Jack Henry & Associates Inc (JKHY) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Jack Henry and Associates Fourth Quarter Earnings Announcements Conference Call. At this time all participants' lines are in a listen-only mode. Later, we will conduct a question and answer session; instructions will be given to you at that time. If you should require any further assistance from an operator, please depress "0", then "*" on your phone and we will assist you offline. As a reminder, this conference call is being recorded. I will now turn the conference over to the Chief Financial Officer; Mr. Kevin Williams; please go ahead sir.

Good morning. Welcome to the Jack Henry and Associates fourth quarter and fiscal yearend 2000 earnings conference call. We'll have to [in first] statements to responses to questions may be made in this conversation which are forward-looking or deal with expectations about the future. Like any statement about the future, these are associated to a number of factors, which can cause actual results to differ materially from those, which we anticipate. Such factors are disclosed in our recent SEC filings. There can also be other factors not included that could potentially cause results to differ materially. We are pleased to report the financial results of fourth quarter of fiscal yearend June 30th 2002. These results reflect record revenues, gross profits and net income for both the quarter and fiscal yearend. This represents our 13th consecutive year of record revenue earnings and earnings per share. Total revenue has increased by 5 percent for the quarter, and increased 8 percent for the year ended June 30th. With the significant increased contribution to support and services for both the quarter and fiscal yearend, up 21 percent and 20 percent respectively.

00:1:31 Licensing and installation services increased by 1 percent for the quarter and decreased by 4 percent for the year ended June 30th. Significant decrease in hardware sales compared to the prior year for the quarter and a small decrease for the year ended. All prior year numbers have been reclassified to provide consistent presentation of reimbursements from customers whose revenues and profit sales in accordance with the new [FEICF] that came out in December of last year. Changes in the various components of revenues were, licensing and installation went up 1 percent and down 4 percent for the year respectively. Support and services went up 21 percent for the quarter, 20 percent for the year. Hardware sales went down 14 percent for the quarter and 9 percent for the year, and our customer reimbursements which are those [past through] costs that we [bill] our customers are 15 percent increase for the quarter and 2.5 percent for the year with an overall 5 percent increase for the quarter and a 8 percent for the year. Our cost of sales increased by 7 percent in the quarter and 9 percent for the fiscal year ended June 30th, which is primarily due to the increase in cost of services in customer reimbursements associated with non-hardware revenues.

Our cost of services and customer reimbursements combined increased 14 percent for the quarter, and 18 percent for the fiscal year ended respectively, which is pretty much in line with the 13 to 15 percent increase in non-hardware revenues for the same period. Total hardware sales represented 25 percent of total revenue this quarter, which is down from the 30 percent a year ago, and 25 percent for [indiscernible] to 30 percent for the year ended. However, our gross margin on hardware revenues also decreased 25 percent for the fourth quarter and 30 percent for the year ended, compared to 32 and 31 percent for the same period of prior year, which is primarily due to the decreased incentive payments from hardware vendors, due to thresholds being established, based on hardware sales lines in the prior year. Our gross margin was generally steady at 41 percent for both the quarter and the yearend, compared to similar levels of 42 percent and 41 percent for the same periods last year. Our non-hardware margins were 46 percent for the fourth quarter and 44 percent for the year, compared to 47 and 46 percent in the same periods in prior year. We were able to maintain the [summer] gross margins due to the decrease in hardware revenue as a percent of sale revenue, combined with the decrease in hardware margin, being primarily offset by the increase in support and services percentage of total revenue and those revenues being at a higher gross margin rate. Therefore, the blended effect of the sales mix and margin changes in hardware and non-hardware sales allowed the gross margins to remain fairly level. Our total operating expenses increased 3 percent for the quarter; though the percentage revenue remains flat at 18 percent of total revenue. Selling and marketing increased 15 percent, but also remained level at approximately 7 percent of total revenue. R&D increased 12 percent and also remained level at about 3 percent of total revenue, and G&A expenses decreased 9 percent in the quarter with a slight decrease from 8.7 to 7.5 percent of total revenues for this quarter, which is primarily due to an improved quarter of experience and employee benefits cost. Our operating expenses for the year ended increased 13 percent, as percentage of revenue increased to 19 percent from 18 percent of total revenue. Selling and marketing increased 6 percent but remained relatively level to 7.5 percent of revenue.

R&D increased 15 percent, but again remained level to approximately 3 percent of total revenues, while G&A increased 20 percent, an increase to 8 percent from 7 percent of total revenue. Depreciation and increase in employee benefit costs are the primarily contributors to the increase in G&A for the year. Also for compare point, our full-time headcount of employees is up 11 percent this year to 2112 from 1910 last year June 30th, which has a direct impact on employee benefit cost. Our operating incomes are slightly lower to the prior year quarter and increased 1 percent for the year June 30th. Our changes and other income, primarily due to the much stronger cash position this year compared to last year, but this is offset adequately by the lower interest rates on our cash investments. Also we have no meaningful debt this year. So the only interest expense is our unused line charge in the current quarter on a revolver. Net income has increased 2 percent for the quarter and increased 3 percent for the fiscal year ended June 30th compared to last year. Our tax rate, at 34 percent for the fourth quarter reflects refund due from amended state tax returns filed during the quarter, which had a permanent one-time impact on our effective tax rate.

