Jack Henry & Associates Inc (JKHY) 2011 Q1 法說會逐字稿

Good day and welcome to today's Jack Henry first quarter 2011 earnings call . Good day and welcome to the Jack Henry first quarter 2011 earnings call. This call is being recorded.

For opening remarks and introductions, I would like to introduce Kevin Williams, Chief Financial Officer. Please go

Thank you, Shannon. Good morning .

Thank you for joining us for Jack Henry Associates' first fiscal quarter 2011 earnings conference call. I'm Kevin Williams, CFO. With me today are Jack Prim, our CEO, and Tony Wormington, our President.

The agenda for the call this morning is as follows. Jack Prim will start with an overview of the quarter and some general comments regarding our FY '11 -- or FY '10 acquisitions. Tony will then provide some operating highlights, and then I'll provide some additional insight on the press release and financials, and then we'll wrap that up with trying to answer any questions you have.

I need to remind you that remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements 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 or events to differ materially from those which we anticipate. Due to a number of risks and uncertainties, the Company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled risk factors and forward-looking statements.

With that, I'll now turn the call over to Jack

Thanks, Kevin . Good morning .

We are pleased to announce record revenue and record earnings for the first quarter of our fiscal year. Total revenue grew 29% in the quarter, largely due to the contributions from our three most recent acquisitions. However, our organic growth of 7% would have been a solid performance without the contributions from the acquired companies, particularly when you consider that there has been no significant change in the macro trends affecting our customers.

Support and service revenue represented 90% of total revenue in the quarter and was up 35% from the year ago period . A significant part of our organic growth was driven by implementation fees in support and service, primarily in our banking segment. This part of our business is running at peak levels, due to a combination of new implementations, and acquisition and merger conversion activities. We continue to see pressure on discretionary spending items like hardware and software licenses. This overhang is likely to continue for some period of time.

A recent survey by Grant Thornton found bank executives to be significantly more pessimistic in their outlook for improvement in their local economies and at the national level, than they were in May of this year. Uncertainty around pending regulations associated with the new consumer protection agency, concerns about potential impact on interchange fees and general economic uncertainty appear to be the main reason for this sentiment.

Hardware and license fees are also impacted to some extent by the now over 120 existing JHA customers who have transitioned from in-house to outsource processing in the last several years. However, as we have discussed previously, these transitions result in greater total revenue to JJ, more recurring revenue and multi-year contracts, a trade-off that we are more than willing to accept. Our recurring revenue reached 81% of the total in the quarter, also a new high.

The three companies acquired last year continue to run at or above our expected level of performance. The integration to JHA is substantially complete, and all three companies contributed to our payments business, which grew 87% year-over-year, largely as a result of these acquisitions. On an annualized basis this business is now approaching $300 million in revenue. Even when excluding the acquired company revenue contributions, our existing payments business had solid organic growth of nearly 11%, in spite of losing some large EFT clients to bank failures during the year.

We are pleasantly surprised that bank failures are not higher this year than they are. Our expectation was that we would see between 200 and 250 failures during the calendar year. It would seem unlikely that we would reach the lower end of that range by the end of the year. Whether that means the peak in bank failures will be reached in 2010, as predicted earlier this year by Sheila Bair, or whether that peak may be pushed out into 2011, is not clear.

We held our annual credit union educational conference in September, and our banking conference in October. We were encouraged by the attendance, which was up significantly for both conferences. Cautious optimism is still the order of the day for our customers, but we continue to see solid interest in a variety of products. We have received particularly strong reception from both audiences to the iPay suite of payment products, with several nice wins already recorded.

Again, we are pleased to have delivered a solid performance in the quarter and, like our customers, we are cautiously optimistic about the remainder of the year. With that, I'll now turn it over to Tony for a closer look

Thanks, Jack . Good morning.

As Jack mentioned, recurring revenue reached a new high at 81%. We are very pleased with the increase and strong contribution in all the components of recurring revenue. The components that make up this revenue are outsourcing data and item processing, in-house maintenance support, and our EFT services. Our EFT business continues to experience very nice growth in transaction volume. As a reminder, our EFT revenue consist of ATM, debit and credit card processing, bill payment processing, merchant capture and Check 21 image exchange.

