OPERATOR: Good afternoon; my name is Katherine, and I'll be your conference facilitator today.

At this time, I would like to welcome everyone to the Cybersource First Quarter 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

I will now turn the call over to Katrina Rymill, Director of Investor Relations at Cybersource.

KATRINA RYMILL, DR - IR, CYBERSOURCE: Thank you and welcome to Cybersource's first quarter conference call. During this call, we will discuss our financial results for the first quarter of 2008.

If you have not received a press release summarizing our first quarter results, it is available at www.cybersource.com. These prepared remarks will run for approximately 20 minutes, and then we will open up the call for Q&A.

Before we get started, I need to alert you to our Safe Harbor provisions. During the course of this teleconference we will make certain forward-looking statements regarding our business and results of operations. Statements made today that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Acts of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Company's expectations, objectives, anticipations, plans, hopes, beliefs, intentions, or strategies regarding the future.

Such forward-looking statements include those relating to strengths of the first quarter results, business model; and e-commerce market; growth rate and momentum of the Company's international business; discussion with new partners; entering into new and emerging payment markets; integration of the Authorize.Net business; health of the worldwide e-commerce growth; factors that provide insulation to the e-commerce market generally; and the Company specifically from economic downturn in the US; financial guidance; including without limitations, those regarding revenue, transaction volume, gross profit, operating expenses, net income, earnings per share, deferred tax assets, and cash balance; factors contributing to the strength of the Company's business and excitement about the payment industry e-commerce market and opportunities ahead for the Company.

We wish to caution you that such statements are just beliefs or predictions, and that actual results might differ materially from those projected in any of all of the forward-looking statements. These statements are subject and uncertainties including, but not limited to, the following; changes in customer requirements; potential financial risks relating to the Company's global acquiring business; changes in general economic conditions and e-commerce, in particular; changes in legal requirements and litigation arising from time to time; unforeseen technical difficulties relating to the Internet in general or our technology in particular; potential systems failures including, without limitation, disruptions intentionally caused by third parties and the intense competition in our industry and the need for rapid technological change associated with such competition.

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Further, Cybersource's past financial business, operations and stock performance are not necessarily indicative of Cybersource's future performance. Listeners are referred to the documents filed by Cybersource with the SEC, specifically Form 10-K filed on March 11, 2008, covering the one-year period ended December 31, 2007, and our quarterly reports filed on Form 10-K from time to time, all of which include these and other certain important risk factors.

And now, let me introduce Bill McKiernan, Chairman and CEO.

BILL MCKIERNAN, CHAIRMAN AND CEO, CYBERSOURCE: Well, thank you, Katrina. Good afternoon and thank you all for joining us. It's a pleasure to welcome you to our first quarter 2008 earnings call.

We started off 2008 with a very strong first quarter, building our customer base and competitive position, and delivering financial results that reflect the power of our business model, the attractiveness of our value proposition, and the overall strength of the e-commerce market.

In the first quarter, we generated record revenue of $53.4 million, a 141% increase over the same period last year, and an 18% sequential increase over the fourth quarter.

Our growth was driven primarily by our transaction processing and merchant-acquiring offerings and the acquisition of Authorize.Net.

During the quarter, we processed a record 445 million billable transactions, a 68% increase over the same period last year. The dollar value of the transactions we processed in the quarter was approximately $26.6 billion, up 153% over the same quarter last year.

Cybersource's global acquiring business generated revenue of approximately $17 million in the quarter, up 92% over the same period last year. The value of transactions where we acted as the merchant acquirer was approximately $615 million, up 86% from last year. But the $615 million represents only about 2% of the total volume we processed, so our acquiring penetration is still relatively low.

We added over 800 new acquiring customers during the quarter. This is the highest number of new acquiring customers we have added in a quarter, and brings our global acquiring customer base to approximately 2,400.

Merchant acquiring services continued to be a major driver of growth for the Company, representing about 32% of our total revenue.

Net income on a GAAP basis was $533,000 and earnings per share on a GAAP basis was $0.01. Because these results include significant non-cash charges, such as stock option compensation, amortization of intangibles, and reversals to the allowance to the deferred tax asset, we also provide non-GAAP financial metrics.

Steve will provide a more detailed explanation of GAAP versus non-GAAP in a moment; and we also reconcile GAAP and non-GAAP measures in the press release.

This quarter, non-GAAP net income was $11.5 million, or $0.16 per share, a 281% increase compared to $3 million, or $0.08 per share for the same period in the prior year.

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Our net operating margin in Q1 2008 on a GAAP basis was approximately 1%. Our net operating margin in Q1 2008 on a non-GAAP; basis was approximately 22%, up from 14% a year ago, and highlights the strength of the business, our business model, and the benefits of our acquisition of Authorize.Net.

This quarter, we signed approximately 25,000 new customers who represent a wide variety of industries from all market segments, from the very small to large businesses. Cybersource now has approximately 237,000 customers who rely on us for payment solutions.