This has little impact on our earnings per share. Without this one-time impact affecting our normal effective tax rate at 36 percent, our EPS would have still been 17 cents for the quarter. The effect of this was to lower our effective tax rate for the year to 35.5 percent from 36 with slight increase in earnings per share of 2 percent for the quarter, an increase of 1 percent for the year ended June 30th 2002. Some key things about our balance sheet -- majority of significant change is due to the overall growth of our company. Our cash position has decreased by 4 percent, primarily due to the stock buyback through June 30th. Our trade receivables have increased by 13 percent, primarily due to the in-house support contract that we bill at June 30th each year, and our total assets increased by 13 percent. Account sales and accrual expenses were down 18 percent, and deferred revenue was just primarily those prepayment for in-house support deposit from hardware [indiscernible] have increased 15 percent from last year.

[indiscernible] stock buyback from September of last year with an excess of $44 million to purchase over 2.5 million shares [of closing] stock. Our backlog is growing to a 141.7 million with 62.8 million in-house and 88.9 million outsourcing at June 30th, up from a 136.5 million on March 31st and up from a 127.0 million a year ago at June 30th with several [indiscernible] customers with over 2,400 core in-house and outsourced Bank and Credit Unions. With me today I have Mike Henry, my Chairman and CEO and Terry Thompson, the President. We are pleased with our fourth quarter and fiscal year end results considering the economic conditions and the unusual events beginning with last September 11th. We're very proud of our employees, and the job they have done this fiscal year to face the challenges that were presented. With the additional products we've added, effective cost control measures continue to increase the backlog, we are positioned very well for future opportunities in all of our target markets. With that I'll open the call up for questions. Operator, will you please open up it up for questions?

Certainly. Ladies and gentlemen, if you would like to ask a question, please depress the "1" on your touchtone phone; you will hear a tone indicating you have been placed in queue, and you may remove yourself from the queue by depressing the "#" key. Our first question is from the line of Jeff Baker with UBS Bancorp Piper Jaffrey; please go ahead

Hey Kevin and Mike. Quick question on the backlog on the in-house business was down sequentially obviously probably reflecting the difficult market therein. Going back to last quarter we thought we may see a pick up in in-house. Can you, kind of, give us an update; where we stand on in-house and if it will come back or when it will come back and -- or if we're seeing a shift towards more outsourcing? -- Your outsourcing numbers were very strong. Thank you.

Well, a couple of things Jeff. One: obviously, the in-house core business has not picked up the way that we would like to have seen it. But the other thing I would say is that the in-house backlog is -- the June quarter is historically and typically the weakest contracting quarter for our credit union side. So there -- the banking in-house -- the in-house backlog actually remained flat or went up a little bit. It was the credit union side that actually went down just because of burning from backlog, which typically we do in the banking side in the September quarter. But again, the in-house core deals have not come back, like we would like to see.

[indiscernible] last year's in-house backlog was down approximately $1.2 million from the March quarter, and we're also at that same change this year, so relatively speaking, this year versus last, it's very consistent we're [stacking] on.

Are you seeing any pick-up in demand or -- I mean, where do we sit here in the economic cycle for that to turn around?

We're still seeing some very nice demand on the outsourcing side, on the credit union side -- still remains a little bit weak on the in-house banking side, that's you know, if we had to point at one disappointment for the quarter or for the year, it would be the in-house sales on the banking side. When those pick up is anybody's guess.

Okay. And then last question, Kevin, you ran through, but the stock that you guys repurchased this quarter was how many shares?

Just over 2.5 million through yesterday.

And how much is left out on that?

We -- the board approved a three million share buyback. So you've got -- we've got just over 400,000 shares that we can still buy.

Do you look for them to increase that buyback down here at these levels or...?

I think Jeff that that depends a lot on what the market does and what stock [factors] obviously, with our stock price being at the ridiculous levels in my opinion that they are now and our money is sitting in the bank earning 1.6 percent interest, it's actually very beneficial for us to go and buy stock back at these prices and just save the dividend. So I don't know, if they will approve that but obviously, if price stays this low, I'm sure that the board will consider increasing that number.

Great. All right, thanks guys.

Our next question is from the line of Nik Fisken from Stephens Incorporated. Please go ahead.

Hi, good morning everyone. Congrats on the quarter.

Thanks Nik.

First on the -- on this hardware discussions, did you guys miss the threshold or were the thresholds eliminated?

No, its more of a matter of last year. I mean the incentives were reestablished at October 1 of each year and last year our hardware sales were so strong that IBM and others adjusted those thresholds at those levels and obviously the hardware sales have been off this year from that. So we did not get the incentives and the rebates that we have got in prior year.

So it's the same threshold in essence?

Right.

Yes.

Again the numbers are not consistent; that's only what we can get and [weigh] rebates either Nik, so it's not a - we always hit a number that's been and get the same amount of impact; it's not that way.

And staying on the hardware team is -- when you guys look at the in-house core, do you think you'll see a pickup in hardware sales before we see a pickup in the in-house software deals?

Well, the hardware sales were dragged by the software Nik.

You know, they kind of go hand-in-hand.

Okay, so no [unique] indicator. Because of all the big 6/30 or June 30 maintenance billings, you know, you guys hit in September with, you know, in excess of $60 million of cash, I'm wondering how you would rake the possibilities to, you know, for a home for that cash and you know, specifically, acquisitions and share repurchases and things of the like?

Well, this is Mike. We always believe that the best use of our cash, particularly at the stock level, that we're out right now -- the best use is smart acquisitions. We are not going to do anything strange with acquisitions; our strategy is going to remain the same. That's the best use of our cash. Obviously, we've been using some of that cash for a stock buyback and that is certainly a possibility for the future so -- you know, we've been using our cash for stock buybacks, for CAPEX, and we continue to look at acquisitions as we always have and cash is a great use -- a currency for those acquisitions.

