Jack Henry & Associates Inc (JKHY) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Jack Henry first quarter 2013 earnings call. This call is being recorded. For opening remarks and introductions, I would like to introduce Kevin Williams, Chief Financial Officer. Please go ahead.

Thank you. Good morning. Thank you for joining us for the Jack Henry and Associates' first quarter and fiscal year 2013 conference call. I am Kevin Williams, CFO. On the call with me today is Jack Prim, our CEO; and Tony Wormington, President. The agenda for the call this morning is typical where Jack will start out an overview of the quarter. Tony will then provide some additional operational highlights. Then I will provide some additional comments around the press release and the numbers in it that we put out yesterday after market closed, and then we take some questions.

I need to remind you that remarks or responses to questions today 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 should cause actual results or events to differ materially from those which we anticipate, due to a number of risks and certainties. The Company undertakes no obligation to up date 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. Again ,thank you for joining us this morning , and I will now turn the call over to Jack.

Thanks, Kevin. Good morning and welcome to our first quarter earnings call for fiscal year 2013. We are pleased to be able to report a very solid performance for the quarter reflecting continued strong execution by our associates, and we believe finally a reflection of the impact of the reduced number of bank failures.

Although our organic growth has been good failures as we have mentioned previously these failures at various times in the current economic cycle have represented revenue headwind 1% to 3%. While these headwinds have not completely gone away as we were reminded with the loss of a small bank customer two weeks ago, we do feel we have grown overthe largest part of that problem at this point. Our 9% organic revenue growth in the quarter allowed us to generate a 17% growth in operating income 16% growth in net income, and 17% growth in earnings per share. It is a good way to start the year, but as I am sure Kevin will soon remind you our FY 2013 fiscal year like every year is heavily weighted toward the back end of the year and this is as always reflected in our guidance.

With that, I will turn it over to Tony to provide some additional information on the business.

Thanks , Jack. We are pleased with the strong contributions in all components of support and services which increased 11% over the prior year quarter and represents 90% of total revenue. The largest contributor to this was our electronic payments revenue which grew 15% compared to the prior year quarter and represents 35% of total revenue . Our outsourced data and item processing services increased 9% for the quarter and represents 18% of total revenue which is driven by both new customers who prefer this model as well as the continued movement of our existing in-house customers electing to migrate to this service model. Our in-house annual maintenance fees increased 7% for the quarter and represents 27% of total revenue . In addition our one time implementation revenues increased 18% compared to prior year quarter and represents 8% of total revenue.

Our electronic payments transaction volume continue to experience very nice growth. Passport , ATM, and debit card processing volumes increased 11.6% over the prior year quarter . Bill payment transaction volumes increased 19.3% over the prior year quarter. Financial institution merchants utilizing our Enterprise Payment Solution increased to over 41,700 merchants representing a 12.7% increase compared to the prior year quarter. Merchant related transaction volumes increased 18.7% over the prior year quarter. I will now turn it over to Kevin for a further look at the numbers.

Thanks, Tony. Again our total organic revenue increased 9% for the quarter compared to the same period a year ago. License revenue was up 5% and represents 5% of our total revenue. Support and services increased 11% this quarter and now represents 90% of our total revenue. To break our support and services down a little bit our implementation services increased 18% for the quarter, electronic payments were up 15%, OutLink which is our outsourced, data processing , and item processing increased 9% as Tony mentioned, and our in-house maintenance increased 6% for the quarter compared to last year.

Hardware revenue was down 14% for the quarter compared to prior year and represents 5% of our total revenue which as we have predicted for years hardware will continue to become a smaller percentage of our total revenue and decrease in dollars . It is just finally catching up with us from some of the unusual things that have happened in the last few years. Our recurring revenue experienced a growth of 8.5% for the quarter compared to the prior and represented 8% of total revenue for the quarter. Our consolidated gross margins improved to 43% for the quarter compared to 42%. License margins increased to 92% from 91% a year ago. Support and service margins improved to 41% compared to 40% a year ago. And hardware margins decreased to 22% from 26% a year ago primarily due to sales mix within that line item.

