Jack Henry & Associates Inc (JKHY) 2008 Q4 法說會逐字稿

Good day, and welcome to the Jack Henry and Associates fourth quarter fiscal year 2008 conference call. Today's conference is being recorded. With us today is Chief Executive Officer, Mr. Jack Prim, Chief Financial Officer, Mr. Kevin Williams, and President, Mr. Tony Wormington. At this time, I would like to turn the conference over to Mr. Kevin Williams. Please go ahead, sir.

Thank you, Theresa. Good morning and welcome to the Jack Henry and Associates fourth quarter and fiscal year 2008 earnings call. Statements or response to questions may be made in this conversation which are forward-looking or deal with expectations 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 cause results to differ materially.

Again, good morning, we are pleased to host this call this morning to provide a Company update and report our financial results for the fourth fiscal quarter and fiscal year ended June 30, 2008. With me this morning are Jack Prim, our CEO, Tony Wormington, our President, both of which will provide some opening comments and updates on the Company. After our prepared statements, we will then open the call up for a question and answer period. With that, I will now turn the call over to Jack.

Thanks, Kevin. Good morning. In spite of continuing difficulty in accurately predicting license fee revenues, continued strong growth in support and services allowed us to attain record revenues for the fourth fiscal quarter and year-to-date. Total revenue increased 4% in the quarter with a 4% increase in the bank segment and 6% increase in the credit union segment.

EFT and maintenance support were the two largest contributors to growth in the support and and services line which grew 12% in the quarter. The 16% growth in support and services revenue on a year-to-date basis allowed us to show strong total revenue growth for the year of 11%, even though license fee revenues declined 4% and on a year-to-date basis, on a year-to-date basis and hardware revenue was essentially flat. In addition to the fact that preference for new core system implementations have overwhelmingly favored outsource delivery for several years. In the year just completed, we saw 27 of our current in house customers elected to move to an outsource delivery of their system with 14 of them signing up in the fourth quarter. Unlike a new core implementation where it can take two to three years for outsourcing revenues to catch up to the in-house equivalent, when these in house banks make the switch the revenue we receive increases immediately, due to the fact that the outsourcing fees are higher than the maintenance fees they've had to maintain previously, and the fact that they commonly implement two to three additional complementary products. This contributed to the 8% increase in the backlog over the year-ago period and the 3% increase over the sequential quarter.

We are clearly disappointed with the net income performance in the quarter. The significant shortfall in license and the associated gross profit, along with other one-time events in the quarter created headwinds we could not overcome. While we continue to ratchet down our expectations regarding license fee revenue, this area will likely remain difficult to accurately predict. We remain focused on cost control and managing the business effectively. During the quarter, we divested our bank insurance services business back to its original owner. In spite of the fact that we still believe this approach to generation of fee income through insurance sales makes a great deal of sense for banks and credit unions, we were not able to make this a profitable business as part of JKH. We also took cost reduction actions related to our low end credit union solution to bring its cost to a more appropriate level. While no other similar actions are currently expected, we will continue to evaluate and take action throughout our businesses as appropriate.

Turning to the economy and general the outlook for the business, I am reluctant to attribute the difficulties in the last quarter to the current economic environment. In hindsight it appears we were overly optimistic in our expectations for license fee sales and were weighted towards the last quarter of the year. We received mixed messages from our customers and prospects regarding their outlook for technology spending. Some larger financial institutions that were candidates for certain PROFITstar solutions have indicated that they're putting some projects on hold, and some Have expressed a more cautious outlook. However, a recent meeting of an advisory group of our larger credit unions recently communicated very clearly their intent to continue to spend on solutions that increase revenue, control costs, or improve member service. For our upcoming credit union and banking user conferences, in September and October respectively, we are seeing customer registration on or ahead of pace compared to last year. These are clearly discretionary expenses that could be eliminated relatively easily if financial institutions management had great concerns about the economy. At this time we remain cautiously optimistic in our outlook for the economy and for our fiscal 2009.

With that, I'll turn it over to Tony Wormington for some additional comments on the business.

