Jack Henry & Associates Inc (JKHY) 2007 Q1 法說會逐字稿

Good day and welcome to the Jack Henry & Associates first quarter fiscal year 2007 earnings conference. Today's call is being recorded. At this time, I would like to turn the conference over to Chief Financial Officer, Mr. Kevin Williams, please go ahead.

Thank you, Audrey. Good morning and welcome to the Jack Henry & Associates first quarter fiscal 2007 earnings conference call. Statements and 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 subject to a number of factors, which could cause actual results to differ materially from those which we anticipate. Such factors are disclosed in our recent SEC filings, there could also be other factors not included that could potentially cause results to differ materially.

Again, good morning. We're very pleased to host the call this morning and report the financial results for our first quarter of fiscal '07 ended September 30, 2006. We'll begin the call this morning with some comments from Jack Prim, our CEO, followed by some additional comments by Tony Wormington, then I will follow that up with a financial overview and at that time, we'll open it up for questions from the listening audience

With that go ahead, Jack.

Thanks, Kevin. Good morning, we're pleased with the performance in the quarter, which [inaudible] overall in line with our expectations. While the first quarter of the fiscal year is traditionally our most challenging, we saw a 10% growth in revenue, which was substantially organic in nature. Our recurring revenue grew to 68% of total revenue led primarily by a 16% increase in support and services. License revenue in the Credit Union segment has been lower than previous carries due to reduced core system activity at the higher end of the market, as we have previously discussed. And somewhat lower than expected system replacement activity at the lower end of the market. The Banking segment performed well in the quarter and the ProfitStars products show continued improvement in their revenue and earnings contributions both inside and outside our core customer base.

Our national user [ Indiscernible ] last week in Orlando had record attendance with over 1,500 bankers in attendance, following on the heels of record attendance at our credit union executive conference in in August. We entered several new products or partnerships which will be available for implementation in the second half of our fiscal year. These products include a bank secrecy act, compliance offering and a product to assess and operational risk management and Sarbanes-Oxley compliance. The partnerships included solutions for online deposits and loan account openings and additional multi-factor authentication and security capabilities. All of these offers received a strong reception.

We continue to focus our product development and acquisition efforts on products that will help our core and non-core processing customers monitor, manage, and minimize risks and drive improvement in earnings. We continue to buy our stock back during the quarter purchasing just under 1 million shares of remaining authorization for another 6.2 million shares following our board's recent authorization of an additional 5 million shares. with that, I will turn it over to Tony for some additional details on the business.

Thanks, Jack. We continue to be very pleased with the strong interest in all of the components of our recurring revenue, which include outsourcing, in-house maintenance and our EFT services. We continue to see strong demand for outsource solutions in the banking market as well as increased interest in the credit union market. We are well-positioned to continue to take on significant growth in our data and item outsourcing businesses from both of these markets.

We are continuing to see nice increases in all components of our electronic transaction processing businesses, our ATM debit cards processing volumes continue to increase compared to prior year quarter, increasing our rate of 32% and [building] up our transaction volumes increased nicely at 65% in the same period. Compared to last sequential quarter, the number of financial institutions installed with our enterprise payments ASP solution, for remote deposit processing increased 46%, as well as the financial institutions merchants installed and utilizing the ASP have increased at 90% in the same period.

As the number of relationships continue to increase, we expect to see nice increases in transaction volumes as well. As we're an our outsourcing business, we are well-positioned to continue to take on increasing volumes with minimal investments due to the existing infrastructure and the nature of these electronic processing solutions. Strong demand continues for many of our complementary products and services in both the banking and credit union markets, supported by our core processing customers as well as non-core customers through our ProfitStars brand. We continue to see strong activity in the mid-tier banking market. Implementations are well underway in all of our recent wins in this market.

I will now turn it over to Kevin for additional comments.