ATM and debit card processing volumes increased 21% over the prior year quarter. Bill payment transaction processing volumes increased 23.4% over the prior year quarter. This increase represents bill payment transaction volumes for both iPay and our net teller bill pay solution. Merchant capture related transaction volumes increased 26% over the prior year quarter. Financial institutions contracted to utilize our enterprise payment solution increased to 928, or an increase of 6.5% over the prior year quarter.

Financial institution merchants installed and utilizing our enterprise payment solution increased to 25,432, representing a 19.4% increase over the prior year quarter. As mentioned on our previous quarterly call, the enterprise payment statistics for merchant related transaction volumes, financial institutions contracted and their respective merchants, do not include volumes from our Goldleaf acquisition. Next quarter, we will begin reporting combined Goldleaf and our traditional enterprise payment statistics.

As mentioned on prior calls, we are continuing to see very strong demand for implementation activities in our core client bases, including both new competitive conversions and conversion merger activity fueled by bank failures, and M&A transactions in both the banking and credit union markets.

I'll now turn it over to Kevin for a further look at the

Thanks, Tony.

Total revenue increased 29% for the quarter, and compared to the same quarter a year ago. Organic revenue increased by 7%, as Jack mentioned, year-over-year . The acquisitions contributed approximately $39.4 million in revenue for the fiscal year -- or for the quarter, and as a reminder, both Goldleaf and Pemco basically anniversaried as of October 1, so they will be considered organic going forward.

Our license revenue decreased by 17% for the quarter compared to prior year. Organic license revenue was down 26% compared to the year ago, so therefore we had some contribution from the acquisitions, but not a whole lot. Support and service revenue increased 35% for the quarter over the same quarter a year ago, and organic revenue in support and services grew 11%, as Jack mentioned.

Support and services break-down, compared to the prior year. Implementation revenue increased 45% for the quarter, EFT electronic payments increased 87%, our OutLink data processing, which had no impact from last year's acquisitions, increased 15% for the quarter, and in-house maintenance increased 13% for the quarter. Organic revenue growth for the quarter for these same line items was implementation increased 24% year-over-year, EFT increased 11%, Outlink again was 15% with no impact, in-house maintenance was up 5% year-over-year.

Hardware revenue decreased 2% for the quarter compared to the prior year and, organically, hardware revenue was down 3% year-over-year. Our recurring revenue experienced growth of 33% for the quarter compared to prior year, and was up 6% sequentially compared to the June quarter, so we continue to see solid growth in our recurring revenue.

Our consolidated gross margins held steady at 41% for the quarter, compared to the same quarter a year ago. License margins dropped slightly to 88% this quarter, from 90% a year ago, primarily due to third party product sales. Support and service margins improved to 40% compared to 39% ago, driven by significant increases in every revenue component in this line, as previously mentioned, and hardware margins stayed steady at 27%.

To break this down into the two reporting segments, our banking segment gross margins improved to 42%, from 41% a year ago first quarter, and our credit union segment margins decreased slightly to 38% from 39%. In the bank segment, license margins decreased to 85% from 89% a year ago, support and service margins for the banking segment increased to 41% from 39% for the same quarter a year ago, and hardware margins improved to 28% from 27%.

In our credit union segment, license margins improved to 96% for the quarter compared to 93% a year ago, due to less third-party product sales, support and service margins improved to 36% from 34% a year ago, and hardware margins decreased to 23% from 26% a year ago, primarily due to sales mix.

Our total operating expenses increased 36% for the quarter, compared to the prior year, primarily due to the acquisitions, and as a percentage of total revenue increased slightly from 18% to 19% for the current quarter, compared to prior year. Our organic operating expenses increased 15% compared to the same quarter a year ago, and was actually down 3% sequentially from the June quarter, primarily due to the one-time acquisition related expenses in the June quarter . Our operating margin dropped slightly, to 22% from 23% a year ago, and remained level at 22% sequentially. The net result increase was increased operating income of 26% for the quarter compared to prior year.

