the "Data Center Transition Expenses" line item in our Condensed Consolidated Statement of Income. We consider these costs to be unique and infrequent in nature. These costs relate primarily to our efforts to setup, replicate, transition, and operate the computing environment at Infocrossing, while maintaining and operating the computing environment at the FDC data center. The network and computing

environment will be transitioned from FDC to Infocrossing in various planned stages over the project period, requiring us to incur certain costs to operate two separate data centers. This staged and replicated data center approach was designed to mitigate the risk of disruption to our clients during the transition period, but does result in certain cost inefficiencies during the transition period due to such things as redundant data processing costs, accelerated and redundant hardware- and software-related purchases, and costs incurred to maintain communications and data integrity between the two data center locations.

During the third quarter and nine months ended September 30, 2009, we incurred $5.2 million and $9.2 million, respectively, of Data Center Transition Expenses, or approximately $0.10, and $0.18 per diluted share negative impact, respectively. These costs include such things as the following: (i) equipment- and software-related costs (to include depreciation expense of $0.9 million);
(ii) data communications and data processing costs; and (iii) labor and third-party consulting fees for the transition team. Additionally, during the nine months ended September 30, 2009, we spent approximately $14 million on capital expenditures related to network and computer equipment needed to set up and replicate the computing environment at the new Infocrossing data center location.

For the full year 2009, we estimate that the Data Center Transition Expenses will be approximately $15 million to $16 million, or approximately $0.30 per diluted share negative impact, and are expected to have a negative impact of approximately $8 million on our 2009 cash flows from operations. Additionally, we expect our 2009 capital expenditures related to the data center transition to be approximately $20 million. These amounts are based on the best available estimates at this time and may fluctuate up or down as we continue to execute on our transition plan.

The Infocrossing agreement is included in the exhibits to our periodic filings with the SEC.

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,
                                          2009                2008                2009                2008
Cost of processing and related
services                             $           917     $           897     $         2,748     $         2,572
Cost of software, maintenance
and services                                     233                 136                 675                 464
Research and development                         415                 436               1,242               1,222
Selling, general and
administrative                                 1,670               1,571               4,808               4,350

Total stock-based compensation
expense                              $         3,235     $         3,040     $         9,473     $         8,608

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 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 goodwill and other long-lived assets; (iv) income taxes; and (v) business combinations and asset purchases. These critical accounting policies, as well as our other significant accounting policies, are discussed in greater detail in our 2008 10-K.

Results of Operations

Total Revenues. Total revenues for the: (i) third quarter of 2009 increased 5.6% to $124.5 million, from $118.0 million for the third quarter of 2008; and
(ii) nine months ended September 30, 2009 increased 7.0% to $372.9 million, from $348.4 million for the nine months ended September 30, 2008.

• Approximately three-fourths of the third quarter increase in revenues can be attributed to organic growth factors, with the remaining portion attributed to the timing of the Quaero acquisition.

• Approximately 40% of the year-to-date increase in revenues can be attributed to organic growth factors, with the remaining portion attributed to the year-over-year impact of the timing of our 2008 acquisitions: DataProse, Inc. ("DataProse") on April 30, 2008 and Quaero (collectively, the "Acquired Businesses").

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 2009 increased 5.1% to $116.3 million, from $110.6 million for the third quarter of 2008; and (ii) nine months ended September 30, 2009 increased 6.7% to $345.9 million, from $324.1 million for the nine months ended September 30, 2008.

• The quarterly increase in processing and related services revenues can be almost entirely attributed to organic growth resulting from: (i) increased utilization of new and existing products by our clients, to include such things as color print and various ancillary customer care solutions, and
(ii) conversions of customer accounts onto our solutions.

• Approximately one-half of the year-to-date increase in processing and related services revenues between periods relates to the year-over-year impact of the Acquired Businesses, with the remaining portion attributed to organic growth.

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 2009 and 2008 was $1.0 million; and (ii) nine months ended September 30, 2009 and 2008 was $3.0 million and $8.2 million, respectively. The decrease in amortization expense between periods is due to the change in the useful life of the Comcast client contract intangible asset as a result of the extension of the contractual arrangement with Comcast, effective July 1, 2008.

• Total customer accounts processed on our solutions as of September 30, 2009, were 46.1 million, compared to 45.4 million as of September 30, 2008 and June 30, 2009. During the third quarter of 2009, we converted 0.5 million customer accounts onto our solutions. Additionally, we converted 0.7 million customer accounts subsequent to September 30, 2009, and we expect to convert approximately 2 million additional customer accounts onto our solutions through the first half of 2010 as a result of the new Charter agreement, discussed above, and other various clients deciding to consolidate their business operations onto our solutions.

Software, Maintenance and Services Revenues. Software, maintenance and services revenues for the: (i) third quarter of 2009 increased 11.9% to $8.3 million, from $7.4 million for the third quarter of 2008; and (ii) nine months ended September 30, 2009 increased 11.0% to $27.1 million, from $24.4 million for the nine months ended September 30, 2008.

• The quarterly increase in software, maintenance and services revenues can be attributed to the revenues generated from the Quaero business (as a portion of Quaero's revenues fall within the professional services revenues classification).

• The increase between the nine months ended September 30, 2009 and September 30, 2008 is due to the additional revenues generated in 2009 from the Quaero acquisition. This increase is partially offset by lower professional services in other areas of our business, as a result of the timing and type of work our professional services team have been engaged in (e.g., set-up/implementation efforts which require the fees be deferred upfront and recognized over the life of the services agreement).

Cost of Revenues. See our 2008 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 2009 decreased 1.0% to $57.9 million, from $58.5 million for the third quarter of 2008; and (ii) nine months ended September 30, 2009 increased 4.7% to $175.3 million, from $167.5 million for the nine months ended September 30, 2008. The year-to-date increase in cost of processing and related services can be attributed to the impact of the Acquired Businesses (as all of DataProse costs of revenues and a portion of Quaero's cost of revenues fall within this expense classification).

Total processing and related services cost of revenues as a percentage of our processing and related services revenues for the: (i) third quarter of 2009 and 2008 was 49.8% and 52.9%, respectively; and (ii) nine months ended September 30, . . .