And since you think acquisition is the best use, can you kind of give us an update on what you're seeing out there, and if anything seems to being close to announcing?

Great question there.

No Nik, you know, I can't talk about that. No, I mean, we've had a nice pipeline of companies that we're looking at. I can tell you that public companies right now are a little bit nervous because everyone is depressed -- stock price. There's a feeling out there amongst many public companies that now may not be the right time to sell because they have a low stock price. But there continues to be great ideas out there and as always, we are very careful on acquisitions, we've learned that a good one can really help us and a bad one can really hurt us. And we continue to be careful out there, but I don't say that -- I don't think there is a huge shift in what acquisitions look like out there from a year ago. There are still some good ones and bad ones out there.

And last question, the range and estimates for the year ended June 30 next year is 73 cents to 81 cents, that's a pretty good range. Can you comment on where you see earnings going for next year in light of the 62 cents you just reported for '02? Thanks.

I agree Nik, that is a wide range. And I think I'm comfortable with some more in there. I think with the economy the way it is, obviously the sales pipeline continues to look pretty healthy for us, we're still waiting for the in-house core deals to come back. Having said that, I think we can grow next year at 20-plus percent. It's obvious that as the economy goes south, that's going to be a real big challenge, but you know, as the economy would come back sooner rather than later you could -- we could do better than that, yes. But I think right now, the 20-plus ballpark is where I'm comfortable.

Bottom line.

Bottom line, yes.

At 20-plus you mean low -- at low 20s?

Yes.

And the 81 in my opinion Nik would be on the high side without question.

Okay, thanks.

You are welcome.

Our next question is from the line of Bryan Keane from Prudential Securities. Please go ahead.

Yes, hi good morning. I just -- I guess I'm looking for Kevin maybe comments on any -- how may CRM deals and check imaging deals in the quarter?

Sure. We actually did 59 check image deals for the quarter; and NetTeller we actually did 42; and CRM, we did five, which is obviously down from the March quarter and let me explain that a little bit; when we did that acquisition in January, there were several contracts and proposals out to customers and there was a large acceleration to sign those contracts and get them done before we raise the price on those. So, the March quarter was kind of inflated, I think, five pretty solid sales quarters for CRM. So, you know, we think pretty nice growth and foresight in the NetTeller throughout the year. I mean, if you think about foresight, we've 25, 36, 51 and 59 in sales for the quarters and NetTeller went 22, 30, 27 and 42. So, obviously those are all still pretty hot selling items for us.

What were they a year ago, the check imaging and NetTeller?

I don't have that information with me Bryan.

Okay.

[indiscernible] Terry, I would estimate it was under 40 in the quarter.

For NetTeller?

No, for Imaging, and 30 ballparks, a little more maybe. NetTeller was -- one of our lower quarters, we had 22 in September, I believe it was like 12 or 14 in the June quarter of last year.

So can we take, you know, what can we take from those, I mean, obviously those figures are kind of higher than I expected; does that mean there has been more trigger-pulling on the bank side or what, you know, what can explain the great numbers?

I think banks are looking for ways to improve their bottom line, use technology to improve things. They're not, maybe, looking to spend $1 million on a new system but will certainly look at complementary products that will help them be competitive in their marketplace without having to spend huge dollars. Sounds we're getting pretty good, [sounds complementary] process.

Anything, just kind of as a last question, anything else that sold well or is not selling so well, you know, in today's marketplace?

Another item that is selling -- which sold extremely well during last year is platform automation for deposits and loans; that was another complimentary product that just continued to sell extremely well. You know, the credit union continues to go extremely well and you know, through our press release throughout last week, we're now offering that in an outsource environment, we look for that to grow extremely well in the future. But also in the last year, our outsourcing numbers have grown extremely well because of the traction we've gotten in the bigger banks -- in the billion-plus banks and with our Silverlake product at our [indiscernible] Center.

Okay great thank you.

You are welcome.

Our next question is from Kartik Mehta from Midwest Research. Please go ahead.

Good morning. I wanted to ask a question about -- you're saying in-house sales were a little soft, do you -- is there any, in your opinion, shift away from financial institutions maybe buying core products now and just going with the modulars, because you've had such -- with Y2K and some of the other things that have happened, people don't want to shift away from core systems in your opinion?

No. I mean, I think the economy has had a little bit to do with people spending money on complementary products rather than buying the [indiscernible] to replace their legacy systems. We still have about 800 customers on older legacy systems that we think that at some point down the road, will be core business for us. I don't think it's a shift in people not moving. I think it's simply a shift in timing when they say," you know, I think, maybe we can live along with the system we're on for another year or two until things are little bit better out there."

Does the fact that OS2 support might be going away or becoming more expensive help in moving that shift a little bit quicker?

No.

No. Kind of last question on the Internet banking. What's the penetration now of your customers that have Internet banking products?

That's -- kind of help me with the question, Kartik. You know, our customers that have our NetTeller solution are offering banking packages in the upper 30 percent now.

Okay.

You know, probably 37 percent, 38 percent now. You know, the number of customers who have somebody else's product -- I mean that's hard to say, but there are still a pretty good number of banks out there that did not have an Internet solution, which is why our [products], you know, continue to sell nicely in our opinion.

Plus, we're starting to see some opportunities to replace some competitive Internet banking solutions out there because of our pricing model and our integrations. So I mean they're not all new sales issue like they might have been a couple of years ago. We're seeing a few replacements out there also.

Thank you very much.

Thanks Kartik.

Our next question is from the line of Peter Heckmann from Stifel Nicolaus. Please go ahead.