Obviously, interest expenses up this quarter compared to the prior year, due to the credit facility put in place in June for the iPay acquisition . The effective tax rate for the quarter was at 36.3%, compared to 37.3% last year, primarily due to additional federal tax deductions and some other small fluctuations. Our effective rate for the year should be approximately 36.5% to 37%, not considering any reinstatement of the R&D credit, which is still up in air.

Our EBITDA increased approximately 30%, to $75 million from $57.8 million a year ago. Depreciation and amortization expense of $21.6 million this quarter, with $9.7 million in depreciation and $11.9 million in amortization, compared to $15.9 million in D&A this quarter last year. Our free cash flow was $51.1 million for the quarter, calculated as operating cash flow less CapEx, less cap software and less dividends, and increased 24% compared to the same quarter of last fiscal year.

For some update on guidance. Obviously, we're very pleased with the quarter, from both revenue, margin and net income perspective. But I must point out, as Jack mentioned, we did have a significant impact from implementation revenue this quarter, which is not recurring in nature and can have some lumpiness, depending on timing of implementations and continued convert merge activity from our customers acquiring other FIs. Therefore, there might be some slight upside to the fiscal year results due to this quarter, but not significant enough for us to make a change in guidance at this time.

Even though we are ahead of the internal plan this quarter, primarily due to the implementation revenue, which we believe will trend down somewhat in the second quarter, we continue to believe that the year will be more back-end loaded, just like our budget and internal plans, as we anticipate continued improvement in the spending environment.

This concludes our opening comments, and we are now ready for questions. Shannon, will you open the line

(Operator Instructions).

Our first question comes from Tim Willi with Wells Fargo . You may

Thanks and good morning.

A question about the payments businesses and thinking about their impact on organic growth going forward. I think everybody appreciates your pulling out those numbers now when you quote your organic growth and we all understand that, but could you give us a feel for how those entities have grown year-over-year, and iPay in particular, as we just sort of think about the prospects of internal growth rates potentially accelerating on a reported basis when you fold those all the way in?

Well, that's a full question, Tim.

We continue to see solid growth in all the different contributors of our EFT line. Our bill pay continues to grow nicely, iPay contributed nicely, this quarter. IPay, in of itself, contributed just right at $12 million in revenue, so it's pretty much right in line with the plan of where we thought they were going to be for the quarter. Goldleaf and Pemco both are folding into this quarter. We think that our organic growth rate, once Goldleaf and Pemco are now anniversaried, our total internal growth rate should be in the high single digits for the rest of the year with those rolled in there, with iPay hopefully adding a little more on top of that.

Okay. That's helpful. I appreciate that.

And just a follow question, just sort of thinking about the levers around expenses. You talked about organic expense growth that was 15% and just thinking about going forward, obviously, some of the revenue lines are doing quite well. Thinking about hiring and discretionary spending, what kind of trigger points are there in the budget or in your own thinking about stepping those up if things progress at a better rate, or you really feel like even with marginal improvements in the revenue outlook that you actually have the kind of infrastructure you want and there's not necessarily a plan to maybe step up spending, as revenue comes in this year, but you can really sort of stick with the expense budgets as they are?

Tim, we've always ran a fairly lean shop, and even though we have put some very strong cost control measures in place the last couple years, we're not really ready to just open the gates yet. But, we have never stopped hiring, we have continued to focus on hiring in the places that are generating revenue growth, and we will continue to hire in those areas where is justified, that we can drive additional revenue. And on the other hand, we're going to continue to look at the areas that are not performing at the levels that we want, and the head count in there may be redeployed to other areas or continue to look at that. But we will ultimately, or obviously, increase expenses as we need to, to support the revenue growth in the lines of business that are growing.

And having said that, I don't know any particular area in the Company where we are understaffed. I mean, nobody ever has as many people as they would like to have. But, in the implementation area, for example, we had some solid leverage, it was a very heavy quarter from an implementation standpoint and we were able to handle it, we expect to see some that input mentation revenue grow less aggressively in the next couple of quarters, but there is no area that I can think of where we are short head count, and we've managed the business pretty well to have what we need, and no more than that we need. So I don't know of any area where there's going to need to be any significant ramp-up based on anything we're likely to see happen in the rest of the next 12 months.