New enterprise customers added this quarter include Circuit City, Cox Communications, TAP Airlines in Portugal, Travel-X and Vera Wang. Existing customers that added new services or renewed agreements during the quarter include Craig's List, H&R Block, and Nike.

Our international business is expanding rapidly, and really comes in two flavors; the first revenue from our European-based operation, which sells to and supports merchants based outside the US; and two, revenue from our international gateway and acquiring business, which is generated by US-based merchants who sell to customers outside the US. The European-based business is seeing significant momentum, generating a record 86.2 million transactions in the first quarter, an increase of 94% over the same period last year, and now represents approximately 19% of total transaction volume.

Our European business represents about 6% of total revenue; however, this does not include transactions originated by consumers outside the US who purchased from Cybersource's US-based merchants. This part of the business is also growing rapidly, as many of our customers are looking to sell their products more aggressively outside the US.

We are continuing to add more payment connections, to open up more countries and regions for our customers. This morning, we announced our newest payment connection to open up the China market. Through a partnership with PayEase technology, China's leading payment provider, we can now facilitate our customer's entry into the rapidly-growing China market. The Cybersource PayEase solution will provide customers with fast and cost-effective support for both Chinese credit cards, as well as debit cards issued by over 20 leading Chinese banks.

About 25% of our total transaction volume is now in a currency other than the US dollar. We processed 68 different currencies last quarter from countries around the world. Our ability to help merchants attract customers from all over the world is an important part of our value proposition. This global reach becomes even more important as some of our domestic customers seek to drive growth outside the US in the event of an economic downturn in the US.

As customers look to expand their businesses beyond the US, the risk of fraud increases dramatically. In our annual fraud survey, we found that fraud rates outside the US are generally running 2.5 times higher than what we see domestically. Cybersource continues to enhance its fraud solutions with new features and advanced levels of automation to increase our customers' efficiency of reviewing orders and the speed with which they process orders.

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This quarter, Cybersource added device fingerprinting to its comprehensive fraud detection systems. Device fingerprinting creates a digital fingerprint of the computer being used by the buyer, and can expose fraudsters who use the same computer to place multiple orders using different identities or addresses.

As fraud detection and complex order management becomes more of a burden for merchants, Cybersource also offers managed fraud services. Cybersource managed fraud services provide customers with a team of Cybersource experts who complement their internal staff and procedures to help mitigate the risk of fraud.

Our channel business continues to thrive; our discussions with new partners, including financial institutions, ISOs, and technology partners have never been better. In this uncertain and tight credit environment, many financial institutions are curtailing their investments in e-commerce infrastructure, and are looking to outsource their gateway offerings and leverage Cybersource's payment and fraud capabilities. Our partners recognize the value add we provide, and we are investing to support our network of over 4,000 re-sellers and partners.

We are also entering new and emerging payment markets, such as mobile commerce through relationships with strategic partners. The acquisition of Authorize.Net has added tremendous value to our business as we address the small business market.

We continue to work to ensure a smooth integration of these two great businesses, and the results so far are very encouraging. To date, we have combined these two great teams with virtually no attrition of employees or channel partners.

Cybersource is improving net operating margin and rapid customer growth are examples of the financial and business synergies we are achieving from the combination. We are now able to sell comprehensive e-payment services to all segments of the market through a terrific channel organization, as well as a very talented direct sales force.

During Q1, our patent portfolio expanded, as we were granted a new patent by the US Patent and Trademark Office. The inventions claimed in the patent, including techniques for improving order flow based on the characteristics of the order, are incorporated in the Cybersource Decision Manager service. Cybersource currently holds nine patents related to the online transaction processing business, with over 30 applications pending throughout the world. Cybersource also acquired an additional 15 patents primarily related to the telecommunications business as a result of the acquisition of Authorize.Net.

We will continue to invest in our customer support capabilities. In Q1, we consolidated some of our customer support team into a larger state-of-the-art facility in American Fork, Utah. This new facility also enabled us to hire more support people where previously we were constrained by the capacity of our facilities.

In the quarter, we also upgraded our phone system to support higher call volumes, and we're offering more ways for our customers to obtain support via our website and our online chat. Customer support is a cornerstone of our reputation and our business, and we will continue to focus on this area in 2008.

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The overall worldwide e-commerce market continues to grow at a healthy rate. While the slowdown in US consumer spending has had some impact on growth rates of US e-commerce, long-term drivers, such as the expansion by US companies abroad and the growth of Internet accessibility around the world are supporting the continued rapid growth of global e-commerce.

Higher income households, which are the dominant consumers of e-commerce, also provide some insulation in the event of an economic downturn in the US, as these households may be less impacted by the downturn.

Cybersource's international business also helps counter the possible effects of a US economic slowdown. We've also gained significant traction in certain industry segments that are less cyclical such as colleges and universities. We now have over 800 colleges and universities, including Cornell, Columbia, Duke, MIT, and the University of California system.