Good morning. Jack mentioned our support and service revenue component continues to increase nicely. We again saw good increases in our electronic funds transfer transaction processing. Our ATM debit card processing volumes increased 17% compared to prior year quarters as bill payment transaction volumes increased at a nice pace of 35% in the same period. The number of financial institutions installed with our enterprise payment ASP solution for remote deposit processing increased 10% sequentially quarter-over-quarter and compared to prior year quarter increased 65%. The financial institution merchants installed and utilizing the solution increased 22% sequentially and 142% compared to the same quarter a year ago. Along with the signing of new institutions and their merchants we saw solid increases in the volume of transactions being processed. Transactions increased by 22% sequentially and 180% compared to the same quarter a year ago. We continue to focus our efforts on customer satisfaction, the results of our monitoring indicating continuing success with our demanding customer bases.

To meet the ongoing demand of our customers, we developed new products and services as well as enhanced the features and depth of functionality in our existing products to meet our customers' demand. Our Research and Development spend increased significantly for the quarter and the year. However, considering the impact of the two acquisitions we had completed last year, AudioTel and Gladiator Technology, this line of expense only increased organically by 5% for the quarter and 15% for the year compared to the same periods a year ago. While we continue to see good demand for many of our complementary products and services, we have heard some discussion around current economic conditions and a few instances of delayed processes in our in-house banking clients. While these discussions have taken place, we have been unable to quantify any material impact due to the economy at this time. It is important to note we have not seen an increase in losses to competitive solutions. I will now turn it over to Kevin for a further look at the numbers.

Thanks, Tony. As Jack previously mentioned, we completed the year with revenue growth of 11% to $742.9 million, of which approximately 9% of this was organic. License revenue decreased by 25% for the quarter and 4% for the year compared to the prior year period, which as Jack mentioned, was below our expectations going into and during the most recent quarter and fiscal year. Support and services increased in every component within that line of revenue with the exception of implementation revenue for the quarter. For the quarter and year-to-date respectively, implementation revenues decreased by 4% for the quarter, however it increased by 6% for the year compared to respective periods a year ago. With a large portion of these not being tied to specific license revenue, but rather for the implementation of recurring revenue type items and convert mergers with banks our customers have acquired.

Our payment business was up 23% for the quarter and 29% year-to-date. Our OutLink data and item processing was up 8% for the quarter and 10% year-to-date and our in-house support and services were up nicely 13% for the quarter and 15% for the year. Hardware revenue decreased by 8% for the quarter, but still up by 1% for the year compared to the prior year, primarily due to very strong first half of hardware sales. Our recurring revenue, which as you remember, is in-house support and maintenance, ESP business, which includes all of our electronic payment businesses and outlying data processing service, or in other words our support and service line of revenues without the one-time implementation fees, has continued to grow very nicely with growth of 14% for the quarter and 17% year-to-date compared to prior year.

However, we would like to make a couple comments on the sequential basis of our support and service revenues and specifically the recurring revenue. Bill pay was up less slightly, by about 0.5% sequentially over the prior quarter. Past quarter, our EFT debit business was actually down 3% for the quarter compared to sequentially to the March quarter due to some very nice vendor incentives that we had in the third quarter that were not the same levels in the fourth quarter. Having said that, our transaction volume and transaction revenues increased sequentially over the March quarter. Our EPS or our remote deposit cash product was up 2% sequentially. And our Check 21, which is a check exchange of check images was down 10%, which as we had mentioned on previous calls, we expected this as more and more of our customers go directly to the Fed which also is an extremely low margin business for us and we had basically provided to customers as a convenience. So in our eyes this is not necessarily a bad thing for this to happen. This will continue to be a drain on revenue as more and more of our customers continue to go directly to the Fed. The combination of all this caused our total EFT payment lines to be down 1.4% sequentially for the quarter compared to March quarter.

Our OutLink revenue is down sequentially by $1.3 million or 3.8%, which is almost entirely due to item processing business as our data processing business continues to be very strong. The decrease in the item processing business as we had mentioned in the past is due to more and more of our bank customers going direct to branch and teller capture as the Fed continues to shut down regional processing centers and this will continue to put a little pressure on this line of revenue throughout the year. Again, this is a relatively low margin business and we will work through this. Our in-house maintenance, the third component of our recurring revenue, was up just under 3% sequentially. The result of this is total recurring revenue down sequentially by about 0.2% or basically flat with the third quarter, which primarily due to the drain from the Check 21 and item processing from the core business. However, the remainder of our core business and all the components of recurring revenue continue to be very strong and healthy.

