Fiserv Inc (FISV) 2002 Q1 法說會逐字稿

Good morning. And welcome to the Fiserv Earnings Conference Call for the first quarter of 2002. We currently have over 80 participants on this call. And all participants will be able to listen only until the question-and-answer session begins following the presentation. At the [INAUDIBLE] Fiserv, today's call is being recorded and is also being broadcast live over the internet. The call is expected to last 25 to 35 minutes and you may disconnect from the call at any time. Now I would like to introduce the Fiserv management team and attendants on this call. Mr. Leslie Muma, President and CEO. Mr. Donald Dillon, Chairman of the Board and Chairman of the Fiserv Product and Technology Committee. Mr. Kenneth Jensen, Senior Executive Vice President, and Chief Financial Officer. And Mr. Tom Hirsch, Senior Vice President and Controller. At this time, I would like to turn the conference call over to Mr. Muma. Sir, you may begin.

Thank you. Good morning. And welcome to Fiserv's First Quarter Earnings Conference Call. We appreciate your participation and look forward to presenting our first quarter results and answering your questions. Fiserv's management would like to state that the company may make forward-looking statements during the course of this conference call. Such statements are covered by the safe harbor included in the securities litigation act of 1995. These statements may differ from actual results and are subject to a number of factors. Please refer to the last paragraph of our first quarter earnings press release for a discussion of these factors. Fiserv started 2002 with record earnings for the first quarter and with a record increase in revenue of almost $100 million over the first quarter of 2001. Our business model which includes approximately 85% recurring revenue and associated strong cash flows continues to fuel Fiserv's growth in the first quarter of 2002, most of our business units performed at or above our expectations in terms of revenue and profit growth. This was through a combination of continued strength in both new client sales and cross-sales along with our ongoing initiatives in the area of operational efficiencies. We will start our review with Kenneth Jensen who will present our financial performance. I'll follow with a brief business overview and we will then open the lines for questions. Ken?

Thanks, Les. I'm pleased to report that Fiserv started 2002 with strong first quarter results. All revenues and operating margins discussed today exclude reclassification of customer reimbursements of $72 million in 2002 and $65 million in 2001. This reclassification resulted from our adoption of the emerging issues task force no. 01-14. Income statement characterization of reimbursements received for out of pocket expenses incurred. Which became effective January 1, 2002. Adoption of this accounting standard had no impact on the company's financial position. Operating income or net income. All earnings per share numbers discussed today are before the recognition of realized gains on the sale of night and trading group stock. We do not believe it is appropriate to include the customer reimbursements or realized gains in analyzing the current perform afternoons Fiserv. Effective January 1, 2002, the company also adopted financial accounting standard know. 142 which requires that intangible assets with definite lives be amortized over their useful lives and that good will and other [INAUDIBLE] with indefinite lives not be amortized but evaluated for impairment. Effective -- the effect after [INAUDIBLE] this statement increased diluted net income per share in the first quarter of 2002 by approximately 2 cents due to the elimination of good will amortization. Earnings per share for the first quarter of 2002 were 33 cents compared with 26 cents in 2001. 393 cents in earnings per share for the first quarter was within the range of our estimates made in the last conference call and consensus analysts estimates. Our estimate for full-year earnings per share for 2002 continues to be $1.35 to $137 per share. Our earnings per share estimate for the second quarter of 2002 is 33 cents to 34 cents. Our first quarter revenues of 560 million increased $98 million or 21% over the first quarter of last year. Revenue growth was positively impacted in 2002 by strong growth in our financial institution services segment. Revenue increased by 113 million or 31% over 2001. Total Fiserv revenue growth was negatively impacted by a decrease in revenue of our securities and trust segment of $18 million. However, our revenues in the securities and trust segment have remained fairly consistent over the last three quarters with revenues between 53 and $56 million per quarter. We are currently estimating 2002 second quarter total revenue for Fiserv to be portfolio $560 to $570 million which is an increase in revenues over the prior year of approximately 19 to 21%. Cash flow after working capital changes before security processing receivables payables was $105 million. Increasing $32 million over 2001. Our first quarter operating cash flow in both years was impacted by the company's 401(k) contributions of approximately $30 million. Our operating cash flow per share was $54 cents in 2002 versus 38 cents in 2001. Over the last 5 years, our annual operating cash flow per share has averaged in excess of two times our diluted earnings per share. That demonstrates the strength of our operating cash flows and the quality of Fiserv's earnings. I will now summarize our performance by business segment starting with the financial institution services segment. Our first quarter operating income for this segment increased 27% over last year. Our increase in operating income over the prior period for this segment was due to a number of factors including revenue growth across all business lines, acquisitions, and the elimination of good will amortization of approximately $5 million. In our securities and trust segment, 2002 first quarter operating income was $8 million, which was consistent with the operating income earned in the fourth quarter of 2001. Our securities division operating income continues to be impacted by the prolonged weakness in the United States retail financial markets. Now, we would like to turn the call over to Les, who will provide additional details and highlights from the first quarter.