Thanks, Tony. During the quarter just ended, we had solid revenue growth of 10% with growth in excess of 16% in our support and services revenue, which the net affect of this was to raise our revenue to 150.6 million in total revenue for the quarter. This compared, I believe, to the consensus reported estimates by our analysts of 151 million in revenue, which is right in line with our internal targets and streets estimates for the quarter.

License revenue decreased by 8%, as Jack mentioned, which is due, somewhat, to the strong license quarter we had in the previous sequential quarter, which was our fourth fiscal quarter of fiscal '06, which is typically our strongest quarter and also, this is our typically most challenging quarter for contracting due to a number of variables that we had mentioned before but it's summer vacation, decision makers are not in the institution to sign contracts, sales meetings and the number of holidays that are going on during this quarter.

Our support and service had an increase in every component within that line, which includes implementation services, our EFT debit switch payment processing, our outlink, which is our data and item processing services, and our in-house maintenance, all our components had solid growth in the quarter compared to the prior-year quarter.

Our hardware revenue, as we've discussed for sometime will continue to be relatively flat, if not declining in total dollars, as more institutions choose our outsourcing model as their choice of delivery method and more and more of the complementary products that we currently sell do not require significant additional hardware as with the in-house core solution.

The products that make up our ProfitStars brand sold to non-core customers and core customers, are tracking right on plan and continue contributing very nicely to both revenues and earnings growth. We continue to see strong gross margins with a slight increase this year to 42%, compared to that of 41% of last year.

Both our Banking and Credit Union segments continue to have strong gross margins by leveraging our resources, existing infrastructure and by continued improvements in our operating process procedures. We did experienced a slight decrease in our total Credit Union [inaudible] gross margin. However, this is totally due to the sales mix with licensed revenue as a smaller percentage of total revenue this quarter as compared to last year, as we continue to increase our recurring revenue in the credit union segment. A recurring revenue in the Credit Union segment has doubled in the last four years, it's gone from 28% of total Credit Union [inaudible] revenue to right at 56% of total revenue. So we like that nice visible revenue. The gross margin related to each line of revenue with [inaudible] that's license, support service and hardware, all increased during the quarter, but due to the mix of those components, the overall margins decreased slightly.

Our total operating expenses increased 17% for the quarter and as a percentage of revenue increased slightly from 19% to 20% of total revenue for the quarter, compared to the prior year. Our selling and marketing remain level at 8% this year compared to last year as a percentage of total revenue.

R&D increased slightly from 5% to 6% total revenue, as we have significantly increased headcount in our R&D areas to continue enhancing our products and developing new products that we can sell to our existing customer base and to reach out to those new customers. On a sequential basis compared to our fourth quarter, R&D actually declined slightly in total dollar expense.

G&A increased by 27% or about $2 million compared to the same quarter a year ago, which the increase is primarily related to maintenance, personnel costs, and other costs associated with our new PeopleSoft enterprise solution that we rolled out this last spring. User group expenses being hired this year than they were last year, due to the increased number of participants and employees that attended those meetings, as Jack referenced, we had records attendees at both of those and additional G&A costs related to the acquired company all make up the primary reasons for the increase in G&A. However, our managers continue to do a very good job of controlling their respective operating costs while focusing on prudent procedures and continuing to improve at our customer service levels.

Our operating margin remained level at 22% total revenue, compared to same quarter a year ago. The effective tax rate used for our provision for income taxes increased this quarter to 37.5% from 37% a year ago due to the termination of the research and experimentation credit which impacts our effective federal tax rate. Just as a reminder, as we mentioned before, if this R&D credit or R&D credit is reinstated and if it's retro active back to January 1, this will have a significant impact on our effective tax rate in the second quarter of fiscal year that we're currently in.

Our net income increased 10% for the quarter compared to last year. With this, we believe we continue to be on track to grow our revenues in the high, single, low double digits for the year, and also, leveraged for the year somewhere in the mid-teens, bottom-line growth.