Our consolidated gross margins slipped during the quarter to 40% for the quarter and 41% for the year. License margins decreased from 91% a year ago to 87% this quarter due to increased third party product sales. Support and service margins decreased slightly from 38% to 37%. And hardware margins actually increased to 25%. To break this down into our two reporting segments, our bank segment gross margins slipped to 41% from 43% a year ago in the fourth quarter, and or credit union segment margins decreased to 37% from 44%, both these due to rather strong license revenue in the fourth quarter a year ago of the comparable. In the bank segment, for license margins we saw a decrease from 91% to 87%, again, due to increase in third party software and in the credit union we saw even a larger decrease in the marginal license from 98% a year ago to 88%, primarily driven by the [BSA] ready product that we were selling.

Our total operating expenses increased 11% for the quarter. And as a percentage of total revenue increased slightly from 18 to 19% for the quarter compared to prior year. For the year, operating expenses have increased 13% and have remained level at 19% of total revenue. Our operating margin decreased to 21%, from 25% for the quarter compared to year ago and decreased to 22% from 24% for the year-to-date compared to last year. Primarily due to the lower license revenues, which were the primary driver for the lower gross margins. Net result in this was a decrease in operating income of 14% for the fourth quarter, and a 3% increase for the year compared to the prior year. The effective tax rate ended up the year at 36% of income before income taxes compared to 34.7% last year. The effective tax rate is due to the timing of the extension of the R&D credit last year as we have discussed on several of the previous calls. Year-to-date, EBITDA has increased this year to $220.4 million, from $214.2 million last year, or 7% increase. Depreciation and amortization of $62.0 million this year compared to $50.9 million last year or a 22% increase, due in large part to the acquisitions and capitalized software in prior years. Our EBITDA margins remain relatively level this year at 31% compared to 32% for the prior year.

A couple comments on our use of cash. During the quarter we purchased 1.4 million shares of our stock in treasury, and year-to-date we have purchased a total of 4.2 million shares. We currently have approximately 3.7 million shares available under the current authorization. Just a reminder, in a little over three and-a-half years since May of 2005, we have used approximately $251 million to purchase 11.3 million shares of our own stock to the treasury. Also during the year-to-date, our cash used for acquisitions increased by $10 million to $49.3 million, compared to a year ago. Our CapEx is down compared to a year ago by $3.1 million to $31.1 million for the year, which obviously this is down slower than the guidance before and this is due to some delays in our facility expansion that we had going on in Springfield, Missouri, which means our CapEx will be up next year. Those delays have pushed some of those costs from this year to next year. Our backlog was $257.4 million, with $63.1 million in house and $194 million outsourcing, which represents an 8% increase over that of a year ago. Again, remember that there are no transactional revenue represented by our EFT data processing or online bill pay or remote deposit capture contracts, reflecting the backlog due to difficulty in conservatively estimating transactional revenue of these types, especially in these fast growing parts of our business.

At this point, we will provide some guidance for FY '09. With the understanding that software continues to be a challenge to project and there continues the ongoing impact of the economy, which could impact this guidance again going forward, we're projecting top line revenue growth of high single digits to potentially double-digit growth. We would suggest that you model software and hardware both relatively flat with FY '08 and supportive services revenue growing in the low to mid-teens. With the continued challenge of license revenue for a number of reasons and ongoing shift of customers to in-house to outsourced delivery which is a good thing long-term for Jack Henry but can have a pretty significant impact on license revenue in any given quarter, we are not projecting any margin expansion for the next fiscal year at this time. Which obviously, you hope there's some upside to this, but we would rather set realistic and achievable expectations. Our primary goal with the current challenges is to maintain our current operating margin with some potential upside but we are not going to guide separately for gross versus operating margins.

Therefore, our EPS growth should be close or equal to that of our top line growth in the high single digits to potentially double-digit growth. There could be additional EPS growth depending on our stock buyback. Also, we are not providing specific quarterly guidance due to the lumpiness of software and the challenges that you all know we have faced in the past year especially and several of the prior years. Obviously, because the growth is coming from our support and services line primarily, recurring revenues should grow steadily over the next fiscal year which should give you some comfort in building your models going forward. This concludes our prepared comments and with that we'll now open the call up for questions. Theresa, would you please now open the call for questions?