Thanks, Ken. As Ken indicated, our first quarter earnings performance met or exceeded the street's expectations and management's forecast. Our first quarter revenue was in line with management's forecasts. Our increase in revenue for the first quarter was $98 million, or 21%, versus the first quarter of 2001. This revenue growth was exceptional strong and was the largest dollar increase in revenue on a quarter over quarter basis in Fiserv's history. Approximately 75% of revenue growth was attributed to 2001 acquisitions. Approximately 25% of the revenue get to growth was internal growth and represented a 5% internal revenue growth rate for the first quarter. Our internal revenue growth rate was again negatively impacted by a significant revenue decrease in our securities processing and trust services segment, primarily due to the continued sluggish conditions in the U.S. retail financial markets. The internal revenue growth rate for the first quarter of 2002 for the financial institutions segment, however, continues to be very strong and within our overall target of 8 to 10%. This segment of our business generates approximately 85 to 90% of our revenue is largely recurring and continues to be virtually immune to broad economic swings. In addition, our securities and trust segment revenue growth rates should be positively impacted in the second half of 2000 as the difficult revenue comparisons to the first half of 2001 will be behind us. In the first quarter, our financial institution services segment continued its exceptionally strong performance increasing revenue 31% and operating income 27% over 2001. Fueling this revenue and earnings growth were acquisitions and strong sales in all of our business lines. As Ken mentioned earlier, the performance of our securities division, which represents only approximately 5% of overall company revenues, was impacted by lower transactions volume and margin balances versus the first quarter of 2001. We have continued to make additional cost reductions in our securities division as we move through this difficult retail trading environment. New broker dealers signed last year and converted during the first quarter along with the cost reductions now in place should positively impact our operating income going forward. We remain cautiously optimistic for a pickup in this business as we look forward to the second half of 2002. Our trust division which makes up the remainder of our securities and trust segment also generates approximately 5% of total company revenue and continues to perform as expected. In the first quarter, our sales efforts generated more new banking, lending, securities and insurance relationships than the record numbers reported in the first quarter of 2001. Our ability to deliver a full suite of automation services and products continues to provide a fertile sales environment. Major victories in the quarter included the signing of waypoint bank, a $5.3 billion financial services organization in Harrisburg, Pennsylvania, which chose Fiserv for the strength of our core processing product as well as our ability to deliver internet-based cash management, a comprehensive sales and teller service platform, a profitability measurement tool and a complete call center system. Also in the first quarter, [Meritech] Mortgage Services, Inc., selected our mortgage lending platform to provide web-based loan servicing, default servicing, work flow integration, and collection technology for its vast non-conforming residential mortgage portfolio. Our automotive financial systems and services division was successful in significantly expanding our relationship with Daimler-Chrysler services North America LLC. And lastly, Nasco chose Fiserv to provide document composition, laser printing, intelligent inserting and first-class mailing along with a comprehensive system to electronically deliver documents through the web. During the quarter, we also successfully completed the installation of our integrated banking system for $6.7 billion First National Bank corporation of Naples, Florida. All of these recent client wins highlight the breadth of Fiserv's product offering and the ability of Fiserv to successfully cross-sell our products and services to our over 13,000 clients. In closing, I would stress that our business continues to grow within management's expectations. Our sales and acquisition pipelines remain very strong across all of our businesses, and we anticipate continued strong growth both organically and through acquisitions. Looking forward, we are confident that we will be able to attain our 2002 earnings per share estimate which continues to be $1.35 to $1.37. We will now open the lines for questions.