We have also seen a trend in new vertical markets, such as political campaigns, that are rapidly shifting much of their fundraising to the Internet. Today, for example, we support over 150 political fundraising websites, including HillaryClinton.com.

Now I will ask Steve Pellizzer to provide some more details on the financials.

STEVE PELLIZZER, CFO, CYBERSOURCE: Thanks, Bill. As Bill mentioned, our first quarter revenue was $53.4 million, $1.9 to $2.4 million higher than our guidance of $51 to $51.5 million, and a 141% increase over the same period last year.

During the quarter, we processed a record 445 million billable transactions, a 68% increase over last year, and up 7% from the fourth quarter, and also at the high end of our prior guidance for the first quarter of 435 to 445 million. Please note that with regard to both our enterprise and our small business platform, a transaction is counted if it is a billable event.

Global acquiring revenue increase to approximately $17 million in the quarter, a 7% increase from the fourth quarter, and now represents 32% of our total first quarter revenue. During the first quarter, we added approximately 25,000 new customers on a gross basis, compared to 2,000 new customers in the first quarter of last year. We added approximately 9,000 customers on a net basis, compared to 1,800 net new customers in the first quarter last year.

The churn was slightly higher in the first quarter versus the fourth quarter, as small business merchants with low transaction volumes typically hold on through the holiday season, but then close if ultimately unsuccessful. Small business churn rates were high in February, primarily due to these merchants going out of business, but returned back to normal in March.

With regard to those customers on the small business platform that left us in February, they only represented about 5,000 in the aggregate of total revenue in January.

Our gross profit on a GAAP basis was $$27.6 million. Operating expenses on a GAAP basis for the first quarter were $27.4 million. GAAP net income for the first quarter was $533,000 million and fully diluted earnings per share on a GAAP basis was $0.01.

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Non-GAAP net income was $11.5 million or $0.16 per share, higher than guidance of $9 million to $9.2 million or $0.13 per share. Our cash and short-term investment balance was $38.4 million excluding the $12.2 million payable to merchants at quarter-end.

Cash flow from operating activities was $11.7 million for the first quarter of 2008, compared to $2.3 million for the first quarter of 2007. The Company also generated approximately $1.7 million in cash from employee stock option exercises. Capital spending for the first quarter was $3.1 million, below our prior guidance of $5.5 million to $6 million, as we delayed certain capital purchases to the second quarter.

Now I will give you some detailed guidance with regard to our expected future performance. In light of SEC fair disclosure this forecast, which is made in good faith and is based on all the market information we have available today, will be the only numbers that the Company will comment on going forward or until updated by the Company. We also assume no duty to update these numbers at any time.

Guidance does not take into account any further reductions in our valuation allowance against our deferred tax assets, which would result in a tax benefit during the period of the reduction. We will continue to evaluate whether a further reduction is appropriate.

We expect revenue in the second quarter of 2008 to be between $54 and $54.5 million. We currently estimate billable transaction volumes in the second quarter to be between 445 million and 455 million.

We expect gross profit to be between $27 and $27.2 million during the second quarter. We expect total operating expenses to be between $28.2 million and $28.4 million. Included in cost of sales and operating expenses is approximately $7.2 million of intangible asset amortization expense relating to our acquisition of Authorize.Net. We currently expect to record a net loss in accordance with GAAP in the second quarter of $500,000 to $600,000, and a loss per share of $0.01 based on a weighted average share account of 71.5 million shares.

We expect non-GAAP net income for the second quarter to be between $9.8 million and $10 million, and non-GAAP earnings per share to be $0.14 based on a weighted average share count of 71.5 million shares.

We expect our non-GAAP tax provision to be approximately 1% to 2% of non-GAAP pre-tax income. Capital spending for the second quarter is expected to be between $5 million and $5.5 million.

While our financial results for the first quarter were very strong and exceeded our guidance, and while we haven't seen strong indicators that our business is being impacted by an economic slowdown, we continue to be cautious, and as a result, have been conservative with regard to our 2008 full-year guidance. We are reiterating our guidance for revenue and GAAP and non-GAAP income for 2008.

For the full year of 2008 we expect total revenue to be between $215 million and $220 million. GAAP net income for the full year 2008 is expected to be between break even and a $1 million loss, while GAAP earnings per share is expected to be between break even and a $0.01 loss per share based on a weighted average share count of 72 million shares.

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Non-GAAP net income for the full year 2008 is expected to be between $42.5 million and $44 million. Non-GAAP earnings per share is expected to be between $0.59 and $0.61 based on a weighted average share count of 72 million shares.

We are still forecasting a cash balance of approximately $60 million as of the end of the year, excluding any non-recurring items, including cash used to repurchase our common stock, as well as fees payable to merchants. We still expect capital spending for 2008 to be between $10 and $11 million.

For a list of our upcoming conferences we will be attending this quarter, please visit our IR website located at www.cyersource.com. And now, let me turn the call back to Bill for his concluding remarks.

BILL MCKIERNAN: Thank you Steve. So in summary, Cybersource started out 2008 with a very strong first quarter, setting new records for transaction volume, revenue, net income, EPS, and customer additions.