Thank you. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) . We'll pause for a moment to give everyone an opportunity to signal. We'll take our first question from Kartik Mehta of FTN

Good morning, Kevin. I was hoping to get a little bit better explanation of what you had in your press release about the one-time expenses as a result of legal and accounting. If you could just talk about that, what they were and what that was a result of.

Well, in G&A in total, Kartik, we had about $1.2 million or actually about the impact of about $0.015 in the quarter. The biggest part of that was a write-off of some land improvements that we did here a few years ago on our campus. When we were building our last building back in '03, we were actually -- was planning to build sister buildings and we went ahead and did a lot of the land improvements for the second building and we had kept that on the drawing board but as the economy has changed and the price of gas and with the number of employees we have in Springfield, we have now made the decision to build the two facilities in Springfield that we are now moving some dirt for and we'll start construction here very shortly. But when we made that decision, we were prompted to write off those land improvements because we knew that we would probably never build J9 here on our campus. So that was the lion's share of the one-time hits. The legal and accounting professional services was a combination of things. We had a lot of tax issues that we were dealing with in the fourth quarter due to FIN 48. And some deferred tax things that we hired a big four firm to come in and help clean some of that up. Obviously, we had some legal and accounting issues that we needed assistance with surrounding the discontinued ops and then just the ongoing normal corporate type litigation that we face every day, just kind of a combination of all those added up to a significantly higher dollar amount of Professional Services than what we had in the fourth quarter a year ago.

So if you look at FY 2009 guidance, Kevin, would you use the base as what you reported for the year or are you going off of the base excluding these one-time items? So would you add back the approximately $0.02 to $0.03 because of these one-time items?

I would exclude those one-time items because those are truly one-time items.

So you would add back the $0.02 to $0.03 for the full year and go off of that base; right?

Yes.

And I was just hoping to get a little bit better explanation on the license revenue. Is it any particular type of customer? Are you seeing a decline out of the credit union market or is it a certain asset size of a bank that's not buying or is it kind of the entire gamut of institutions?

Kartik, this is Jack. I would say we have seen definitely a few projects put on hold in the larger financial institutions where some of our PROFITstar solutions would be relevant. You know, we have seen a few and we've heard some commentary in general in the banking segment, but again, it's just hard to quantify at this point. In other words, I can't point out X dollars that didn't happen because the bank said they were worried about the economy. There's been a deal here, a deal there and there's been more discussion probably around it in general. But again, it's very difficult to quantify how much of that is actually delayed decision because of concerns about the economy. Interestingly, the credit unions does not appear to have the same level of concern. I mean, there certainly are some in some of your high impacted areas, Southern California, Las Vegas or Nevada, Florida, you know that probably have a different set of concerns, but by and large our credit union customers still indicate a willingness to spend money on technology that they believe will improve member service, reduce cost or drive revenue, so it's really pretty much a mixed bag and that's why we're reluctant to place too much of this squarely on the shoulders of the economy at this point.

And Kartik, one other comment on the credit unions. They had a fairly weak fourth quarter but two comments on that. One, they had an extremely high fourth quarter last year that brought in a very large billion dollar credit union in the fourth quarter last year which made for kind of a tough comparable. And then also, they had a huge third quarter, so there were some deals that were actually scheduled for the fourth quarter that got pulled into the third quarter on the credit union side of the house. A combination of those kind of prompted the tough comparable in the fourth quarter on the credit union side of the house.

Kevin, you might have said this number so I apologize if I missed it, but what was the organic revenue growth rate for the fourth quarter?

2%.

2%.

Yep.

Thank you very much.

You bet, thanks, Kartik.

We'll go next to David Koning, Robert W. Baird.

Hey, guys, first of all on the EPS guidance, to get more clarity, do we start with the $1.17 of Continuing Operations EPS, then add $0.02 to $0.03 of the non-recurring costs so we're close to $1.20 now and then let's say add high single digit growth to that to get to the ballpark of $1.30. Is that the way to think of fiscal '09?