Our balance sheet, cash is down slightly from last year which is due primarily to the almost 1 million shares repurchased in the quarter for the treasury. We reduced all of our debt on a revolver similar to what we did a year ago, which was $50 million as of June 30, just a reminder. Our trade receivables had increased by about 34%, which is primarily due to the overall growth of our business related to monthly billing for processing, contracting and transaction fees. Our deferred revenue, which is primarily prepayments for in-house support and maintenance, the deposits on hardware and software [inaudible] has increased 14% compared to last year, which, again, most of the current [inaudible] revenue will come in [rateabily] over the balance of the rest of this fiscal year.

Our backlog, our contracting continues to be very strong for our products and service offerings. The contracting is somewhat reflected in the backlog both in-house, which remember, is for signed contracts for license, installation services and hardware only ,and outsourcing which this backlog reflects a fraction of the remaining minimum guarantee payments for data and item processing contracts. There is no EFT debit processing, bill pay, e-payments or select payment merchant remote caps or contracts reflected in the outsourcing backlog due to the difficulty in conservatively estimating the transactional revenue in the fast-growing lines of our business.

Our backlog grew to 224.2 million, with 69.7 million in house and 152.7 million outsourcing at September 30 this year, which represents an 8% increase over that of a year ago, and relatively flat with the June quarter, which we're very pleased with this because, as a reminder the September quarter is typically one of our toughest contracting quarters due to the service stance I mentioned earlier. Net this represents another record backlog for us. So, we continue to have a very strong outlook going forward.

And with that, I would open it up for questions. Audrey, we can take questions now.

Thank you. [ OPERATOR INSTRUCTIONS ] Our first question will come from Paul Bartolai with Credit Suisse First Boston.

Thank you, good morning. First question on the support and services margin, obviously, a pretty good result there. Can you give us any more color on what specifically what's specifically driving that, I know you talked about the leverage, I was curious if there is anything else there or anything else that was non-recurring in the quarter?

No, there was actually nothing non-recurring in the quarter. If I remember correctly, there were hardly any deconversions or any one-time fees that would have impacted that during the quarter, so it's truly just leverage of our bill pay, some things that are coming through our ProfitStars group that continue to gain leverage to the margin line within those support organizations and our outlink and PassPort businesses. It's truly, for the quarter, just continued leverage of existing infrastructure.

As Tony mentioned, in most of our data centers and PassPort, we still have quite a bit of potential there to add customers with very little additional capital outlay or headcount increase, so there is still some margin expansion opportunities there, but as I said, on the bank side, it's going to get tougher and tougher, we're 43, 44% gross margin, that's pretty solid and pretty healthy gross margins. On the credit union side, I think there is still room for improvement, as we continue to gain traction in our PassPort EFT business and as our management continues to improve process procedures and gain leverage through the infrastructure of a support organization.

Okay, great. And then on the credit union market, I mean it still sounds like the license environment is tough. Maybe, Jack, just if you could give us any sense of what you're seeing in general in the credit union market and spending trends and maybe a competitive environment?

Paul, the competitive environment essentially, essentially unchanged. Same players, nothing particularly new there. Just saw a little bit less. We saw it before about the reduced activity at the higher end of the market, the $1 billion and up credit unions. Which, based on which, we kind of focused on attention at the lower end of the market. We just saw a little less system replacement activity at the lower end of the market, this particular quarter. Again, no particular new events or competitors or activities in the market that I would necessarily point that to.

Again, we're kind of in the middle of the budgeting cycle for the credit unions as well, we're pretty optimistic about some of the new products that we brought to the market, from the standpoint of our existing customer market base, in terms of what it has the potential to do in the last half of our fiscal year, but we're a little caught up right now in some of the budgeting process that they going through to give some of these things added into their plans going forward, but no, no major new event of any kind that I can point to in the market.

Okay, and then just last question on the G&A, Kevin, sounds like some of the stuff you mentioned was more recurring, some of it more one time in nature. Can you just give us a sense of how we should think about that line-item going forward? And is that one of the areas you expect to get some leverage on in the back half?