Good morning guys. Got a couple of questions. As regards the 59 Check Image deals, can you comment on the relative proportion that were in-house systems versus service bureau? Could you give us the number -- the breakdown for revenue between bank and credit union for the period? And then could you just comment -- third question -- as regards to core systems, how much of an impact incumbent pricing is having on your ability to win new customers?

Pete, this is Terry. Kevin is getting some numbers there.

Great.

I will tell you on the split between in-house and outsource units. That is not something that we've done historically, and we'd like to remain consistent with that so we don't start breaking things up and mixing things in different way. We don't have that kind of breakdown that we can provide; but we can talk about the bank and credit union components, etcetera.

And as far as incumbent pricing, I think you get into more of a competitive pricing situation on the outsourcing side. The incumbent can always price those services -- re-price those services downward on you in a deal. Well, on the in-house side, you know, there really is no ongoing pricing to talk about, because it's a competitive replacement. So it does play a part on the outsourcing deal, and some folks can get very competitive on the pricing.

As far as your banking and credit union splits -- question, Pete...

Yes.

... banking and this does not includes the [indiscernible] reimbursement cost.

Okay.

The banking generated gross revenue of 85.8 million per quarter, credit union generated 12.9 million, and gross profits for banking 39.6 million and credit union of 3.5.

Okay. So the credit union was down sequentially somewhat. And you'd made a comment earlier in the call as regards the credit union business. Is that -- did you say that it was more seasonal -- in the fourth quarter, it's more seasonal against credit unions? Is that the case, or did you just have a very strong fiscal third quarter in the credit union business?

Well, I mean, we had a -- we had a good third quarter; but the June quarter historically is the weakest contracting quarter -- and why that is; I'm not really sure Pete. But I know, back in March or in April, the [third quarter] [indiscernible] when we were going into that quarter, my national sales manager for the credit union base told me going in that this is our weakest quarter. And she could be correct. So I have to take that for what is. I have no idea why other than -- I think a lot of credit unions vacation or whatever. The decision makers are just not there to buy the software.

Okay. I appreciate it.

You're welcome.

Our next question is from the line of Carla Cooper with Robert W. Baird. Please go ahead.

Good morning. Could you talk about what are any of the release dates for general availability and the CRM has shifted it all or if you're still looking towards -- I think it's early next calendar year for general release.

You are talking about the ARGO?

Right.

Okay. We originally were supposed to be in data for the platform pieces out in the March quarter of the next year...

In the deposit.

... in the deposit piece and the loans piece in the CRM in the June quarter. And I don't think those have split at all.

Okay.

And if we're right -- still lot of schedules to meet those deadlines.

Okay. And can you talk maybe a little bit about what you have seen some of your Liberty customer base? It's there, you know, contributing in all to the in-house pipeline that's building or is there any cost there?

We continue to win Liberty deals. As you know, we announced a [indiscernible] set of that product some time ago. We believe we will win the majority of those deals by the end of this calendar year. There will be some erosion particularly on the smaller customers on that Liberty base, because any time you [sell] such a product, they're going to look around to see what else is out there. We'll lose a few based on pricing, because we're not the cheapest out there; and we know that. But we believe that we'll win the majority of those deals and they're moving along nicely. And they are contributing a little bit to the in-house side.

Okay. And then could you talk a little bit -- you talked about pricing on outsourcing, but any more of a general competitive update?

You mean just [indiscernible]?

No. Just you're seeing any different competitors. You're still competing against the same folks. Anyone, maybe seen any big change in tactics from any of you're the competitors

No, nothing substantial. The competitive marketplace looks very similar to a year ago.

Okay. Thank you.

Thanks Carla.

The next question is from Richard Zandi from Deutsche Bank. Please go ahead.

Was the FedEx deal -- is that in the backlog reported for the June quarter?

Yes. A portion of that would be just like our...

The minimum guarantee that -- Richard just like all the other adaptors, they get signed in the period.

And how much could that be? How much could we expect that to be approximately?

You mean, that contributed to the backlog?

Yes.

You know, we really shouldn't talk about specific deals and what they add to backlog or other revenues.

Okay.

The ballpark guide is a few million dollars. Huge numbers -- that will distort...

A couple of percentage points.

Did you mention what your cash flow from operations was during the quarter?

No, I did not. We have not finalized our cash flow statements at this point.

Okay. Do you know approximately how much you spend on CAPEX in the quarter?

No, I do not have that with me Richard.

Was there anything unusual in terms of CAPEX?

No, it was -- it would flow pretty much the way the prior quarters have. And as I talked before, our CAPEX this year is going to be in the mid [indiscernible] of 50 range approximately; and next year, it should go down significantly. I will project that our CAPEX next year should be somewhere in the $35 million to $40 million range, as we finish up a lot of our larger projects.

Okay. In terms of the breakout between the core and credit union outsourcing customers, in the past, you've indicated total number of credit unions on the core platform; are you able to do that now?

[We're lucky].

Okay.

On credit union?

Yes.

We've got -- probably, we've got 396 credit unions in-house.

Out of a total of how many?

Out of the total of about 400 [indiscernible] and 300 dial-up centers.

300 dial-up centers. Okay. Great. The...

And Richard, those from the conductor products...

Okay.

...[indiscernible].

Right. As I talked to the customer base, one of the banks that are looking -- reviewing their core processing options. A number have commented that one of the issues they have with the Jack Henry product is that it doesn't have a Internet centric GUI or user interface. Are you finding that the customer demands for, how they interact for the product is changing, that you're going to have to update your product set?

Yes, I think that the marketplace is moving more to a desire for a browser front-end as opposed to a GUI or a GreenScreen. We've seen that happen slowly over the years, and it will continue to trend that way. And we do have some competitors that have browser base front-ends and that is the direction that we'll go.