I think at this point David that would be the right way to look at it.

Okay. Secondly, at the Investor Day, it sounded like support and services growth in the mid-teens was pretty sustainable for quite some time and on a normalized basis I guess it was 14% this quarter and now you're kind of guiding to low to mid-teens. Maybe what's changed there and I guess that's really the question. What's changed there? Seems like it was a little slower than what you would have expected.

I think the biggest thing there, David, is two things I mentioned in my opening comments. The Check 21 business and imaging check exchange, as more and more of our bank customers go directly to the Fed, we lose that revenue. Again, that was single digit margin revenue so it's not a bad thing that we're losing that. We were actually doing that as a convenience to our customers. That was a business that was growing 46% a year ago and now it's going the other way. So that's going to put some drag on the support and services line and then in addition to that, the Feds continue to shut down the regional processing centers and more and more of our bank customers go to branch and teller capture, then our item processing revenue is going to get some pressure put on it also. So the combination of both of those is going to put a drag on our overall growth in support and services line. However, yeah, we don't like losing the revenue. If we're going to lose revenue, the low margin business of Check 21, item exchange and check processing, would be two that we would probably choose to have go down because item processing is probably one of the most labor intensive operations we have within the organization.

Okay. That's helpful. Then I guess two other quick ones. Hardware growth, you expect I think at the Analyst Day for that to be down 5, 10% in fiscal '09. Now you're saying that could be flattish. And then would you buy back a lot of stock here if the stock is $19 or something like that here today?

A couple of comments. One, I think yeah, we've been predicting hardware would be down for the last three years and have been surprised. There is some new technology out there. We've got a new hardware partner out there that we're also pushing some additional products for that we think there's a huge appetite for. So we're a little more bullish on hardware than we probably were six months ago based on our sales budget for next year and obviously we're trying to be conservative with that. So I think flat would be a pretty reasonable number for hardware with similar margins. As far as stock buyback, like I mentioned, we bought 4.2 million shares this last year. We've got 3.7 million shares left. Obviously, we've been opportunistic in buying our stock back and if our stock would take a significant plunge, I'm pretty sure that we would step up pretty aggressively. We have our quarterly Board meeting on Friday, which I'm sure the stock buyback will be discussed pretty extensively during that Board meeting. I have no idea whether they will want to increase the authorization or not, but we've got pretty -- quite a bit of dry powder right now. I think currently we have close to $100 million in the bank with about $50 million in debt. So we've got quite a bit of dry powder to go after that, plus we've obviously still got room on our credit facility.

Great. Thank you.

Thanks, David.

Will go next to Tim Fox, Deutsche Bank.

Thank you, good morning. First question was around license gross margins. I know you mentioned you're not going to be necessarily guiding to specific gross margins but given the consistent increase in third party sales, I'm just wondering directionally should we anticipate license gross margins to be sort of sub90% going forward and if that's the case, how do we get to kind of flattish overall margins for the year and the next year.

Well, I think, Tim, that our actual license margins are probably going to be somewhere at 90% or north of there for the year. You know, we sold a bunch of third party products but we've also got a lot of our own products that are either already being pushed out there, we've got a lot of new developed products that are going into the salespeople's hands in all three brands that we will not have that third party solution. And really, the impact of this, Tim, for this quarter especially, is because of the comparable of license revenue, especially -- I'll just point to the credit union side, compared to the fourth quarter last year, because there was not as many core deals, as I mentioned, some of those got pulled into the third quarter, there were not as many core deals at 100% margin, therefore the BSA product which was really getting trashed in the credit union segment during the quarter was a much higher percentage of the total license revenue which obviously had a negative impact on the margin number. That number is going to bounce around a little bit but I truly think the margin on our licensed revenue will be north of 90% for FY '09.

Okay. That's helpful. Just a follow-up on the license question. Can you characterize the weakness from a lack of core deal sales or is there any particular product sets that drove that downward tick? I know Jack mentioned it's really no specific customers necessarily but are there products that are just not driving that same type of discretionary spending in this environment?