Thank you. At this time, we are ready to begin the formal question-and-answer session. If you would like to ask a question, please press star one. To withdraw your question, you may press star 2. Once again, to ask a question, please press star 1. Our first question comes from Jennifer Dugan with Merrill Lynch. You may ask your question.

Thanks. The number of new deal signings was up year-over-year but can you comment on the average size of the new deals? Are you still seeing [a] trend towards larger deals with larger financial institution?

Yet. Not only the number up but the deal size was also up so our revenue generated by new sales was up nicely over the same period last year.

I think last quarter you told us that the average new deal size was up 25%. Do you have that metric for the first quarter?

I don't know what the percentage s Tom, do you have it?

No, we don't have the exact metric, I apologize.

No problem. Thank you.

You bet.

Our next question comes from David Togut with Morgan Stanley.

Just two quick questions. First, Les, could you update us on the restructuring of the securities processing business? You are consolidating some data centers there where do you stand in terms of pulling the costs out?

Sure. We did that really in two phases. The mainly phase was the end of last year when we shut down our Denver operation and our Boca Raton operation and consolidated them into Philadelphia. And then in the first quarter of this year, as transaction volumes and margin balances continued to be slow and as a matter of fact dropped a little bit more, we restructured our Philadelphia operation, reducing the head count at cutting expenses even further and that is now complete. So we should see the benefit of that as we move into the second and third quarters.

In the aggregate, how much would you expect to save from the restructuring over the next year?

Tom, do we have an exact number on that?

Yeah, it's, you know, in terms of the total restructuring, it's probably in the neighborhood of $15 million. You know, you don't see all of that because, of course, you have some costs and increases at the same time you take costs out.

Okay. Just as a quick follow-up, on the acquisition front, you had a record amount of activity in the fourth quarter. Can you update us on the performance of those acquisitions and what you expect for the year ahead?

You know, as far as they perform so far, they are doing -- they're right on schedule. Some of them are slightly ahead. All of them are doing well. The ones that are taking the most work would be like the NCR acquisition, and because we're doing a lot of consolidation there. And that's going to be an ongoing project. Because what we really bought there if you remember, was customer base. But the other ones are all doing very well. We're very pleased with the flurry of acquisitions we did at the tail end of the year.

Okay. Thanks a lot.

You bet, Dave. Thank you.

Carla Cooper with Robert Barrick you may ask your question.

Good morning. Could you talk about new potential business on the securities and trust side? Has that also taken -- is that following the market right now or [is] there potential to sign some new clients, given the toughen environment?

No. They continue to do very well on new signings. Last year was strong, if you remember. I think the number was in the low 20s. New broker dealers signed. And coming out of the box in the first quarter of this year and into the second quarter, pipelines are good and we continue to sign new broker-dealers. I don't know what the exact number is so far this year, but on a year-over-year basis, they are doing very well.

Great. And then similar question on -- didn't hear you specifically highlight anything that was going on in insurance. I know that that unit had recovered nicely out of kind of a Y2K slump. Can you give us an update there?

It continues to do well. Remember that over the past year, we have kind of re-tooled that insurance group into one that is now 80%-plus recurring in nature. But it's done very well. The comparisons of 2001 over 2000 obviously are much better than they will be going forward, although that business is doing well. 2001 looked very good as compared to the very slow 2000.

Thank you.

We're very pleased with how they are performing this year and they continue to sell, and continue to, uhm, do well from a profit standpoint.

Thank you. And just one for Ken. Is there anything to read into the deferred revenue balance being down?