Is there -- do you have any timing for when you might have a product in market?

We haven't announced that publicly to the customers yet, Richard, but we would have a strategy in a time; you know that. So, you know, we're not going to be left out in the dark.

[Philosophically], it is -- we're moving towards that but we don't have anything definite that we're going to announce today on when it's going to be out there, what it's going to look like, and what technology it's going to use? But we'll need to move that way for our flagship products.

So you're -- but today -- are you -- is you view that you haven't lost any deals because you have -- because of the lack of it?

I can't point [today] but I can say we lost because the user interface, the look and feel, the software, but I can tell you that it's becoming an issue in the sales cycle in the few deals. So any time we have things that become issues, we want to take a look at it to see how we can eliminate those issues.

Richard, when we're competing, we're [indiscernible] and our strengths are, you know our strong balance sheet, the depth of product feature function, and the competition many times can't talk to those same types of issues. So, you know, they are selling something that they have that we may not have. It's not that we won't have it, you know, in the future, but they are just trying to get a little different twist, but the important thing for our customer in a core transaction is what the core product itself does and the way the features function and not the look and feel of an Internet browser, and also, our sales people work hard to focus on those types of issues.

We just referred - we've just seen that we do have a GUI front-end that we sell graphic-user interface that gives sort of the same working field, but not quite the same of the browser base. So, yes, we do have that currently to compete even more effectively.

Okay. Thank you. One last question. Again as I talk to community banks, a number of them have indicated that there is a kind of intense pricing war going around -- going on in the ATM area. I was wondering if you're experiencing that and if you had any comment?

I think you'll continue to see in the ATM and debit card world, I think, you will continue to see some real squeeze on pricing. It's a very competitive marketplace and people want to add business at low cost. You will continue to see some real pricing wars going on in those areas, I believe, won't affect. We don't sell just on price. We'll probably lose some business because of pricing, but in the long run, it probably will affect our margins on that business down the road.

I believe that we see or observe more in a debit transaction pricing than in the ATM arena.

Can you give us a ballpark for how much that contributes to your revenue -- those lines of business?

ATM base?

We don't have it broken up separately.

But is it you know, is it more than 10 percent or less than 10 percent?

Less than 10 percent.

Less than 10 percent.

Less than 10 percent. Okay, great. Thank you very much.

I will comment that the revenues and earnings in that part of our business were up substantially from last year. We continue to see a real increase, and an organic increase in the number of transactions that are processed electronically rather than by check. So it's a nice growing piece of our business and we'll -- earnings and margins grow at the same pace as revenues, maybe not, but it's still a very nice growth [mention] for our company; it grew at well over 35 percent.

Okay, great. Thank you very much.

Our next question is from [Glenn Greene] from ThinkEquity Partners. Please go ahead.

Thank you. Couple of questions. The first is the outsourcing business, which seems to be growing well. I was wondering if you could give us what percentage of revenue that is and the absolute growth rate that we saw this quarter? Then I got a couple of follow-ups.

The [indiscernible] Glenn?

Yes. The outsourcing piece of your business -- that how much revenue -- what percentage of revenue was in the quarter and the growth rate in the quarter on an absolute basis?

In the quarter, our data centers went up over 20 percent over a year ago.

And the percentage of revenue that it represents now?

Roughly...

10 percent maybe.

Okay, and then the hardware centers that -- they [will incur] the gross margin this year. Do they get reset in October at a lower level next year, which suggest the margins may go back up? I'm just trying to understand how that works.

You walk me on that one, Glenn.

Go through it again please.

The hardware centers was set last October at a very high level...

Okay.

... because of the volume level in the prior year. This year the volume levels were at a relatively low level.

Yes, I am with you.

Falling just that lower this coming October.

I would hope to think that's the case, but I can tell you, Glenn, that dealing with some of the hardware vendors, they change the rule daily. So even though the threshold may be set differently, it does not necessarily mean that the same rebate and incentives will be there this year than were last year.

Okay. And then the final question relates to headcount...

Yes.

...which I think you said around 10-11 percent this past year, your thoughts for fiscal '03?

Comparable. I mean, as long the economy doesn't go to hell, Glenn, I think that we could increase our headcount by another 10-12 percent this next year, and we'll need that to take care of the increasing customers that we think we're going to get.

Okay. It's great. Thank you.

You're welcome.

Our next question is from the line of Stephen Laws from WR Hambrecht. Please go ahead.

Just a couple of follow-up, really [indiscernible] already but, as far as the...

Steve, can you get closer to the phone?

Is this better?

Yes.

Okay, as far as the outsourcing with contracts of credit units, is it -- are you really seeing the same competitors there? Or are there some new players that you're competing after that market or maybe did you guys compete with FedEx contract?

I am not going to be specific [indiscernible] with that contract, but we're basically hitting the same competitors there in EDF and [indiscernible].

In-house or outsource, it doesn't make any difference.

Right.

Okay, great. And then I guess one follow-up is, you mentioned earlier in the call that you did increase the pricing [sum] for the CRM products. Can you talk about how that pricing stacks up to the competitors in that market and you know, is this five contracts per quarter kind of a normalized run rate you expect to see going forward?

Well, the CRM marketplace is pretty spread out, because CRM means different things to different vendors. It's kind of hard to compare RCMM offering to everybody else; you know, obviously our two products are extremely different in the marketplace with Transcend product and the [Oracle] product. We have priced it very competitive for line of sales in the marketplace. People will be able to find cheaper CRM that don't do as much, much more expensive CRM than Transcend that do more. We priced it very competitively and one of the reasons that we have ticked it is to put it more in line with what it does. Obviously, people are not buying this from a very small company. They are buying it from a much more -- much larger and stable company and with the integration piece we think there's more value and so it's competitively priced for what it does in the marketplace.