I think we'll get leverage in the back half. I mean, one of the things that happened with the new [EDITS] that came out a year ago, we had to gross up our user group revenue and expenses, we can no longer net those out, so there is a little revenue up above and from the tax payer participants and different things and the all the expenses are down in G&A.

So, that's a big pickup that happens in this quarter, and there'll be a similar pick up in the December quarter for the bank user group meeting. But there is a significant increase in recurring expenses due to the neat new PeopleSoft. It's just much more expensive to maintain, the cost of systems, the amortization going forward and the head count required to support our organizations, which what we have rolled out with PeopleSoft is not just an accounting and payroll system like we previously had with JD Edwards on a [indiscernible], we now have a very full enterprise solution, that includes our J source, which is our CRM solution for all of our customer support reps, all of our [timed] expense and everything. It's complete enterprise solutions. So, the cost is a little higher to support that. But, yes, I think there will be some opportunity for leverage in G&A line, especially in the second half of the year.

Okay, great. Thank you.

Yes.

Next, we'll hear from Kartik Mahta with FTN Midwest.

Good morning.

Good morning, Kartik.

Kevin, if you-- from a big picture standpoint, at least from research we've done, it seems as though banks continue to be concerned about compliance and other regulatory issues, they're spending more time doing that rather than running their business. Is that leading to any new product sales or is that helping you with sales on some products and could that result in similar or better spending than this year for next year?

Well, I think there is a lot of different factors at play here, Kartik. I mean you're absolutely right, banks are very concerned with the new regulations that can have come down. There is a lot of confusion. Some of the regulations are coming out very late with a very short timeframe to get them implemented, so one of the big things that banks are focused on right now is multifactor authentication. We have a solution through a business partner, [Siota], which is through [RSA], [indiscernible], which we showed the that at our user group last week.. We have got a huge amount of contracts to be implemented and installed by December. So, yes, banks are very focused on that.

The other big thing, and Jack referred to this earlier, is the Bank Secrecy act. Banks are very concerned about what they're going to do with that. We have rolled out a product that we showed in our tech fair to the banks, and I will tell there you, there was an enormous amount of excitement in the tech fair. They were seven to eight deep the entire time the tech doors opened to see that BSA product that we were rolling out. It's a complete financial institution enterprise solution to comply with the Bank's Secrecy Act which ties right in with our yellow hammer solution. So, there's going to be continuing to focus on that, but I think once we get past some of these oh, my gosh, we have until December 31 to get -- if they employ, we have to show the regulators that we're doing something to comply with BSA, I think the other technology spending will come right back. But, you're absolutely right. The banks are truly focused now on some of the regulatory compliance issues that they have to deal with.

Kartik, I just had one thing to that. As Kevin mentioned, the industrywide emphasis right now on multifactor authentication [inaudible] to find a lot of [mind] share. That plus related to the banks [inaudible] product that we announced, the BSA product impact is, from a revenue standpoint, is likely to be in the last half of the fiscal year. With this product, we did something which we don't normally do. We talked and kind of showed where we were with a product that is still under development at this point. We're pretty conservative in that regard.

Normally we don't talk about products until they're done. We kind of did it this way in response to a lot of questions we were getting from, particularly our banking customers, regarding needs that they had and their lack of satisfaction with some other BSA related compliance products that were out in the marketplace. We felt like we kind of had to let them know that we had a direction there. We're testing various parts of that product now and we'll go formally into beta testing in the first quarter and general availability in the second calendar quarter of the year, so from a revenue impact to the Company, that product, it's likely to be weighted toward the back half of our fiscal year.

And then just one last question on that backdrop on the kind of demands you're seeing from the financial institutions, is there more demand for in-house or outsource solutions? Is that changing at all considering that banks are under increased pressure on the cost line? Especially with all these regulatory requirements.