Okay.

And then just a housekeeping question. Kevin, when you were going through the various components of support and service, I missed the year-over-year growth rate for the in-house support. Can you give that out again?

In-house support was up 13%, and organically it was up 5%.

Excellent. Thank you.

Thanks, Tim.

Thank you.

Our next question comes from Tim Fox with Deutsche Bank. You may begin.

Thanks. Good morning.

You mentioned as part of the upside for implementation, some competitive wins. I'm just wondering if you could provide a little bit more color on those wins, whether they were in banking or credit union. And maybe what's driving those wins for you, and just some general commentary about, as you're adding these core customers are they taking on more of the payments business that you started to develop and acquire over the past couple years?

Tim, I would say, I don't know if there was any noteworthy difference in competitive replacement, it was pretty much steady at it has been. I think the comment was that our implementations were a combination of new implementations as well as convert merger activity, and I would say that there's just a very significant amount of convert merger activity going on right now.

We've continued to have a solid performance on both the banking and credit union side. As far as core system replacements, different institutions have different reasons, in some cases it's just at a renewal point in their contract, they look at the market and like what they see and make a change. In other cases, they feel like the support level would be better. Again, I don't know that there's anything new or different in that. We have always had good uptake with new core implementations of our payments related products, and certainly we expect that to continue.

I think particularly that iPay, on the credit union side, has probably more of an upside in terms of new customers adding payments. I think they are more likely to add the iPay product on the credit union side than they were our previous bill payment product, going forward.

Great. That's helpful.

And then just a follow-on, on the bill pay commentary, you mentioned 23 plus percent or so in total and then contribution from iPay .

How is the organic business on that bill pay platform performing? Are you expecting that to continue to grow at or above the organic growth rate of the Company this year into next year as the economy improves? Yes, Tim, really all of our payments businesses, Kevin correct me if I'm wrong, but all of our payments businesses had organic growth above anything we've seen, in terms of industry performance or industry averages. And that certainly would be the case for iPay as well. And certainly our expectation would be that it would grow at or above the overall growth -- the Company's overall growth rate.

Okay. Thanks. Nice quarter.

Thanks, Tim.

Thank you.

Our next question comes from John Kraft with D.A. Davidson. You may begin.

Good morning, gentlemen.

Good morning, John.

Just a clarification,and I know you mentioned this, and maybe this is for Tony, but you said that the Goldleaf remote deposit transactions were excluded. If you were just to look at those, are those growing roughly similar rates, on the remote deposit side, specifically?

We have not included those since the acquisition, and next quarter will be the first quarter where we roll those numbers together. We didn't have those transactions broken out on a historical basis where they lined up by financial institution as opposed to altogether. So, I really don't have those to compare them.

I can tell you that those volumes continue to look strong, in the Goldleaf merchant capture area, but until we get to a comparable with the electronic -- with the enterprise payments solution that we have as well, I just can't compare those two. We will have that next quarter.

Okay. That's fair.

And Kevin, you mentioned on the organic side the license business down 26%. I know there's a combination of things that are affecting that, but is it fair to say that more so this is just deal push outs from cautious financial institutions, or is it just conversions of customers who've decided to push for subscription?

Well, I think it's a combination of things, John .

First of all, let's not lose the fact that license revenue now represents 4% of our total revenue. So, for it to be down 26%, it's not a real meaningful number anyway. Now having said that, I think it's a combination of things. I think there's some deal push off, from the FIs being conservative, I think there's still some uncertainty around assessments and different things . And I think, as Jack mentioned, there's some continued impacts from banks and credit unions at least thinking about going outsourcing. And if they're even thinking that, why buy additional software at this point .

So I think it's a number of things, but at the end of the day I think a lot of it comes right back to the spending environment that we're in and people are

Okay.

And just lastly, are you getting any traction on this mobile deposit offering?

No, is the short answer.