Great.

Thank you.

Congrats again on a solid quarter in a difficult market.

Okay, Stephen also the CRM products are asset based pricing, just like all the other products.

Great. Thanks.

You're welcome.

Our next question is from the line of Tim Willi from AG Edward. Please go ahead.

Good morning. A couple of questions. Referring back to your earlier comments, Mike, about some of the sales of the Internet products still being pretty strong and taking some business away. Would you be inclined or is it pure Internet only kind of banking vendors that might have grabbed market share sort of during the height of that -- height that now banks are sort of looking to actually bring the Internet platform back and to be more fully integrated within their core processor, is that sort of what you're saying?

Yes, that's a fair statement. I think that the competitive takeaways are from pure Internet companies -- Internet banking companies, not from core vendors. I think that our customers were seeing the value that we bring in the integration piece, the pricing module that we have is very different than the rest of the marketplace out there and they see that value and a wide range to their bottom line and value to their customers. So I think that's a very fair statement.

Do you see any other kind of complementary products that you're developing or currently selling with that same train of thought -- that your customer base is occurring, whereas it just makes sense to try it out, move that to the core processors, it is sort of the products and the expectations for those products above all from the initial hype or [indiscernible], you know, strategically [indiscernible] this be integrated with our company?

Tom, I think CRM is a great example of that where you see companies out there that are selling their standalone CRM, and we can see great value being the core provider and having access to all the important information and the value that integration brings to that. So CRM is another great example of what a core provider can bring to one of those complementary products. It's very difficult or impossible for a standalone vendor to deal out there.

Okay. And then a last question, if I may -- just sort of, I guess, the macro economic issues, I guess, in the near term of side. If you look at, you know, the competitive landscape for your customers relative to, let's say, bigger regional and super-regional banks, do your conversations with them at all indicate any kind of -- I don't know if it's concern or just sort of shift in their attitude about how effective those banks may be in competing at the branch level. There seems to be a little bit more of heightened focus in some of these bigger [indiscernible] more fully worked to integrations -- a little bit more of a focus on the branch in the retail consumer. Does that -- you know, could possibly raise the competitive bar for your customers and possibly maybe those decisions about, you know, what they need to buy to remain more competitive at the branch level or what have you -- do you have those discussions more often with people?

I don't think it's the bigger banks. We've seen a real trend for us in, what I call, branch automation, which is a lot of the backroom products such as platform¸ teller, and you could probably throw in check imaging in there also. Some banks are spending some money on branch automation to -- you know, they're building more branches or trying to do things more effectively throughout their branches; and I think that's one reason why we're seeing platform and teller continue to sell extremely well and like check imaging is moving.

Great. Thank you.

And next question is from the line of Brad Moore from Putnam. Please go ahead.

Hi. Good morning. Couple of things. Excuse me. Now to a -- little further into your CRM acquisitions. Are they more like meeting your expectations in terms of the integration and how would you expect those deals now to influence your margins going forward?

I guess, you know, the Transcend piece, we hit the ground running, because that integration will come throughout the next couple of years. They won't be as highly integrated as the ARGO piece. The ARGO piece is really kind of too early to talk about. We're still [years] away from having the software that we can deliver. So I can't tell you if I'm pleased or disappointed yet, because -- you know, I'm from [Missouri], and I want to see it run. So once we see -- once we get there and see it run, then we can tell you if we're pleased or disappointed in the timeframes and the level of integration.

Okay. So these five deals that you announced, these were?

Transcend.

These were Transcend. And could you tell us how much revenue you generated in the quarter or the average or the range in terms of ticket size?

With installation services, it's roughly $100,000 average.

For each deal?

For each deal.

For each, okay. Okay, and then secondly, can you give us a sense as to what the pipeline quarter-to-date now versus where you were in the prior -- in the prior quarter -- that is the fiscal fourth quarter? How are things back and up right now?

Pipeline [indiscernible].

[indiscernible].

I am sorry. You know, license to software both on the core and the complementary side?

I would say that compared to March 31st, it will be comparable. I think the sales pipeline continues to look pretty strong. You know, we're still waiting for the banks to cut loose and [fund] the contracts for the in-house core deals. Complementary part continues to feel strong, especially like Mike said, the teller and platform and the check imaging and the NetTeller things, that they can gain basically [the vendor] institution. They can sweep more at the bottom line -- things that they can add new [indiscernible] and report to their customers. Those are the type of things that continue to sell extremely well right now. And, you know, we're just going with that and then growth announcements in the credit unions. And basically, we're still waiting for the in-house core deals to come back.

We've done an excellent job on the sales and the pipeline in the last half of this year, which is at the six months of this calendar year. Are they what we expected when we started the year? Obviously not, but we're very happy with the strength on the sales side that we'd experienced in the last six months of this fiscal year.

So the folks that are in the pipeline now, those are presumably companies that have been in the pipeline for six months or are you seeing somewhat of an increase in terms of new people stepping into the pipeline?

It's a constant new reinvention on that. You know, we're -- you know, people will drop out as we sign the new transactions or they delay, you know, in a few cases their decision; or they will just kick in hard to get into the pipeline. They, you know, really dropped out, because they were just looking and playing for wedge [indiscernible] purposes. That there is always new [ads], and as a whole, we believe that that pipeline is growing. That's not a major that we get into talk about in detail. So, you know, right now, we will talk about pipeline more than we have accumulated in the last year or two.