To break this down into our two are reporting segments our banking segment gross margins held steady at 42% compared to a year ago. Our credit union segment margins increased to 44% from 42% a year ago as we continue to increase our electronic payments and outsourcing in that segment of the business. In the bank segment license margins increased to 91% from 88% a year ago. Support and service margins in the bank segment improved to 42% from 41% a year ago, and our hardware margins in the banking segment dropped 21% from 28% due to sales mix. In our credit union segment license margins dropped slightly to 93% compared to 95% a years ago. Support and service margins improved to 41% up from 39% a year ago and hardware margins improved 25% from 23% last year in the credit union segment, again , due to sales mix.

Our total operating expenses increased 4% for the quarter compared to the prior year and as a percentage of total revenue decreased to 18% from 19% last year. Operating margins for the quarter improved to 25% from 23%, and our operating income increased 17% for the quarter compared to last year. Our net interest expense is down 13% compared to prior year due to the continued reduction in our debt based on the term loan payments we have made over the year. The effective tax rate for the quarter was at 36% up slightly compared to 35.4% last year. Again I will remind you this next quarter's effective tax rate could vary significantly depending on what they do with the R&E credit.

Our EBITDA increased approximately 13% to $91.9 million from $81.6 million a years ago quarter. Depreciation and amortization expense of $24.2 million this quarter with $12.1 million in both depreciation and $12.1 million in amortization compared to $23.7 million in D&A last year. Included in the total amortization is amortization of intangibles from acquisitions which was $5.6 million this quarter compared to $6.3 million in last year's quarter. Operating cash flow increased $101.8 million from $78.5 million a years ago . Free cash flow for the quarter is calculated as operating cash flow less capital expenditures which was $6.8 million in the quarter and down from $10.7 million last year. Capitalized software of $11.6 million this quarter compared $7.5 million last quarter. However this was up significant from last year, but actually down sequentially from the June quarter. And dividends in this calculation of $9.9 million up from $9.1 million last year . Our free cash flow increased to $73.4 million for the quarter compared to $50.7 million last year. This equates to free cash flow per share of $0.85 for the quarter compared to $0.58 last year.

In-house backlog which represents contracts at hand for software and hardware and implementation services yet to be delivered is at $92.2 million which is up 26% from this quarter last year . Our outsourcing backlog which is for data and item processing contract 15% compared to a year ago which makes total backlog up 17%. As a remind there is nothing in our reported backlog numbers for any of our payments business which currently represents 35% of our total revenue for the quarter.

For guidance for the rest of the year the first quarter was slightly ahead of our internal budget which is a good thing. As Jack said it is a good way to start the year, and hopefully it is a descent indicator of what the full year should reflect. Our revenue growth should continue at about the same levels ,but potentially a little lower than what we saw in the first quarter because there was an onetime deconversion fee in the first quarter of this year which added a little less than 1% of our total revenue growth , so without that onetime deconversion fee our revenue growth would have been about 8.3% instead of the 9.1% , and this also added about $0.01 to our EPS for the quarter . So without this we would have been at about $0.48 compared to $0.49. Our gross and operating margins should stay solid and pretty much in line with where this quarter, however , as you know there is some quarterly fluctuations due to implementation services and obviously software and therefore at this time we expect net income and EPS to both grow in the low double digits for the full fiscal year if things continue on tract. Obviously the up coming election , dramatic change in the economy or tax laws could have a significant impact on our fiscal year.

With that, that concludes our opening comments. We are now ready to take any question. Hewie, will you please open the call lines up for questions.

Yes, sir. (Operator Instructions). Our first question comes from the line of Kartik Mehta with Northcoast Research . Please go ahead. Your line is open.

Good morning , Kevin and Jack. I joined a little late , so if you have already addressed this I apologize. But as you look the first quarter better than you expected, based on the pipeline you have how would you expect the rest of the year to turn out? Are you expecting this momentum to continue?

Kartik, this is Jack. Again I think some of this is a reflection of the growing over some of the larger volumes of bank failures and fewer bank failing as we have talked about that it has been a drag on revenue growth through the cycle. As the number of bank failures is declining , it is lightening up some. Sales performance continues to be good in all areas of the Company. So as Kevin indicated, I think the growth range we are in that 6% to 8% is probably reasonable barring some fallout from extraneous factors that we do not see on the horizon at this point.