Mobile deposit, quite frankly, is one of those things you have to offer. Nobody's going to make any money off of mobile deposit. But it's something that -- we've got probably one of the strongest remote deposit capture solution in the industry, I think we got on the front-end of that wave very early on, had great success, and we've added a home capture capability with more of the flatbed type scanners that people can use from home to deposit checks. You know the mobile thing gets a lot of press, it's a cute application, but nobody's going to make any money with that. So, we're really just kind of bringing those products to market now, and I'm sure we'll see some uptake. But it is not a needle mover for anybody.

Okay. That's all I've got. Thanks, guys.

Thanks, John.

Thank you.

Our next question comes from Greg Smith with Duncan Williams. You may begin.

Hello, guys.

Can you just talk about sort of the composition of the hardware and what's in there? It hasn't fallen off quite as much as the license revenue, so I just want to understand what's in there, in hardware in the quarter.

It's not just in the quarter, Greg, its comps and, I mean, there is a wide variety of things that goes in there, and it's basically anything that we re-sell, other than software, that goes in that line, as we've talked about before. But you know, a couple of things that kind of keep that stable is, there's hardware maintenance in there, under long-term contracts, which is a recurring revenue that's in every quarter, there is a forms and supplies business that we sell, re-sell forms supplies and add-ons and different pieces and parts. And then, through our matrix group, there's just a whole lot of network type things that there's constant upgrade and replacement cycles going on. In then in the quarters where we have a really strong quarter, is the quarters where you see us move some really nice sized new I or P Series boxes for in-house core installations.

Probably, Greg, the most noteworthy of the dozen or so different items that we track in the hardware area would be the processor, the iSeries and the pSeries processors from IBM, and then the server related products that, sort of, infrastructure related products. And we've seen some improvement in spending on some of infrastructure with server replacements, which are just something you do about every three years, and/or institutions moving to server virtualization where they'll buy new sorters and consolidate 50 sorters down to 10, 50 servers down to 10. We saw, particularly in the June quarter, we saw a significant uptick in sort of that infrastructure investment, but where, one of the areas where we have not seen much uptake in the last couple quarters has been in the processors, the iSeries and the pSeries. And again, that goes back to, I think, some of the trends from in-house to outsourcing, some of the holding off on upgrading a processor, particularly if you're considering the possibility of going in-house to outsourcing. And the fact that most of the new transactions on the banking side, probably half or more, of the new core transactions on the credit union side are looking for outsourced delivery.

Perfect. That's very helpful.

And then just, can you guys just talk about sort of your appetite for acquisitions? Are there any holes you need to fill? If you're not likely to even do any acquisitions, what's the appetite for share buybacks at this point?

Well, we certainly keep an open mind related to acquisitions, Greg, and certainly would continue to look at things that would make sense in our payments lineup and/or in our processors family of products, particularly that'd strengthen that solution for sales both inside and outside of our core customer base. I can't tell you that we have any identified holes in the product line that we're out there trying to fill, it would be something that's more likely to complement or strengthen something that we already have .

Obviously, as you know, our Company is -- tends to be very conservative, in terms of use of debt, and certainly would think that we would continue to look at efforts to reduce the current levels of debt and opportunistic repurchases of

Okay. Thank you.

Thank you.

Our next question comes from Jon Maietta with Needham and Company. You may begin.

Thanks very much.

Just a couple questions for me. By my math, I'm not sure if Tony mentioned it, I missed it if he did, but I have roughly $19.7 million, $20 million of implementation revenue in the quarter, and I was wondering how much of that would be convert merger activity and how much of that could potentially kind of fall off?

I don't have that information in front of me, broken out by convert merge.

You are right, though, John . The implementation revenue was $19.6 million. For the

Converter merger would be less than half, wouldn't it? -- that would be a minority?

Yes.

Okay.

Far less than half, because that's all implementation, Jon. I mean that's core, that's the Whitney conversion we've got going on right now, we've got a full-time team down there for a plethora of products, not just core. Because that implementation covers every product that we charge implementation revenues for, along with the acquired companies. So through the Goldleaf acquisition, we've got some large Alogent implementation going on, so there's some contributions to the implementation line from those acquisitions. So the implementation, or the convert merge, is roughly, and I'm doing this from memory, is I think it's around 20% of that line.