I think the three biggest factors contributing to the strength of our business are one, a strong secular shift to e-commerce globally; two, our compelling value proposition; and then three, the expansion of our international footprint where we benefit from our large US-based customers who sell to consumers outside of the US, as well as our European-based operations that sell to and support our non-US-based merchants.

I think the combination of Cybersource and Authorize.Net givers us a terrific platform for the future. Our sales pipeline is very healthy and being driven by concerns about PCI, date of security compliance, and increasing appetite for international growth, and the continued strength in the small business market.

I remain very excited about the payments industry, e-commerce market, and the opportunities ahead for Cybersource.

I want to express my thanks to the entire Cybersource team for their hard work this past quarter. It is their hard work and dedication that made these results possible.

With that, Operator, let's open up the line for questions.

OPERATOR: (OPERATOR INSTRUCTIONS).

Wayne Johnson.

WAYNE JOHNSON, ANALYST, RAYMOND JAMES: Good afternoon; I just wanted to add a couple of questions here. Can you talk a little bit about what the cross-selling was between Authorize.Net and Cybersource, like what percent of sales it was and the services that would be included in that for the quarter just reported?

BILL MCKIERNAN: Yes, cross-selling is a relatively nascent part of the synergies that we're realizing when we are still working on integrating the two platforms so we can cross-sell fraud services to the small business segment of the market. We are sharing some leads that come in, in order to offer merchant accounts to some customers, but -- so that is one example of the synergy. But we're still working on getting the integration between the two platforms to capture fully the synergy opportunity.

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WAYNE JOHNSON: Right, so on a top-line basis, I guess, as a percentage of total sales, it was less than 5%?

STEVE PELLIZZER: Yes, I mean I would say it's a small percentage. I mean, one of the strong initiators of the synergy, though, as Bill mentioned is just the merchant acquiring leads, where we're getting leads from the A-Net base for merchant accounts, and that was mentioned in the script in terms of the number of new adds there.

As a percentage of revenue, it's relatively small, and it's one of those situations where we're going to build obviously a customer base over time.

WAYNE JOHNSON: And then so the same, the follow-up would be the same question as it relates to cost synergies and between Authorize.Net and Cybersource, and how do you see that playing out throughout the year? When do you think the quarter, which quarter will feel the greatest financial impact of that in the results?

STEVE PELLIZZER: Yes, we've really seen it already. The biggest synergy from the expense side was closing the Marlborough Office, the headquarters for Authorize.Net. And that was done as of the end of 2007, so that's already built into our financial guidance, as well as our first quarter results.

So that's the biggest opportunity from an expense perspective. We really didn't reduce the workforce in any way. We retained the entire workforce of Authorize.Net and Cybersource, and have no plans to reduce headcount.

WAYNE JOHNSON: And last question, I'll jump back in queue; has Cybersource in the quarter to date, so now we're in the June quarter, have you seen any slowdown in transaction volume compared to what you saw in the first quarter, compared to your expectations? Could you give us a comment just on the transaction volume trends in Cybersource's e-commerce market?

STEVE PELLIZZER: Yes, we really haven't, and I sort of mentioned that in the lead-in as I was speaking to our full-year guidance. We haven't seen anything to suggest that things are slowing down, but we're trying to be conservative just given what you're hearing macro economically with regard to the full-year outlook.

WAYNE JOHNSON: All right, terrific; congratulations, good quarter, thanks.

OPERATOR: Franco Turrinelli.

FRANCO TURRINELLI, ANALYST, WILLIAM BLAIR COMPANY: Hey Bill, how are you. Bill, could you dig a little bit more into the international business; I know this is becoming I think much more a part of our thinking. It's been part of your thinking for a while, but I guess I'm not really sure that I understand or am as aware as I would like of the strategy there. Where are you pushing; is it to get into new geographies; is it to expand market share in existing markets; is it direct to merchant; is it distribution; could you just kind of help us understand where you're spending your time internationally.

BILL MCKIERNAN: Sure, so Franco, there are really two ways that we think about the international opportunity. The first is our European-based business that services primarily European-based merchants today, and India, and we provide them today with gateway and fraud services, tax calculations and export control. It's generally a set of services without acquiring.

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Over time, we want to add merchant acquiring to that mix of services that we offer to those non-US merchants. And as I've said before, we're working on that now, and we're optimistic that by the second half of this year, we'll be in a position to offer acquiring services outside of the US.

The second aspect to the international opportunity is enabling our US-based customers to sell their goods and services to consumers and businesses outside the US. And what that entails is for us to build connections around the world to support different payment types. And the announcement that we made this morning is a great example that, with PayEase in China, and what we've done there is we've opened up the China market to our customers who want to sell into a market with about 1.5 billion cards in circulation right now. And the market is growing rapidly; the number of cards issued has grown about 33% year-over-year, and the e-commerce market in China grew about 92% last year. It's still small relative to the US, but it's a very, very fast-growing market, and a great example of the kinds of markets our US merchants like to tap into.