I would say it's not, it's really not changing, Kartik, only because particularly in the banking space it's been, from our perspective, such an overwhelming preference for outsource delivery. I think all those factors do affect the preference for in-house versus outsource delivery. But we have seen that reflected, that 7 out of 10, if not 8 out of every 10 new core footprints that we do on the banking side for the last couple of years have elected to go with outsource delivery rather than in-house. It's typically the larger billion dollar plus financial institutions that are going to be more inclined to run their own system in-house for sheer economic reasons. So yes, it's clearly a factor, no, I don't see it causing a shift. Because, quite frankly, that shift has occurred couple of years ago. Still have not seen quite the shift on the credit union side in terms of preference for in-house or outsource. There is still a predominant preference on the credit union side for in-house delivery. I think a lot of these factors are at work and I think we will see a somewhat more gradual shift there in years to come. But we haven't seen the kind of wholesale shift that we have seen on the banking side.

Hey, thank you very much.

Thanks, Kartik.

Now, we'll hear from Bryan Keane with Prudential.

Hi, good morning.

Good morning.

Kevin, you mentioned ProfitStars is tracking on plan. I guess I was hoping to quantify some of that. Is there a revenue kind of growth or revenue, like a total revenue number for ProfitStars sold into the core customers and than also to the non-core?

Well, Bryan, as you know, we have never really broken the ProfitStars peak out separately. What I said at the analyst day last, late last spring was that our target was to be-- exceed 50 million, which we did exceed that for the last fiscal year, and I think my guidance for the ProfitStars group, both internal or in-house to the outside of the base core customers was going to be somewhere in the 25% growth, and we are on target, or exceeding that at this point.

And just a reminder, the 50 million is the non-core ProfitStars.

That's total ProfitStars businesses.

Okay, it's total and that, the overall growth should grow 25%?

In n those products. Yes.

Okay. And then just turning to the license sales, they were down year-over-year, but that sounds like some of that is seasonality. What type of year-over-year growth in the license sales should we expect in the second quarter, I think, throughout the year?

Bryan, we have never tried to guide just specific revenue lines. I'll be pleased if our license revenue gets back in the December quarter level with where it was a year ago. But there is a lot of moving targets out there. There is a lot of the banks that have yet to make a decision whether they go in-house or outsource which, is, obviously, either way it's a win for us, but it's obviously a shift in the way we recognize the revenue. I think our licensed revenue for the year will still have a decent increase from FY06.

Okay, that's helpful, though. And then just finally, Kevin, on the guidance for the year, I think it's top-line, high-single to low double digits and then mid-teens EPS growth. Margins are expected to be slightly down, I think, so do we get to mid-teen EPS of the lower share count or lower tax rate? How does the math work?

Well, it's a number of things, Bryan. There are three or four different factors that are going to play into that. The-- I think we will get some margin expansion on the credit union side. As Jack mentioned, there are some additional products that are just now gaining traction on the credit union side, so I think that we will continue to see gross margin expansion there. I think the bank margins should hold relatively flat. We should, through the entire fiscal year some, some margin improvements at the gross margin level. At the operating margin line, I think we will get some leverage off the G&A and probably some continued leverage on the selling and marketing as we continue to gain recurring revenue in the ProfitStars group accompanied that the recurring revenue growths will get leveraged to the selling and marketing. That, plus the fact that we will be anticipated continued buying shares back. We think will get there. The tax rate, that's in the hands of congress. I'm not going bet one way or another on that one.

Okay, thanks for the detail. Very helpful.

Thanks, Bryan.

We'll now take a question from Philip Mickelson with J.P. Morgan.

Good morning, could you give us a summary of the share repurchases in the quarter and then where we stand on the current authorization?

Do what now?

Hello?

Share repurchases in the quarter.

Yes, share repurchase, just a summary of the share repurchase in the quarter and where we are on the current authorization?

Share repurchases in the quarter were just under a million shares. There are 6.2 million shares still outstanding under current authorization available for repurchase.

Okay. And I was wondering if you could comment on the license sales for the core systems? Was there a lot of competition in that quarter end? Was it aggressive in the September quarter end? Can you comment on your win rates versus competitors and then possibly maybe some commentary like if there was any big deals that were pushed into the December quarter?