About $4 million of that was hardware and another $4 million was because we sold the human resources just a company last year.

Thanks.

Thank you, Carla.

Our next question comes from Franco Turrinelli with William Blair and Company.

Good morning. Ken, this is really -- actually, for anyone really, following on from Carla's comment, I think of a previous quarter you had indicated that volumes and securities were down as much as 40%. I was wondering if that was still kind of a right ballpark and if the delta between the volume decline and the revenue decline is attributable to new business?

Speaking to the volumes, they still remain down 40 to 45% on a year-over-year basis. And we haven't seen any real material recovery there so far. I think the guys would tell you, we saw a little bit slow recovery and then Enron happened and things slowed back down again.

Yes, there was additional volume from the new clients that made up for the difference.

One follow-up, Ken. Can you explain -- obviously, there is a whole bunch of expenses pulled out of this customer reimbursements offsetting on the revenue and cost side. I'm curious as to the breakout -- you disclosed that there are some reimbursable expenses which are actually included in the processing and services revenue and in salaries and costs and I'm just wondering what the difference between those two are, just to understand better that classification. Thanks.

Well, we had traditionally taken some revenue that included reimbursements for like labor, things like that. And it offset expenses. So you know what we have done is made it a little bit purer and just pushed all those kind of reimbursements up into that first line of revenue. And the second line, which is what we call customer reimbursements, are direct reimbursements for third party expenses.

Okay. That makes sense. Is it -- Ken, is it your plan to continue to separately identify the customer reimbersments on a go-forward basis?

Yes. Because those things could potentially vary dramatically from a quarter to quarter. You know, [INAUDIBLE] there is postage. So if you have a big mailing at the end of one month, not at the end of next month, it's going to vary.

Maybe at some point you'll explain the logic of this but we'll worry about that later.

That is impossible to explain.

Our next question comes from Julio Quinteros with Goldman Sachs.

Good morning, guys. Quick question regarding the ramp-up of the 20 new clients. Do you -- maybe, Ken, do you have any sense on how you expect those to ramp up over accounting year '02?

Most of those will ramp up by the second quarter.

By the second quarter?

Yeah.

Okay. Then obviously the pipeline continues to be there and we continue to sell new broker dealer, so as we move into the third and fourth quarter, we ought to continue to ramp up.

Okay. Real quickly on out sourcing, it's still performing very solidly here. I have the business growing a little bit above the 8 to 10% range, you know, based on the estimates that I have. Do you guise expect to see continued above-trend performance in the out sourcing business for the remaining of the year based on the current visibility on the sales pipeline and the demand environment?

Based on what we see right now, the 8 to 10% range is still what we are sticking with. I would say that the bank outsourcing, especially bank and insurance outsourcing business, doing very well. You are right, it is in the 8 to 10 or slightly above right now but our target for the year for the whole business is 8 to 10% just as it was before.

Okay. Great. Great quarter, guys.

Thanks a lot.

Andrew Jeffrey with Robertson Stephens, you may ask your question.

Good morning. My questions have been answered. Thanks.

Thanks, Andre.

Adam Holt with J.P. Morgan, you may ask your question.

Good morning.

Good morning, Adam.

My questions relate to the benefits administration area. Obviously, you made a number of acquisitions there last year. I was hoping you could give us an update on the what the current tone of business is there and the outlook for '02 and also maybe talk about your cross-selling initiatives there.

Well, right now, overall business -- and we have done 3 acquisitions -- actually, two acquisitions in that area, which is effectively three companies, they are all doing very well. From a new customer standpoint and as far as performing against their performance, when we acquired them. We are pleased with that business. We continue to look for other acquisitions in that area to grow that business. On a go-forward basis.

And are you going to have a distinct cross-selling team that's going to be cross-selling those services, or how are you going to layer that on to your existing customer base?