Obviously, we like to see a stronger pipeline on good type in-house deals; but the pipeline is for outsourcing across the board. And credit union remains healthy.

Okay. Great. Anyway thanks.

Thank you.

And next question is from Bob [Medar] from Wachovia Securities. Please go ahead.

Hi guys.

Hi Bob.

A couple of questions. On the CRM product, you said the deals are averaging about a $100,000. Is this an average-type size deal or is that the low end of the range? I thought on a billion dollar type things that CRM product could get up much higher than that even without going to the ARGO solution? And these solutions only offered on an in-house basis or can you outsource them as well?

The answer to the [first half] is -- I mean the 100,000 is based on just kind of an average. I mean, you are right -- obviously right, if we are selling to a billion-dollar bank, the price tag is going to get significantly higher. The answer to your other question is, yes, we can sell these both in-house and outsource but in an outsource environment they'll still basically buy the software because it resides on a server of their institution and they actually get daily or semi-daily whatever downloads from the [indiscernible].

Okay, and I -- you talked a little bit about the pipeline for CRM but I guess I am a little confused about what you think this ramp-up is going to be? Is this something where I am assuming, we should look for sequential progression on this product, now that you've kind of had a level-pricing module?

I'd say sequential year-over-year, not necessarily sold on a quarter-to-quarter type basis, Bob, but you know, there are weak quarters [indiscernible] it does drill an increase but I don't know that we would anticipate that every quarter is going to get better than the last quarter.

Okay, you talked -- can you talk about any -- the nature of any limited partnerships the company has?

Sure, I'd love to. We've got two limited partnerships and one [LFC]. Those are set up totally for tax purposes. The -- one of the LPs -- and LPs are basically in taxes and we set those up for tax strategies and the ownership is 100 percent Jack Henry. There are no outsiders or third parties with any ownership within the entities.

Okay, terrific. One last question. You've kind of addressed this already -- the color on the in-house core system demand. I guess on the last conference call or over the second half of the fiscal year, you kind of talked that the coding activity was on the rise and now it kind of sounds like it's leveled off. How would you characterize, you know, just the interest and people kicking the[indiscernible]?

Bob, this is Terry. On an overall basis, the sales activity has continued to hold, to slightly increase through this past quarter, and we would anticipate that to hold or move forward as we move into the New Year here itself. You know, we are pleased on the overall basis where the things have kind of a big picture. Our contracting activity for in-house was down slightly from last year in the total dollars -- like 10 percent or so, probably 11; and the outsourcing side was down in the 6 or 7 percent. So outsourcing was down a little less than what the in-house total activity, but both were very positive as a whole.

I know a year ago, especially the smaller banks have their profit margins squeezed quite a bit by all those fed rate cuts. However, those margins should have largely been restored, given the stable nature of interest rates lately. If they're just concerned over the economy because it seems like profitability and the ability to spend money on information technology is there, yes, they still seem to be reticent to make large core decisions

Frankly, that's a fair statement. We have some banks that are healthy balance sheet wise, yet very cautious because of the nature of the economy, which is, affecting their customers, and it's just normal that in a bad economy that people will slow decisions and act differently than they do in a good economy. So you know, I think it's a fair statement to say that banks are in trouble with making money. Some of our medium-size banks are doing very, very well on their bottom line. It's just more of a cautious period right now in terms of large spending.

Bankers are, you know, typically more conservative in their spending habit to different things. I think that's just reflective of their nature and not necessarily bad at this point of time from their overall picture.

And obviously things were not real rosy last November-December when most of the banks' year-ends were doing their CAPEX budgeting for this calendar year either.

Okay, terrific, thanks a lot.

You're welcome.

Our next question is from [Dayna] Peterson from Andrew [Geric]. Please go ahead. The line of Dayna Peterson is open, do you have a question?

I'm sorry. No, thanks.

Thank you. We will move on to the next question; it's a follow-from Carla Cooper with Robert W. Baird. Please go ahead.

Good morning. Back on the issue of hardware sales and your prospects there. I know we've discussed a lot of the thresholds and some implications for profitability, but what about the raw amount of actual sales that you could see from hardware? And has there been any change on the part of the OEMs as to selling that hardware through you or trying to go direct to customers?

Carla, this is Terry. Our relationship in sales and the hardware vendor's relationship is best achieved from a units perspective through us. They do not have the customer expertise nor the relationships and understanding of details that our team would offer. So there's of course been no change in that; actually there's been a change in, you know, a relationship where one hardware vendor had a relationship with another that we were buying and reselling those units. They've now come direct to us and taken out the other hardware vendor. So, in effect, we have even a closure tie there and long-term, hopefully a better opportunity on the upside for us.

Okay. And, maybe, or -- and any change in customers' thinking that would drive them to try to go direct or, you know, it's the same marketing message directed at them as they can get better service, [you know], one-stop with Jack Henry?

That's going to be the deal; you know, they can call us for not only the sales, but ongoing service and support. So it's to their advantage, we would believe, in the majority of cases to deal with us directly, and I'm not sure that they could buy a lot of the hardware direct from anyone in the manufacture arena.

You know, they can. In many cases...

Steve.

...they can buy the hardware cheaper direct from the manufacturer. We have occasionally lost some upgrade business to other people like us, or the horizontal marketers out there. But we were required to explain the value that Jack Henry brings in [indiscernible] the core vendor having the knowledge to not only sell and install that but to continue to support it as new software operating system releases come out. So it, you know, it's really kind of a total solution and peace-of-mind approach that our customers really like. Can they get it cheaper anywhere else? Yes, they may be able to. But they also have to understand that the service won't be there when they need it.