Win rates are comparable right in line with where we have seen them. I did not notice anything at the end of the quarter that was anymore competitive than what we have been seeing. The incumbents continue to fight very aggressively to retain existing customers but, again, nothing noteworthy in the quarter that we haven't been seeing for quite sometime, and no particular large transactions that shifted out in the quarter compared to what we would have expected to see.

And then I guess your pipeline going into the December quarter, I mean is this -- did you have a lot of visibility in the license sales this quarter? And I guess, can you give us kind of a sense of the market if you think the banking, spending market is going to be strong into the last quarter of the year? You know with stock markets relatively and equity markets relatively strong and economy okay. Kind what your thoughts going into the end of the year?

Yes, I think the banks are feeling pretty good, there is no particular concerns out there, at least no new, no particular new concerns. There is probably some potential distraction with the multifactorial authentication efforts that everybody is focused on, but I think their general feeling about the market and the willingness to spend is pretty favorable. So, again, to -- high level of visibility into what licensing is likely to be, I don't if I would say we have high visibility to it, but we don't see any major distractions in the quarter.

Okay, thank you.

[ OPERATOR INSTRUCTIONS ] We'll now hear from Gil Luria with Wedbush Morgan Securities.

Thank you, I would like to follow up on the previous question. As you sit down with the credit unions and the banks -- while they're going through their budgeting cycle going into next year, are they talking about cutting down their IT budgets, are they talking about keeping the same increases in spending? And then kind of, as part of that, what was your sense of how spending shifted when banks were cutting spending earlier in the decade in the 2001, 2002 timeframe? Are they -- would they shift more to the things they have to do such as the regulatory compliance type products or did you not have a kind of a discernible change that go around?

Well, first of all, Gil, I wish the bank and credit unions would allow us to be in their budget planning sessions. We don't really know. About the only comment I can give to that is we had very good attendance at our, both our bank and credit union national user group meetings. There was a lot of excitement in our tech fairs for the new products that we're rolling out. So it -- it's really kind of hard to determine how that equates to spending. We have not seen a significant change in the spending patterns of the bank. I will tell you that they are, as Jack mentioned earlier, very focused on compliance-type things right now. But other than we saw back in '02 when the interest rates dropped se dramatically and banks stopped spending, what they did continue to spend on are products that will improve efficiencies and drive additional non-interest fee income, which is why we acquired a lot of the companies that are under the ProfitStars brand because a lot of those products will drive additional non-interest fee income into the financial institutions.

I think that spending in the current calendar year is probably up a little bit compared to previous calendar year. Largely because of the multifactor authentication requirements that have essentially been mandated that they pretty well had to comply with. That's not a big money maker, I don't think, for most of us. But, again, it does cause some increase and/or diverted spending dollars to comply with that. I think the compliance environment potentially will help us. Again, with the focus on Bank Secrecy Act reporting and the fact that we believe we'll have an industry-leading product available to address that market with, as we talk about with the potential for that to impact the second half of the year. I think that, again, the potential for some of the dollars that have been diverted to multifactorial authentications spending this year, there may be some opportunities to spend on other things next year once we kind of get past this.

Things that we're seeing interest in include products like the business analytics, business intelligence products, customer profitability products. Those things tend to be kind of nice to have items when you've got a fair amount of your budget already required to be spent on compliance and relation products. So to the extent that some of that frees up in this next calendar year, we think there are some nice opportunities for some of these other products. Also, we got a very good reception to the online account, deposit and loan account opening products that we debuted at the user group meeting as well. Again, I think that, on balance, I would say that spending levels I would expect kind of year-over-year to track roughly about where they have averaged the last couple of years.

Great. Thank you.

We'll move on to a Glenn Greene with ThinkEquity Partners.

Thank you, good morning, guys.

Morning.

The first question, Kevin, just on the outsource backlog went down a little bit from the June quarter, the support and services line was real healthy. Anything we should read into that or is it just more indicative that the outsource backlog numbers probably less than what's meaningful?