Yes. Okay.

And then the other question I had, at one point, Kevin, you talked about the acquisitions in aggregate generating roughly $157 million, $160 million of revenue in fiscal 2011, kind of $65 million for GFSI, $40 million for PSTI and iPay, just over $50 million. If you could just remind me of the linearity of those businesses, because if you annualize the contribution from this quarter, you're at roughly $157 million, $160 million already.

Yes. We did not project a whole lot of growth in the year for Goldleaf and PTSI. Let's face it, when we bought Goldleaf it was losing revenue and we were, we kind of got that stabilized last year and a lot of that growth will depend on future Alogent deals, because we are really trying to market our enterprise payment solution that we had in place. So we're just trying to stabilize Goldleaf. As far as the Pemco, now that we've got them over on our -- with still some additional cost synergies that we're looking there, to get the technology all lined out, from a fraud perspective and some different things. So there's going to be some small growth there.

The majority of the growth that we projected from the acquired companies in FY 2011 is from iPay. So you're right that the projections we gave you are probably a little on the conservative side, but in today's environment, Jon, I would rather be on the conservative side.

And then just last question. You finished the quarter where, around 194, 195?

I'm sorry, that was related to debt?

Debt on the balance sheet at the end of the quarter.

We are at 230.

230. Okay.

240. I'm sorry, Jon. 240 .

Okay. That's it for me.

We've got 150 on the term loan and 90 on the revolver at the end of the quarter.

Got it. Okay, thanks very much.

You bet.

Thank you. (Operator Instructions)

Our next question comes from Dave Koning with Baird. You may begin.

Yes. Hello, guys. Nice job.

Thank you.

I guess, first of all, just on the gross margins in support and service, they were about as strong as they've been a while despite implementations being -- implementation revenue being the highest it's been in a long time, and I think you've mentioned before that that line item's a little lower margin than most of the rest of the support and service. And I don't think you're fully at all of the cost synergies around the acquisitions yet. So I'm just wondering, is that gross margin that we saw this quarter capable of going up reasonably nicely as some of the synergies fold in, and maybe implementation normalizes a little bit?

Dave, I will tell you that you're pretty much spot on, but you have to remember that the implementation margins are typically low but they were pretty high this quarter, because remember, we've got the same implementation staff and the same cost structure, regardless of the revenue inflows. Our guys were running 110 miles an hour with their hair on fire the last couple of quarters, with all the convert merge activity. We're not predicting that's going to happen. I think the revenue from implementation is going to trend down a little bit and the cost structure is going to stay in place. You'll have some travel expenses go down, as they're not quite as busy. So I think the margins on implementations will probably go back down .

Now having said that, I think there's still some margin improvements in our EFT and also in our outsourcing, as we continue to move in-house customers to outsourcing, to offset that margin. So, I think the margin should remain fairly solid. Is there some upside long-term? As the payments and outsourcing become larger parts of our business? Absolutely. But I'm not going to predict that you're going to see large upticks in margins in the next quarter or two,

Okay . That makes sense.

And then, I'm not sure if you exactly touched on this before, but OutLink growth is obviously very strong, 15%. Is that, now that you've converted a lot of new clients to outsourcing, is that the type of growth, at least in the last few -- or the next two quarters that we should

Kind of hard to say, Dave.

It's a balancing act right now. Some of that growth in OutLink is related to in-house banks moving over and adopting outsourcing, but that's moderated to some extent with bank failures. We've had some pretty good sized failures occur among some of our financial institutions on the outsourcing side. So, frankly, very pleased to be able to, in spite of all that, generate 15% growth in that line item.

Whether we can continue at that level or not, that frankly, I'm a little surprised, quite frankly, that it was that good in this quarter, given some of the things I just talked about. I would be a little reluctant to predict that it would continue to grow at that level going forward. But again, the business is doing well, we're adding new customers and again moving existing in-house customers over and that's certainly paying dividends.

Both on the banking and credit union side.

Right.

Good.

And then I guess finally, and Tim Willi asked this a little bit as well, but I guess with PTSI and GFSI folded in now to the growth, starting right around now I guess, are those two growing faster than the core base, meaning that they are accretive to organic growth, now that they are going to be folded in?