And they also have to hope that that vendor that they buy it from is still there a year from now when they have a problem.

Right.

Thanks.

And ladies and gentlemen, if there are any further questions, depress the "1" at this time. We have a follow-up from Peter Heckmann from Stifel Nicolaus. Please go ahead.

Kevin, as regards the G&A line, you know, we saw about a 10 percent year-over-year decrease. And you talked about lower employee benefit cost. Can you go into that a little that more and if that was the only item that was on that line and if so, is that a line item that we can see sustained and perhaps a lower percent of revenues than we have seen in prior quarters?

Peter, people got sick. You said G&A went down for the year, 10 percent?

No, for the quarter, I believe, it was.

For the quarter it did.

Yes. So...

That was, I mean, that was primarily -- we just had a, you know, an amazing quarter...

Right.

...in healthcare plans, which, you know, we ourselves ensured for the most part, and we have maintained very good reserves on our balance sheet. Going forward, we just had a very good quarter. And that was primarily the biggest part of that line item decrease. Can we sustain that? I don't know Pete, but I really think -- I do think that we can maintain about 8 percent going forward. The other part that was in there was there was a decrease in payroll taxes because obviously, we didn't have [indiscernible] auction activity this quarter that we had a year ago.

Okay, okay.

Then I think we can maintain the G&A level somewhere at the, you know, 8 -- roughly 8.3 percent, somewhere going forward.

Okay.

And hope that we can leverage that as we continue to grow.

Okay, great. And then as regards, you see -- you feel pretty comfortable with 20 percent or better for the year given that we perhaps have somewhat a -- perhaps have somewhat easier comparison in the fiscal first quarter, then we would get to a number around 18 cents for the fiscal first quarter. Does that seem reasonable or aggressive at this point in time?

Obviously, without the in-house core deals coming back strong -- you know -- I mean I think that the next year is going to be a slow growing year. Can we hear 18 cents this quarter? Maybe that I think that's going be a challenge.

It's going to be [indiscernible] through the year, a little bit more of an impact in my opinion, Pete, that you know, we wouldn't anticipate every individual quarter to be an exactly 20 percent.

0 Peter Heckmann: Sure.

It's going to be some plus and some minus -- would be our expectation. The amount of activity, of course, impacts, you know, which period that hits.

Definitely. All right, I appreciate it.

Our next question is from David Trossman from Wachovia. Please go ahead.

Thank you. And then maybe you could touch a little bit on how you're managing your people and in-stock capacity. It sounds like you get -- like to get a lot more people on to the imaging side of the business and you probably have underutilized people on the core side. Is that easy to do or is there some turnover involved in doing that?

Well, I mean, you're always going to have turnover. We try and manage to a lead time. We have certain lead times out there -- that if they get too long, i.e., not enough people that affects sales; if it gets too short, then you have people standing around not doing anything, and we've gotten pretty good at managing those resources, moving them around. We've been doing a pretty good job, I think, of staffing up on the credit union side because of increased business, but we really managed for those lead times to make sure that we have appropriate amount of people, and we don't kill them by working them too hard or having them standing around. So I hope that answers your question.

I guess -- David, I'll add one thing. You've said ramping up the folks from the image side. You know, understand that we had four different products, so we had installed support groups for those. So we've got a large number of resources for our image product going forward, and we will gradually migrate all those resources over to four sides as we migrate those successive products to four sides.

Yes, so are you doing -- I think last quarter you indicated, you know, you had the capacity to do eight a month. Is that something that's moving towards 10 a month as you get these things to your pipeline?

Well, our goal by the end of the calendar year is to go into 12 a month.

Okay.

So we are working towards that.

Good.

And one important part of that, David, is just from, you know, four-side product is just now a little over a year old. And we're getting better at it. And the product is getting more mature, and as it gets more mature and our people get better at installing it, then obviously you get [indiscernible] putting them in.

Good, thanks. I got one more question. What would be the peak quarter, would you guys guess, for contracting as you go through the Liberty upgrade cycle? I would think that that would be happening now but is it a case where you actually have more visibility but the contract doesn't get signed, maybe, until a little bit later?

I don't know that there is going to be a peak quarter, David. You know, I mean we were signing Liberty customers to migrate before we even sent those products. So has there been some increase in the number quarterly that have signed contracts to migrate? Yes, but I don't think you're going to see just a big surge in any given quarter.

[Of] course, it is approaching our contracting target that had been, I believe, 12/31. So this year I believe that we've had very good activity thus far and it's very close to the spot in which we've have expected to be right now in the sense of how many have not made a decision with those yet at this point of time. Though I don't think there's a specific period that we expected or planned, David, that would be the big bang quarter. If we tried to give them a year and a half to two years lead time so that we did not have any sort of [floods] like that to occur for us or for the customers.

Thanks.

And we have a follow-up from Tim Willi from AG Edwards; please go ahead.

Kevin, I was just wondering if you could give us the period end shares outstanding and also what the number of shares for basic EPS calculation was?

I do not have that number with me, Tim. I apologize.

Thanks. Give me a call later.

I mean our diluted shares -- it's that what you asked for -- at the end of the year was 92.4 million. That's weighted average. Outstanding shares would have been, just roughly, 90 million.

Okay, thank you.

And Mr. Williams we have no further questions. You may continue.

Okay, thank you for joining us this morning again. We're very pleased with the fourth quarter and the fiscal year end results considering the challenges that we faced. And again, we are very proud of all of our employees for the job they've done facing those challenges. And with that, operator, could you please give them the call back. I'll appreciate it.

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