So you'll see us building connections out into markets like that. We have added Brazil in the last year; we're looking at adding other payment types in Eastern Europe and things like that, so it's going to be a continuing theme in these calls.

FRANCO TURRINELLI: So should we also expect you to start announcing merchants outside of Europe and India, as well as support for e-commerce customers outside of Europe and India, or is that sort of further away?

STEVE PELLIZZER: Yes, I think that's further out Franco in terms of signing customers in China, for example. We're probably not in a position to do that just yet. But certainly, in Europe, that's one of the goals for the second half of this year to begin signing those European accounts, not only for the traditional legacy services that we offer, but also for acquiring services.

FRANCO TURRINELLI: Two questions if I may for Steve; the first is a small, nit-picky question. Steve, there's $129,000 of non-recurring excluded from our pro forma numbers. Where is that coming out of?

STEVE PELLIZZER: Yes, that has to do with -- Bill mentioned in the script -- we consolidated office space in American Fork. So we closed the historical Authorize.Net facility there and recorded some charges as part of that, so that's really just part of the G&A expense.

FRANCO TURRINELLI: Okay, and then, well I'm sure other people will ask this question as well, and I certainly understand your desire to be cautious regarding the overall outlook. But having reported $0.16 in the first quarter, $0.14 forecast for the second, your yearly guidance would imply a second half of the year that's flat over first half. Without you seeing anything of the current trends for e-commerce, that seems awfully conservative given the prior year history. Are there any expenses that you're expecting to step up in the second half of the year that we would need to be aware of that maybe haven't come out yet?

STEVE PELLIZZER: Yes, I mean we do have an aggressive hiring plan, but I think you're right in terms of the fact that I am being cautious given where we are after the first quarter, a very strong quarter, and sort of our guidance for the second. But I also think you hear the headlines in terms of potential recession, and for that reason, I think caution is due. So we'll see how things play out in the second quarter, and hopefully, we're having a positive discussion here come July.

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FRANCO TURRINELLI: Okay, but it's top-line caution; it's not that there's a step-up; of expenses that we need to be aware of that maybe isn't obvious to us as we look at you externally.

STEVE PELLIZZER: No that's correct; there's nothing from an expense perspective that's coming in in the latter part of the year that could impact the overall full year.

FRANCO TURRINELLI: Thank you, congratulations.

OPERATOR: Gary Prestopino.

GARY PRESTOPINO, ANALYST, BARRINGTON RESEARCH: Hey Bill and Steve, how are you doing? Hello? Can you hear me?

BILL MCKIERNAN: Loud and clear.

GARY PRESTOPINO: Oh good, hi, how are you doing?

BILL MCKIERNAN: Good.

GARY PRESTOPINO: Most of my questions have been answered, but I just noticed that this quarter, there was more of an uptake on the global acquiring services in terms of merchants added, and there was a prior question asked about cross-selling, but is some of that a result of some of the A.Net merchants taking, acquiring, or is this just you're getting better, smarter, quicker at marketing to these merchants?

BILL MCKIERNAN: It's both Gary; we will have customers who contact us directly, might be small businesses, and they're looking for a complete solution. And so, in some of those instances, we will offer them both the gateway and the merchant account.

Having said that, we are also very focused on maintaining the relationships that we have with our channel partners, both at the enterprise segment of the market, as well as the small business. And so at the small business level, we've got over 3,000 ISOs that we work with, and in many cases, we send leads out to those ISOs as well where they will offer the merchant account. So we certainly want to maintain those relationships that we have with the ISO community.

GARY PRESTOPINO: Now another question; do you have gateway capability for most of the established worldwide economies, Bill, or are there other parts of the world economies where you haven't got, built gateways yet?

BILL MCKIERNAN: We're probably less than halfway there Gary. We've got most of the major countries in Western Europe covered, but Latin America, with the exception of Brazil, we really haven't touched yet. And China is a big market for us, and we think we've got a reasonably good coverage there with our PayEase relationship. But there's an awful lot of Asia that we still aren't as strong as we'd like.

GARY PRESTOPINO: Okay, all right, thank you.

OPERATOR: Colin Gillis.

COLIN GILLIS, ANALYST, CANACCORD ADAMS: Hey good afternoon. So much in acquiring how to breakout quarter; is the new platform an easier sell, and how many of the new merchant customers were an upsell from the existing customer base?

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BILL MCKIERNAN: Well, in terms of the connection to global payments, I think there are some advantages to that. I'm not sure that is the primary driver behind the increase in the number of accounts that we signed for merchant acquiring in the quarter.

I think the vast majority of the 800 that we signed, Colin, were new accounts to Cybersource. I don't think very many came out of the installed base.

COLIN GILLIS: What percent came out of the historical Cybersource channels versus the A.Net channels?

BILL MCKIERNAN: It's hard to draw the distinction there because in some cases, we'll have sort of leads come into a central call center, and whether they were the result of Cybersource marketing activity or Authorize.Net activity is not something that we necessarily tag in that account.