It is just a natural process within Fiserv that as these businesses come aboard and stabilize themselves and get used to Fiserv, we then start bringing them into our cross-sell meetings where they are exposed to the other products. The ones that they are very attracted to immediately are our ability to emboss, encode and deliver plastic cards which for the most part they have been buying from third parties. The products that we have to deliver in that area are very strong compared to what they had before. One of those companies we acquired was doing it in-house. We have a much better product. The other one that appeals to them is the delivery of documents on the web. Through our [Epsia] acquisition. So those two are probably the strongest out of the gun but there are a lot of other things we can cross-sell there.

Is this an area where you will continue to focus some of your m and a efforts upon?

Yes. Definitely.

Thanks.

You bet. Thank you.

Frank Turrinelli with William Blair and company.

A quick follow-up. On the cross-sell front, we are now two or three years into this very successful program. I'm sure the answer is that there are still lots of low-hanging fruit but can you maybe give us a sense of where it is that you're focused on the cross-selling effort? Thanks.

Franco, we still on an 18-month schedule have what we call a cross-sell boot camp within where we bring all our people who are customer support and salespeople into an environment where they can look at all of Fiserv products, especially the new ones, for cross-sell purposes. And it varies on which products are cross-selling most actively. Today the ones that are most active are our EFT operation which includes debit card, the plastic card operation because all of our financial institutions are in the plastic card business. The Epsia acquisition continues to be a very strong cross-sales capability. ILS, which we acquired last year, which is a loan origination -- actually, tools that help loan origination, is going to cross-sell very well. So it depends on what new companies are in. The efforts to cross-sell, the compensations plans to encourage cross-sales are still key. And we look at cross-sales going forward as a very strong part of our interim growth formula.

CRM still seems to be a very hot topic in the banking street. Can you, please, remind me, what your offering is and if you're having any success with that?

We have CRM offerings to both large, medium and small financial institutions. That is in the banking area. But I would just caution you that although that is selling, it gets more press than it gets sales today. It's just not as hot as you think it is if you read it in the press. We have those products. We do sell them from time to time. But it's not one I would put on our leader in cross sales.

Thanks, Les.

Thank you, Franco.

David Trossman with Wachovia Securities. You may ask your question.

Could you give us an update on the Northern Trust processing agreement and how successful you have been in sort of pushing that customer base out into your more national footprint?

I would tell you that -- we have two different contracts with Northern Trust. One of them has to do with a check processing back office check processing, going extremely well. The bank is very happy. We have been able to deliver what we committed to deliver. And we continue to grow that as they continue to bring other customers in. The other is lock box. The lock box is the one where we are going to bring them out into our national footprint. That's an ongoing process. And also, it's our goal to cross-sell that particular product to other banks who may be doing lock box in house. And although we have seen some early signs of success there I wouldn't say that that is a major victory in the cross-sale area yet. But it's there and the guys are working on it. So I would say in all we are very pleased with the relationship we have with Northern trust. And I think asking them, you get the same answer.

Can I ask you a financial housekeeping follow-up, too?

Sure.

In the first quarter 10-Q, it looks like about $35 million of cash used for acquisition. I assume that's a piece of the earn-out. Is that what we might expect on a quarterly basis going forward if the businesses perform where you want them to be?

That is correct, that it is the earn-out but you would see that more on an annual basis. You wouldn't seen it -- you wouldn't see it on a quarterly basis.

Thanks, Ken.

Thank you.

Bryan Keane with Prudential, you may ask your question.

Just trying to reconcile the securities growth. Is that all predominantly due to the slippage still in the securities and trust businesses? So, in other words, can we understand that the financial, the insurance and the credit groups are all still at least equal to or better than what they were in the previous quarter?

I would say that the largest part of our -- of the slowdown is attributable to the securities. There is no question about it. On a quarter-by-quarter basis, I would say all are doing well. You have to be careful with the year-over-year comparisons because last year, the comparisons were stronger because 2001, especially in the insurance area, was so much slower. I mean in 2000 compared to 2001. That's why the comparisons were so strong last year. Now that the insurance business has had one strong year, those comparisons aren't as favorable. However, having said that, the slow part of our business from an internal growth standpoint still is the securities area. And that comparison won't get healthy until we get into the third quarter of this year.