I would say it's not so much a lack of core deals. We had a very solid deal last year from a core system sales on the credit union side which tend to be overwhelmingly license oriented there as compared to the banking side, although the fourth quarter was down from a very strong fourth quarter in the credit union segment a year ago. I would say to some extent versus expectations, certainly when we established the budget a year ago, the absence of those $1 billion plus bank or credit union or core transactions in a quarter can make a substantial quarter. A year ago we had one of those in the credit union segment that we did not have this year in that same quarter. Similarly, on the banking side we didn't -- while we did sign $14 billion institution in Texas, the revenue recognition on that one was skewed a little bit from what we normally see on that kind of a transaction. So I would say it was not so much an absence of core deals as much as maybe not seeing some in the mid-tier space to the extent that we would like to have. I think that probably more it was just in and around a mix of complementary products that just didn't get closed or may have been delayed and just kind of an across the board number of different areas that we didn't see what we had had hoped.

Okay. Good. Thank you very much.

Thanks, Tim.

Our next question is from John Kraft, D.A. Davidson.

Good morning, gentlemen. Good morning, John.

Good morning.

Let me just follow up first on a previous question about the -- at least on a fourth quarter basis, the lower growth in software, or I'm sorry, in support and service. Kevin, you mentioned the drag, given the item processing, but I mean, is there anything else? Is there any seasonality? There hasn't been in the past. I'm just wondering if you're starting to see seasonality there.

I don't know that we've seen any real seasonality, John. I mean, the transaction volumes in our ESP business were up nicely. Bill pay was up slightly over the third quarter sequentially. You know, could there be? I don't know if there could be but remote deposit capture continues to grow at a very nice pace. Again, John, remember that there were some incentives in the third quarter with passport from one of our vendors that were not at the same levels in the fourth quarter and that was a pretty significant drop in passport. But again, the transactions continue to grow very nicely and we don't see those slowing going forward. So as I mentioned in my opening comments, I think the core business of our recurring revenue is very strong and very healthy and continues to grow at a very nice pace. But there's always going to be some things in the quarter-to-quarter that makes it a little tough to compare and as I mentioned with the item processing and Check 21 there will put some headwind on it to grow that line of business but the core business is very strong.

Those incentives, those passport incentives were simply a Q3 event?

It's actually a quarterly event but it was kind of a catch-up in the third quarter that we got a pretty sizable rebate for lack of a better word. We still guided -- we still got some in the fourth quarter. It's kind of like the hardware rebates incentives we get from hardware vendors when we do a really good job of selling stuff. It's really tough to predict what the dollar amount is until after the quarter is over. So there was catch-up in the third quarter.

You don't anticipate an effect into '09.

No, I think we've now got the program in place, John and it will just be there every quarter going forward like it was the quarter we just ended.

As far as the insurance divestiture, how much revenue was taken out of your top line that put into discontinued ops?

How much revenue --

Yeah.

Hold on. You got another question while I look up that one, John?

I wanted to finish up on something at least positive here. The backlog was solid and high -- certainly growth-wise, the higher end of the ranges you've had. I was wondering if there's any delays in implementations or anything that kind of might explain the disconnect between the strong backlog there.

John, I think the backlog growth is being driven primarily by the support services line item and primarily by the outsourcing within that line item. We continue to see good growth in our outsource sales and as I mentioned, 27 in-house customers that elected to move to outsourced processing, those will be implementing over a period of time with a fairly substantial number of those, 14 of the 27, that made the decision to make that switch in the fourth quarter. Again, would seem minimal to no revenue associated with those 14 but they would have impacted the backlog.

So no notable larger implementation delays?

No, no.

Okay. Thanks, that's all I have, guys.

John, as far as the insurance group that we moved out, the annual revenue run rate on that was somewhere around $1.8 million, and that was all in supportive services line, because remember that was an outsourced offering.

Okay. Thanks.

We'll go next to Gil Luria, Wedbush Morgan.

Thank you. Wanted to -- I know that it's very honorable that you guys report GAAP earnings and talk to those. It's a much higher quality number than a lot of other of your peers and other technology companies report. But just help us compare your numbers a little bit more apples-to-apples to those companies, would you mind going through amortization for acquired intangibles, stock based comp and total one-time and restructuring for the year?