Our view is we want to sell Cybersource capabilities, and we've got an offering that addresses the enterprise segment of the market. We've got one that addresses the small business segment of the market, but it is, at the end of the day, one Company.

COLIN GILLIS: Just turning to the data centers, can you just give us an update of how many data centers you're maintaining right now, and what your go-forward thoughts are on that topic?

BILL MCKIERNAN: Yes, so right now, we've got four that are live. Basically, we have a legacy Cybersource hot center and a warm backup, and Auth.Net has the same. I think we can probably get to three data centers before the end of this year, and then we're working on what it would take to ultimately consolidate platforms and possibly get to two. But I think to get to two is probably a two to three-year process.

COLIN GILLIS: And just, Steve, any color as to where the Cap spending is going to go?

STEVE PELLIZZER: Yes, it's really sort of the typical annual Cap spend in anticipation of the volumes that we expect to see in the third quarter, so a lot of it's just adding front servers and the like to support the increase in expected volume.

COLIN GILLIS: Great, hey great quarter guys.

OPERATOR: Gil Luria.

GIL LURIA, ANALYST, WEDBUSH MORGAN: Good afternoon; I wanted to follow up on the international front. You, I'm assuming you already get some transactions from China; is that correct?

BILL MCKIERNAN: Visa and MasterCard, that would be correct, but those would be very small volumes because the vast majority of cards in circulation in China are debit cards issued by the local banks there.

GIL LURIA: So this really adds the capability for you to accept all the payment methods. I mean, it sounds similar to what you did in India, Brazil, and Ireland; is that right?

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BILL MCKIERNAN: That's correct; I mean, the model is basically the same where to enable our merchants to go into these new regions, these new countries, you've got to enable them to support local payment types, the payment types that are preferred in that market. And that's exactly what we've done through this connection into China.

GIL LURIA: So you have a few quarters of experience now with those three countries, India, Brazil, and Ireland; what's your experience in terms of how much that increases transaction volumes once you offer all the payment methods? What changes between just accepting Visa MasterCard to being able to accept all the payment methods?

BILL MCKIERNAN: Well, what's interesting about our business is about 25% of our volume is coming from cardholders outside of the US. And a good percentage of that is the result of being able to support these payment types that are preferred in these local markets. It doesn't do a merchant any good to localize a website for Germany, for example, and convert all the HTML content into German, and then just support standard Visa, MasterCard, American Express cards when countries like Germany are very much debit-oriented societies. So you've got to be able to support the payment types that are preferred in those regions, and that's what we look to do on behalf of our customers.

GIL LURIA: That sounds like qualitatively you know that there's a big difference, but you can't actually quantify how much of a jump it is when you start accepting all the payment methods.

BILL MCKIERNAN: Yes I think that's true, because overall the e-commerce markets are growing pretty fast, and to try to tease out how much is due to supporting a new payment side versus the e-commerce growth is difficult to do. But we certainly know from talking to our customers that large accounts that are looking to go into some of these major e-commerce economies out there, they want to be able to support these local payment types.

GIL LURIA: Got it; and then in terms of the transition into American Fork, at American Fork, is that pretty much complete? Have you already settled into the new building, shut down the other one, with a lot of capacity to grow there?

BILL MCKIERNAN: Yes, as a matter of fact, Gil, we had our April Board Meeting in American Fork in the new facility. We're totally out of the old facilities. So that's one of the reasons we took the charge, but yes, and the new facility is great. It really allows us the ability to grow that location, particularly in the customer support area.

GIL LURIA: Then finally, would you break out maybe one last time, the small business from enterprise, the classic A-Net from classic Cybersource?

STEVE PELLIZZER: Yes, you know Gil, that's not the way we think about the business, as I mentioned earlier. We really think about it as one Company, and we've got two offerings for the two markets, one for enterprise, and one for small business, but at the end of the day, it's one Company and I think it makes more sense just to report the results accordingly.

GIL LURIA: Fair enough, thank you.

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OPERATOR: Robert Dodd.

ROBERT DODD, ANALYST, MORGAN KEEGAN & CO, INC.: Hi guys, first of all, one housekeeping one, on acquiring overall, I mean were there any 10% customers in the quarter, are friendly acquiring customers still there?

STEVE PELLIZZER: We didn't have any customers over 10% in the first quarter.

ROBERT DODD: Excellent; on the -- I'm talking mainly about the legacy gateway business from Cybersource because I'm talking of large customers -- could you give us an idea of what the contract terms are that you've got -- I mean what proportion of your customers have contract renewals this year, next year, over the next couple of years; could you give us some visibility on that?

STEVE PELLIZZER: I mean, our contracts for the most part are annual contracts that automatically renew, so there really isn't any sort of disproportionate number coming due in one year versus the other.