So does the insurance group grow faster still than the financial institutions grew?

I would say it grows along with it now in that 8 to 10% range.

Okay. And then the other follow-up question I wanted to know, I know that we had four acquisitions last year in the first quarter. About 70 million in revenues. Is that number still about right? And how fast are those revenues growing on an organic basis since that will be in the numbers this upcoming quarter?

I frankly don't remember exactly what those acquisitions were in the first quarter.

FSC, M&I processing, benefit planners, Andrew Marketing Services.

Bryan, why don't you call commerce and he can give you better guidance.

Is there any way or reason why we would think that acquisitions are growing any difference than the business in general?

In certain cases, yes, you will have certain acquisitions that we make that have slower growth rates.

Yeah. On the down side, yeah, that is true. And you know, a good example of that would be the NCR acquisition. When we acquired them, we explained that the goal there was we were buying clients as opposed to going out and selling clients because it was the most economical way to bring those clients aboard. And the growth rate there will come from cross-sales and moving those clients into more profitable Fiserv business units over time. But that's an over time type thing. So that piece of the acquisition business last year, that was about a $70 million piece, is going to grow less rapidly than the rest of our core business. So it depends on the acquisition.

Okay. Great. Well, congratulation on a nice quarter.

Great. Thank you.

Greg Peckham with Jeffries, you may ask your question.

My question relates to programs a mixed shift in your institutional versus retail business in the processing area. With the 20-year or so odd -- 20 or so odd new signings last year and the look at the pipeline for this year, can we expect to see that mix change at all?

Based on the signings we did last year, where we are this year, the mix is going to be essentially the same. We are predominantly vastly [INAUDIBLE] retail.

Okay. I think I have heard you suggest in the past that you know, acquisitions would be something would you think about in the segment, perhaps to balance out that mix between retail and institutional. Is there anything more to say in that respect?

Other than that is our long range desire and Ken is shaking his head "Yes" as we talk about it because we do look for acquisitions that can mitigate our -- the volatility of that which is tied primarily to the retail trade activity. So, yes, we are looking for ways to do that we have not done it yet.

Thank you. Good quarter.

Thank you.

Ike Fisken, Stephenson You may ask your question.

Question for Les. If you look out at 2002, do you see the year as focused on accelerating that internal growth and margin improvement, or do you think that you are going to see continued heavy M&A activity for Fiserv? And if so, what areas would you rank in the top 5 as to where you are seeing the most M&A activity? Thanks.

Every year we continue to work on our cross-sale [initiatives] and our efficiency initiatives which drives internal growth, an ongoing process. I would still target it for the year between 8 to 10%. At the same time, our acquisition team runs pretty much separately from what we are doing there, although [when] we do a lot of acquisitions, we can can divert some of those resources towards acquisitions.

It's across the board. We don't see a lot of opportunities right now in securities, though I would hope that we will see some.

In terms of insurance, product, banking businesses, lending, we have possibilities across the board.

If you look at your ability to integrate some more sizable acquisitions, how ready are you to do some larger deals?

We are very ready. You know, with the Fiserv into the five major areas by the type financial institution they serve, we can do five simultaneous as long as they cross the divisions. It doesn't strain us. We have to motivate Ken to go get them.

Ken, go get them. Congrats on the quarter.

Thanks a lot.

Art Bender with Credit Suisse First Boston you may ask your question.

Good morning. Can you talk about the operating margin in the financial institutions business? It was down a little bit year over year. What was the cause of that and what's the outlook going forward?

I'm going to look to ken to try to answer that. Ken and Tom?

It's down about a percent from the first quarter of last year. The first quarter of this year. It's up a couple of percentage points from the fourth quarter to the first quarter. Some of that in terms of relative to last year would be an NCR issue. In terms of the NCR as negligible margins. Currently, you know, we are really did that acquisition based upon where we want to be in a couple of years.

That would be I think explain it as well as we can with the numbers we have in front.

Yeah, basically it's a mix of business. We had some acquisitions last year that carried a little bit lower operating margin that impacted the first quarter here. And that is the primary but overall the margins are very consistent with where we were in the last half of last year.