Wow. We do not keep track of the amortization from acquired companies separately from the rest of them because we've never attempted to report anything other than GAAP earnings. As far as stock comp, the total stock comp for the year I believe was just a little over $1 million. And we didn't have any true restructuring charges. The one-time write-off that we had in the fourth quarter of the property improvements here on campus was roughly 7, $800,000.

That was all of the one-times for the year?

Yeah.

Okay. And then in terms of the buyback, would you have the willingness to go into a net debt position? Would you feel comfortable with -- how high of a debt-to-capital level would you feel comfortable with?

We've been asked that a lot. You know, I will tell you that we are very comfortable buying back our stock. We're very comfortable putting debt on the book. We still think that the best use of our capital and our cash is to do acquisitions. But as we all know, the acquisition market has been pretty challenging the last couple of years which is why we've been buying a considerable amount of our stock back. And if our stock price would drop to certain levels, would we be comfortable with putting 2 to 3 times EBITDA on the balance sheet? I think we would be very comfortable with that.

Great. Thank you.

(OPERATOR INSTRUCTIONS). We'll go next to John McManus at Needham & Company.

Thanks very much. Jack, as you moved through the quarter, could you described the linearity. For example I heard from a handful of companies that the month of June was particularly challenging. Did you see anything like that or was it purely linear?

No, actually from a sales standpoint, John, June was probably the stronger month of the quarter. Keep in mind that's also the last month of the fiscal year so you've got sales reps that are working hard to reach 100% of quota and those kind of things. I can't point to anything in any particular month. I seem to recall we started off slow and got some traction there at the end.

Okay. Thanks very much.

(OPERATOR INSTRUCTIONS). We'll go to Brett Huff, Stephens, Inc.

Hello, can you hear me?

Yes, Brett.

Good morning.

Good morning.

I had a couple follow-ups on questions that were asked before. I want to make sure I understand the one-timers. The one-time stuff amounted to about a million point two in the quarter I think you said, Kevin and about 750, 7, 800,000 of that was the land stuff and some of the other grab bag of accounting, professional services, legal, that was the remainder, is that right? You think that came to about a $0.015 or was that $0.02 to $0.03.

That was a $0.015, Brett. I call the professional services -- I hate to classify them as one-times. We're going to have professional services every quarter. All I'm saying is this was a strange quarter and they were significantly higher than they were in the fourth quarter a year ago. The true one-time write-off was actually the land improvements that we wrote off. But the combination of those in the G&A line was about a $0.015 drag. Just some other comments, just to make you all aware, also in the fourth quarter we had our PROFITstar user group meeting which was significantly higher than it was a year ago which was that plus some other trade shows made our selling and marketing a $0.5 million plus some other contract labor and other things in there, about $1 million higher than it was a year ago which is a little over another $0.01. Then you compound that with the cost of third party license margin change that we had in the quarter, you get pretty close to $0.035, $0.04 there of unusual things that happen in the quarter. The one-time write-off was clearly the property that we wrote off here on campus.

One follow-up question too. On the support and services line, you had mentioned in your prepared comments, you talked a little bit about implementations and I wanted to make sure, if you could repeat that or explain that a little bit more, vis-a-vis the growth rate in support and services.

Implementation fees which are the one-time fees, and remember support and service line there's primarily four components in there. The fourth component is the one time fee that goes in there. They were down slightly for the quarter. They ended up being up for the year and those are truly a time and material or fixed price. Those are going to bounce around from quarter-to-quarter. But I think my comments, Brett, were those are not tied specifically to a license installation, you know, a big part of those are for getting de novos up and running, it's for installing additional products and services, both on an in-house and outsourced nature, so a lot of those are tied to recurring revenue and then a pretty significant portion of those are tied to convert merger activity where our banks are acquiring other financial institutions.

Okay. That's helpful. And then you guys came in a little bit light versus the margin we had projected for that. Any thoughts on how that margin will shake out going forward? I mean, can we expect -- you know, what is your sense? I know you're not giving specific margin guidance but any sort of commentary as we go into '09?

I think right now, Brett, like I said, with the challenges we're having in predicting license revenue and some of the headwinds that the economy is throwing us in front of, I think going into '09 what we're going to try to do is maintain our margins where they are with hopefully some upside to those. But I don't want you all running out and building 3 or 400 basis points of improvement into your margins and expecting us to hit it.