Well, as we have talked about before, Glenn, the outsource number, as well as numbers that is not real meaningful anyway, when you consider what is in there. You put it in oval win there at some dollar amount and you never adjust the backlog and as the [inaudible] doubles in size, you know we're billing in twice the revenues, the backlog's still the same. So, in outsourcing backlog has never been real key in a metric to really look at anything that we're doing going forward. But the fact that it went down slightly, if you think about the amount of revenue that rolled out of that each given quarter, it just takes an enormous amount of new contracts or renewal to restock that. It's just a matter of either there was not quite as many signings enough in the quarter to restock it to the full amount or renewals to put it in there. But we, as far as I know, we -- there was nothing unusual in the quarter, but I personally wouldn't read anything into it.

Okay. And then a question for Jack, I was wondering if you could comment on the recent deal with Open Solutions. Perhaps give them more flexibility to act sort of behind, not in the public markets anymore and perhaps a more financial flexibility. Kind of your thoughts competitively as it sort of plays out over the next year or so?

Yes, well of course they missed the opportunity to have these kind of calls, so, that's one down side to it, but I don't know that I have any particular comment on what it means. I am sure they've thought it through well and got a lot of good reasons for doing what they're doing. But it's interesting the private equity presence in the market we've talked about before, that, there is impact on acquisition pricing for deals where some of those folks can and will pay considerably more money than what some of the public companies would feel comfortable paying for those based on the amount of time it would take to see that become accretive. Again, I'm sure that they have lots of good reasons for doing what they did, but they could probably comment on that better than I could.

Okay, thanks.

We'll hear from Peter Heckmann with A.G. Edwards.

Good morning. Kevin, could you walk me through the change, the sequential change in receivables, I don't know if you mentioned that earlier. The number looked a little off, I think in your tax you said there might have been some billings for deposits on large implementations?

There is a number of things that are driving that, Pete, but the biggest impact to the receivables, the increase is really just the overall increase in our Outsourcing business, our Bill Pay business and our PassPort business. Those monthly billings continue to grow at a very healthy clip, so, as I look at the AR aging, there is no collection issues in there and as of June 30 when we did the audit, I can't remember at the top of my head what our allowance was, but it was a very small amount and nothing has changed in our receivables to cause me to rethink that.

Okay, and Jack may have referred to this, but speaking about open and private equity, but how does your M&A pipeline look? Are there some opportunity it's on the horizon?

There [doesn't seems] to be a lot of deals out there, Pete. As we've talked about before, the deals that are out there either make sense or they don't make sense. The ones that make sense, if private equity decides they want it, it really doesn't make a lot of sense for our shareholders, for us to step up and spend 25 to 30 times EBITDA for a company that could potentially slow down our growth or could potentially be a problem. Which is why we have stepped up our stock repurchase and we'll continue to evaluate those. But there is still a lot of deals out there. We continue to look at them and the ones that make sense bring product that we can sell and make our customers more efficient both to our core and non-core customers, we'll continue to evaluate those.

Okay. Thanks.

[ OPERATOR INSTRUCTIONS ] Gentlemen, there appear to be no further questions at this time.

Okay, thank you. Again, we want to thank you for joining us today to review our first quarter '07 results. We're very pleased with the overall finance performance during the quarter. Our net income growth continues to be on track to where we think we can grow mid-teens, increase in EPS for the year with our backlog being up 8% year over year. Everything within our landscape continues to look very bright and positive for us.

I would also remind everybody that our annual stock holders meeting is today at 11:00. It will be hooked on our link on our website, If you care to join our annual stockholders meeting. Again, I want to thank you for joining us this morning. And with that, Audrey, would you please provide provide the replay number.

Yes, thank you. That does concludes today's conference. If you would like to listen to a replay of this call, it will be available from 11:45 eastern time today through midnight Tuesday, November 7. The dial-in number for the U.S. is 888-203-1112, Internationally, 719-457-0820 and the confirmation code is 5983547. Again, thank you for joining.