You don't see any issues of those acquisitions that would keep the margins from getting back up to their historic norms?

Over time.

Okay.

And one follow-up, Cap-X was up this quarter. Capacity about 30 million about twice it was what is last year. Was there a one-time event there that raised it or is that a run rate going forward?

No. There are a couple of one-time events that occurred in that first quarter. There were some hardware upgrades and also some operating software upgrades. So, no, that would not be a run rate that you would expect going forward.

Great. Thanks very much.

Thank you.

Our next question comes from Charles Tractman.

Good morning. I know it's hard to compare year-over-year, but your receivable measures improved pretty well. Your DSOs were 55 a year ago and 47 this quarter. How much AR did you take on from the acquisitions at the end of last year in the quarter? Or maybe how much revenue did you get in the March quarter from those deals would be a better way to give it apples to apples.

Ken or Tom, do you have that information?

No. As far as the acquisitions go, obviously, that doesn't impact really our cash flow statement. Those activities. But we continue to focus through our metrics internally on cash flow and that's how our business units are set up. So they have a lot of incentive to collect their AR and improve the racial years and we are seeing the impact of that by an increase in the accounts receivable in the quarter. I don't think there are any other changes.

And the internal growth rate you are talking about at 5%, does that include the corporate forms, graphics and plastic cards?

Yes.

And the last question is, your tax rate's gone up from 41 to 40 to now 39 in this past quarter. Do you think 39 is a rate you'll hit or are you doing more on that front?

Well, we hope it will continue to go down. But part of the impact this year is of course the goodwill no longer being amortized.

Thank you.

Brad Moore with Putnam Lavelle Securities you may ask your question.

Hi. Good morning. Couple things. First off, I had written down last quarter that the 20 broker dealer clients that were signed in '01 actually were in full ramp-up. And now it seems like you're suggesting that 2Q is really the ramp-up period. Did I write it down incorrectly? Or was there slippage in the conversion periods?

There was a little bit of both. But, you know, those 20 were signed over the years. Some of those were converted during the year last year and then the ones near the end of the year come over into this year. There was slippage in two relatively significant ones that slipped a little bit. But we'll be converting it in this quarter.

Okay. What was the cause of the slippage?

Just, uhm, you know, as you move through a large conversion of -- especially of a good-sized broker dealer, you evaluate on a weekly basis how people are trained, quality of the data coming across, and you just don't pull the trigger on the conversion to -- until everybody is comfortable with it. So there was nothing major, just fine-tuning of the acquisition as we moved it along.

Okay. And then can you speak to any client losses or turnover in that business?

In the securities business?

Yes. In the securities clearing business.

We have had no material turnover this year and don't anticipate any. So I don't think there is anything to worry about on that front.

No material turnover in the last half of last year, either.

Okay.

Just curious if you can give us some numbers on net banking sales and also in particular, software sales especially at the higher end of the client spectrum.

Software sales which would still be in our range of about 7% of revenue and there were no material differences this quarter as compared to preceding quarters. In the area of net banking, I assume your talking about internet banking activity?

Yes.

Again, I don't have that number. The street is kind of de-emphasized the importance of that. Still, if you looked at all of our internet activity, it's probably in the neighborhood of 80 to $100 million in revenue with the real slowdown there coming in the securities business. We continue to sell internet banks. We continue to convert customers and we continue to see slight increases in volume coming from the internet banks that we operate. But I don't have that number right available right now.

Thank you.

Our final question today comes from Salomon Smith Barney.

Thank you for taking my question. The question is on the financial institution out sourcing business can you characterize it in terms of the strength in the business, whether it's stronger for the larger clients, mid-sized clients, smaller clients? Any particular area stronger in?

You know, overall, I wouldn't point to any area particularly stronger than the other. We continue to have very strong sales results in bank, credit union, mortgage, outsourcing across all those size ranges.

Okay. Thank you.

Thank you.There being no more questions on the chart, we thank everybody for their participation and their support of our company.