They should be a little accretive, Dave, but not a whole lot. I mean because obviously, we are seeing some continued payments growth from both of them. But like I said, I think the core business, we saw organic growth this quarter of 7%. I think with them rolled in next quarter, organic growth should maintain in that mid to high single digits with those rolled in.

And interestingly, we're seeing some pretty good growth, and potential growth, in the lending solutions business from Goldleaf which, if you may recall, that was certainly not the case when Goldleaf owned it, or frankly for most of the first year that we owned it. But that business has stabilized and has started to see some good growth as well, which we think will contribute to that.

All right. That sounds great. Thank you.

Thanks, Dave.

Thank you.

Our next question comes from Brett Huff with Stephens Incorporated. You may begin.

Hello, guys. This is actually Tyler in for Brett this morning. Great quarter.

Just had a couple questions. Kevin, didn't know if there was anything we needed to be aware of in the operating expenses kind of looking into 2Q. I know last fiscal year there was a ramp in the G&A, didn't know if that was kind of all acquisition related or if there's some other organic factors that we need to take into consideration on the expense lines?

Well, if you'll remember Tyler, what that is our Bank Education Conference, you can expect that happens in the second quarter every year. But there shouldn't be quite the ramp up this year, because we actually had our (inaudbile) education conference in the September quarter, where last year the expenses for that was down quite a bit, because we did it virtual, which didn't work out too well. But we actually did it this year, so this quarter was fully loaded with the (inaudible) education conference. It will ramp up a little bit in the second quarter because the bank education conference is bigger. But it won't ramp up quite as much as it did a year ago.

Do you think all of the costs for (inaudbile) hit in Q1 or did any of it spill over to Q2?

Most of it should hit. There may be a little bit --

Okay great.

And then, Tony, I might have missed this, I know last quarter you broke out the bill pay growth kind of organically versus iPay. I didn't know if you gave those numbers, or if you have them?

I think what I gave was the growth for our NetTeller bill pay versus what we had for iPay . Ipay grew at just over 36% year-over-year, quarter to quarter. And NetTeller bill pay was just over 10%. Which yielded the increase at 23.4% for both

And just as a reminder to Tyler on the NetTeller bill pay, I'm not sure if it matters, but I think that 10% growth exceeds what we've seen reported in the industry in and of itself . But remember that we always sell NetTeller bill pay to our customers that use our NetTeller Internet banking products, so it's pretty solid growth even in NetTeller bill pay to a market which is pretty well saturated with people that can buy NetTeller bill pay. There aren't many left that haven't already bought it, so pretty solid growth considering there's a limited audience for that particular

And then lastly from me, I was wondering with the way revenues came in, if that changes any of the guidance that you all talked about last quarter, as it relates to different revenue segments? Specifically, I know it is hard to tell, but do you still see license growing year-over-year, or is that a little more challenging now, given the first quarter's results? Any thoughts around that?

It's obviously a little more challenging any time you start the year out with one foot in the hole. But I still think it depends,obviously,on the spending environment, but based on our bank education conference, I think there's a little more optimism within our customer base. So I'm still sticking to my guns that I think license revenue will at least be flat ,if not up slightly for the year. It's going to be interesting to see how we get there, but I think that it is going to get there.

Okay, great. Nice quarter.

Thanks, Tyler.

Thank you.

I'm showing no further questions at this time. I would now like to turn the call back over to Kevin Williams.

Thanks, Shannon.

In summary, again, we'd like to thank you for joining us today to review our first fiscal quarter 2011 results. The recent acquisitions we expect to continue to contributing nicely to revenue, earnings and free cash flow. We're very pleased with the efforts of all of our associates to help control our costs and continue to take care our customers. Our executives, managers and all of our associates continue to focus on what is best for our customers and our shareholders.

With that, Shannon, would you please provide the replay number?

Sure.

Ladies and gentlemen, today's call will be available for replay.

The replay numbers are 1-800-642-1687 and 1-706-645-9291.

This concludes today's call. Thank you for your participation. Have a wonderful day.