ROBERT DODD: Okay, excellent; and then one last question I've got for you. On one of the big card associations, your local one actually, has been talking about focusing more on e-commerce, and integrating further with the checkout, etc., etc. Have you seen or heard anything from them or from your ISO partners or processing partners that gives any visibility as to whether that's going to have any meaningful impact on you?

BILL MCKIERNAN: We've got very good relations with the card associations, and Visa in particular, who was a very early investor in Cybersource. I would hope that we would continue to work closely with Visa as they look to promote Visa within the e-commerce market. And I think Visa recognizes the role that we play in that market and how we can help expand the brand and expand the footprint for both Visa and MasterCard. So I welcome the card associations continued interest in expanding their footprint in the e-commerce market.

ROBERT DODD: Okay, thank you guys.

OPERATOR: Leonard [DePresta].

LEONARD DEPRESTA, ANALYST: Good afternoon; most of my questions have been answered, but just to be clear with regard to merchant acquiring, you're going to try and offer it with the services offering Europe later this year, and maybe Asia very late in the year, or is Asia pushed off until next year?

BILL MCKIERNAN: Yes I don't, we haven't really talked about Asia this year Leonard. I don't think, I wouldn't commit to that at this point, but I am optimistic as I said, that by the second half of this year, we will have an acquiring offering available in Europe.

LEONARD DEPRESTA: Okay, and just one more question, and that is right now the merchant acquiring is about 2% of your total volume. I mean, do you have a target of what percentage of volume you'd like it to be, and is that a three, five-year you know what I mean? Do you want to see 50%, 75%, you know what I mean?

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STEVE PELLIZZER: Yes, I mean it's difficult to say because a lot of our volume is coming from partners where the partners are selling the merchant acquiring services and referring the gateway services to us, so depending on how that mix plays out over time, I mean obviously, we'd like to have as big a percentage as possible on the business that we're selling directly where we can offer the merchant acquiring services. And we continue to see that percentage increase in terms of the number of those accounts that are taking on the acquiring services in addition to the gateway services. But there's no sort of target just because of the fact that we've got a significant portion of our business comes from channel partners.

LEONARD DEPRESTA: Okay that's it, thanks.

OPERATOR: Andrew Jeffrey.

ANDREW JEFFREY, ANALYST, SUNTRUST: Hi, good afternoon guys; hey, there are a couple of things that jump out at me, and I just want to maybe get a little more granular with regard to the guidance, and again I appreciate the conservatism. The first thing is the pretty meaningful sequential increase in revenue per transaction, and just wondering if you could talk -- I assume that's mix toward acquiring. But if we assume you continue to have success and the trend kind of continues, if I just sort of look at the revenue per transaction on your projected payment volume, it suggests that either in the second quarter and for the full year that either you're being very conservative on one or the other, and I'm just trying to maybe break that down a little bit more to understand what you're thinking.

STEVE PELLIZZER: Well, you're right in that the driver of the average transaction price in large degree is the merchant acquiring revenue growth that we've seen. I think when you look at sort of the average transaction price from a guidance perspective, at the low end of the range, it's fairly consistent with the first quarter at the high end of the range. It's definitely showing some growth in the average transaction price, but not growth that we haven't seen if you look historically at the average transaction price over the last four or five quarters. And again, what is driving that is the increase in merchant acquiring revenue as a percentage to total revenue.

ANDREW JEFFREY: So is it reasonable, then to expect Steve, that if there were a deceleration in revenue growth, or if you're conservatism were to be borne out as being accurate that it would come partly as a result of mix? Or am I not thinking about that right?

STEVE PELLIZZER: Can you repeat that again?

ANDREW JEFFREY: I'm just trying to get a sense of whether some of the caution you're exuding is a function of the thoughts around mix, or if it's both mix and volume.

STEVE PELLIZZER: I would say it's more volume as opposed to mix.

ANDREW JEFFREY: Okay, okay, that's helpful. And then looking at your gross margin, speaking of sort of break outs, the non-GAAP, gross margin was the best it's been in a long time, and was up a bunch sequentially, and again, the implication there is when you put the revenues even with conservative guidance on, and improving gross margin, your comments regarding the dearth of the second-half expense ramp, again just trying to reconcile what would appear to be exceptionally cautious guidance to what looks to be pretty good lift at the gross margin line.

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STEVE PELLIZZER: Yes, no I mean I expect that from a margin perspective, we've seen some stabilization going into '08. Part of that is the addition of Authorize.Net to the mix. We saw that in the first quarter, and I think you're going to continue to see that throughout the year. They've had a very good gross margin because of the fact that they focus purely on the gateway business. Pre-acquisition, the (inaudible) on that margins were at the sort of high 70%. So that I think is helping our margin going out throughout '08.

ANDREW JEFFREY: Okay, and then just finally, when, you've obviously done a really good job of partnering with, as a re-seller of some of the emerging payment technologies, could you just give us an update; are there any newer payment technologies, like a Google checkout or Amazon, for example, that are gaining a lot of technology or traction where you don't currently have relationships; are you trying to forge relationships where you see the competitive environment steadily changing, for example?