Okay. That was all I had. Thanks for your time.

Thanks, Brett.

We'll go next to Dan Perlin, Wachovia.

I just had a quick question on the support and services revenue forecast. If I just kind of forget the year-over-year growth rates for a moment and look at your absolute dollars you've been able to post over the last three quarters, pretty consistently been around $145 million, $149 million, and it sounds like, Kevin, you're saying services are low to mid-teens. I'm wondering what you -- what do you know today, what do you have in your pipeline, installation pipeline, that would give you confidence to put out a number that would accelerate in the back half of '09.

You have two things working for us. We don't see any slowing in our payments business other than the Check 21 which that's going to pay out in some margin differentiation. I think overall, our payments business will continue to grow, even considering the pressure from the Check 21. Our OutLink division, you know, as Jack mentioned, the 27 banks that signed this last year, going from in-house to outsourcing was 14 in the fourth quarter. It's kind of a unique situation the way we're doing this because we're trying to price these customers to pay us the first year basically what they would have paid us as an in-house customer, basically for their in-house maintenance, hardware maintenance and officer recovery services but at the end of the day they're actually adding on average an additional three products. So what they're going to pay us once they get converted is almost double what they were paying us as an in-house customer.

So we got 27 of those 14 in the fourth quarter that, yeah, there's a little tradeoff that's going to put a little pressure on in-house maintenance but we think OutLink revenues are going to grow considerably because of that, plus we continue to see some very nice de novo activity during the year. You don't get a whole lot in year one. We install close to 50 de novos a year ago that are now kicking in and we're getting some nice revenue off of. I think from the OutLink group we're going to see very nice growth. That's pretty much a locked in number. We know what that is because it's sitting in deferred revenue at year end. And that will actually increase as we sell additional license and implement them and bill for prorated in-house maintenance. All the components in there as I mentioned are very strong and healthy and somewhat pretty predictable on how they're going to grow.

Okay. Excellent, thank you.

Thanks, Dan.

We have a question from Brett Huff, Stephens, Inc.

Hi, guys. Just one follow-up question on the support and services. You had mentioned that the Check 21 and image exchange stuff had been sort of a headwind more in 4Q than maybe in the past. Did that change sequentially from 3Q or can you just give us any color on that?

Kevin's looking for that number, Brett. My expectation would be that it probably did drop some further from sequentially because that business is pretty steadily -- what business we were doing there, which isn't again a huge amount but what business we are doing there, we are seeing attrition from that going directly to the Federal Reserve. Kevin?

The March quarter, Brett, was actually -- just the March quarter compared to the prior March quarter was up 12% and was basically flat with the December quarter. The March quarter compared to year ago is down 17% and it's down about 12% from the March quarter.

So it was down 17% year-over-year in the March quarter and down how much in the June?

No, I'm sorry. I'm confusing you. The June quarter was down 17% from the June quarter a year ago.

Okay.

The March quarter was actually up from the March quarter a year ago and flat with the December quarter.

Okay. So you really did have a switch.

Yes. The June quarter is actually down about $1.2 million in revenue from the March quarter.

Okay. And then one last question. Last quarter I think that there was some difficulty in the margins in support and service or in the growth rate in support and services a little bit because of some repricing or renewals of the EFT contracts. Any more of that? I think you had anticipated not much more from that, but just, anything there?

Really didn't see anything significant there, Brett.

Okay. That's what I had. Thank you.

Thanks, Brett.

And it appears there are no further questions at this time. Mr. Williams, I would like to turn the conference back to you for any additional or closing remarks.

Thank you, Theresa and again we want to thank you all for joining us today to review our fourth fiscal quarter and obviously there's also our fiscal year 2008. Obviously, it has been a challenging quarter and somewhat for the year. As the economy continues to post some headwind. But again, we feel we continue to be positioned correctly for the future. We have the right people, the right resources and product and we continue to do the right thing for our customers and our stockholders. Again, thank you very much for joining us this morning. With that Theresa, will you please provide the replay number?

Absolutely.

Thank you.

If you would like a replay you may dial 888-203-1112. Once again that's 888-203-1112. And the pass code is 445-7204. And that does conclude today's conference. Thank you for your participation. You may disconnect at this time.