BILL MCKIERNAN: Well Andrew, I think one of the really interesting aspects of the payment space is how dynamic the whole environment is, and things are continually evolving. I don't see any new trends in the payment area that present a big threat to Cybersource. I think there are things out there that certainly present big opportunities to Cybersource and in addition to China, we announced earlier in the quarter a relationship with a company called Emporia to go after the mobile commerce vertical. And this is for companies that are selling things via a website, but generally that website is being viewed through a cell phone device.

And so we're continually looking for partners that can help us extend our reach into some of these newer verticals.

ANDREW JEFFREY: Okay, but nothing in terms of existing, I'm thinking domestic net generation payment technologies that you think in any way alter the competitive landscape for Cybersource where you'd be looking to aggressively partner with one that, for example, you think might have particular attraction or particularly good prospects?

BILL MCKIERNAN: No, I agree with Andrew; there's nothing like that that I've seen out there.

ANDREW JEFFREY: Okay, all right, thank you very much.

OPERATOR: Glenn Greene.

GLENN GREENE, ANALYST, OPPENHEIMER: Good afternoon, guys; just two quick questions. One, could you just, Steve where are the gross margins on the acquiring business at this point, or are they still relatively static to where they've been?

STEVE PELLIZZER: Yes, I mean the gross margins are sort of in the mid-to-high teens. They're generally the margin on domestic acquiring is sort of in the mid-teens, and then on the international side, it tends to be higher, and so the blend there is sort of in the mid-to-high teens.

GLENN GREENE: Okay, and then just Bill, I just heard, obviously you've gone through four or five months of the having Auth.Net under the fold and the integration sounds like it's going well, but any surprises, either positive or negative on either side of the business?

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BILL MCKIERNAN: You know, Glenn, I think the biggest surprise I've had is on the upside, and that's the benefit that many of our channel partners see in working with the new combined Cybersource, and the benefits that they see in being able to work with a single partner who has a great offering for both the enterprise segment of the market, as well as the small business segment of the market. And I don't think we fully appreciated that when we went into the deal.

We did spend a lot of time before the deal closed between the announcement and the closing, so between June and November, in planning out the integration and how it would all work, and I think that work last summer really paid dividends in how we were able to seamlessly integrate the two businesses, and maintain the employees at Authorize that were just a great group of people, and maintain the channel relationships that they'd built up over the years, which are really, really important to the combined entity.

GLENN GREENE: Okay, and then it sounded like you really haven't seen much impact at this point from sort of the macro headwinds. Anything at a very high level on either the Auth.Net side or the Cybersource side that maybe you're seeing? Maybe the Auth.Net business customer is seeing something; any sort of indications from the macro economy?

BILL MCKIERNAN: No I think both sides of the business I think are very strong. I don't think we're seeing indicators on one side versus the other, which is a good sign at this point.

GLENN GREENE: Okay, thanks guys.

OPERATOR: Brett Huff.

BRETT HUFF, ANALYST, STEPHENS INC.: Good morning guys; nice quarter. One quick housekeeping question before I ask a couple more. You talked about 9,000 net users and then you talked about a February number of 5,000. Was that a revenue number Steve?

STEVE PELLIZZER: Yes, it was just making the point that the churn was unusually high in February, which was sort of a result of small business customers going out of business and the revenue from those customers that went out of business in February was only about $5,000 in the month of January. It's just not significant to the top line was the point.

BRETT HUFF: Okay; anything changing about your competition with some of the more traditional acquirers and processors?

BILL MCKIERNAN: I don't think so Brett. This is a business that historically been dominated by the large banks. The one change from maybe a year ago is that many of those large banks are very distracted right now with credit crises and things that are affecting their businesses, their core businesses. So as I mentioned in the prepared remarks, one of the effects of that is I think their even stronger desire to partner with companies like Cybersource for e-commerce infrastructure because they have neither the appetite nor the capital to invest in e-commerce infrastructure.

BRETT HUFF: Okay, and then just two quick questions on the numbers Steve; looking at your sales and marketing and G&A lines, are those good places to start going forward? You said there's not going to be any meaningful change in expenses, but does that hold true for those lines individually?

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STEVE PELLIZZER: Well, I mean we are looking to hire this year, and that's sort of already factored into my guidance. I mean I think as a proxy, if you use those as starting points from Q1 and sort of just ratchet those up slightly for headcount, I think yes, it's a good basis. I mean, we did see some unusual change in the sales and marketing line post the acquisition because of the commissions that Authorize.Net pays to their re-sellers. And so it's unusually high in Q1, but the expectation up is going to continue.

BRETT HUFF: Okay, that's all I had, thanks.

OPERATOR: Ladies and gentlemen, this concludes the Q&A portion of our call. Ms. Rymill, do you have any closing remarks?

BILL MCKIERNAN: No thank you Operator, and thank you everyone for joining us today.

OPERATOR: Ladies and gentlemen, this does conclude today's conference call. You may disconnect.

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