Kartik, obviously we do not see a whole lot out there that is going to change our cost structure enormously. Obviously there are always some things that come up that can create challenges at time, but I think our margins are pretty solid. Obviously they are higher than they have been for quite some time. Are they sustainable at that 25% Ops Margin for the year, that remains to be seen. Obviously it is going to fluctuate a little bit, but I think we are at a level we can continue to achieve.

Jack, just on a bigger picture question. It seems as though you look at regional and community banks they are under a lot of pressure to offer a lot of services whether it be bill payment or mobile banking, Internet banking . It seems like the services continue to expand, but the cost does not seem to decrease for them. If these pressures mount up , how are your banks looking at that? Are they saying they will have to invest in certainother less , so they can continue to provide customers the services they want , or are they looking at it in a different manner and just saying we will have to accept lower margins for now?

Kartik, the week before last had a meeting at our user conference and it was a separate session with about 80 bank president and CEO. Certainly there is concern about cost of regulatory compliance and things of that nature. I will tell you I did not sense a lot of the hand wringing over the situation. I think people adapt . Whatever the rules are we will figure those out , and we will adapt to those rules and we will figure out a way to make money based on whatever those new rules are seems to be more of the attitude. I think certainly in some of the smaller banks there maybe a little more pressure towards consolidation, but at this point, although I think bank acquisition prices may be improving a little bit. I don't think they have improved enough to cause a significant movement towards further consolidation. But we certainly think consolidation will continue right now we think roughly at or maybe slightly above historical levels of the last ten years or so. Right now we do not sense a lot of people throwing the towel in by any stretch of imagination.

The other thing, Kartik, last spring I actually did a presentation for a profit (Inaudible). There was a survey out there across the broad swamps of banks and it was looking at their cost of compliance with regulatory, it had grown a little bit over the last 10 years, I think it had gone from like 2% of their total cost to 3% something about those. Not jumping up tremendously. My comment there is we are responsible for keeping our banks and credit unions compliant with regulatory changes. Do they have to deal with it yes. But we are responsible for through the maintenance contracts or the OutLink contractors it is our responsibility to make sure they stay compliant with those changes in the regulation which does not give them additional costs.

Thank you very much. I really appreciate it.

Thank you, sir. Our next question from the phone line comes from the line of Dave Koning with Baird. Please go ahead, your line is open.

My first question is it looks like when we take the growth of implementation services over the last four quarter it has averaged probably some of the best growth you have had in many years, and I am just wondering is that already in the ongoing revenue stream? In other words,is the stuff that you have implemented now in the ongoing revenue stream , or is a lot of the stuff you have started to implement still coming and going to generate good growth in to the next several quarter?

A fair amount of the implementation services number is acquisition merger related. Where one of our customer is acquiring another institution and we are doing the conversion services to fold that in. So a fair amount that revenue is going to be a onetime deal to get that deal time. It might pickup their maintenance a little better increase. If it is an outsourcing customer, it could result in a little better increase in the account processing fees, but then you also have the implementation fees associated with new core customers whether in-house or outsourced. The in-house version of those that is going to be largely on the credit union side .

As a percentage of the new implementation there will be a little more in-house variety on the credit union side then there will on the bank side. But typically the license associated revenue there is going to come in roughly comparable periods to those implementation services, so to your question about whether that would represent ongoing revenue growth pretty much only in the sense of software and maintenance. It is good. It is healthy, but a lot of that is onetime revenue that won't necessary drag significant ongoing revenue with it.

Okay. Great. Looking at the EST line has been strong for a while and the outsourcing line has been quite strong. The one other line that was a little surprising was the nice pickup in in-house maintenance . That had been growing in the low single digits for a while, and I think you mentioned 6% to 7% growth this quarter. With the shift to out outsourcing I was surprised it was that strong . Is that somewhat likely to continue to be a little stronger than it has been?

In my opening comments I referred to a onetime deconversion fee that happened this quarter that was not in last quarter. It was really an unusual deconversion fee because it was actually an in-house customer that flowed through that maintenance line. Without that our in-house support would have actually grown 3% instead of 6% a little over 3% . That was a large contribution. This was a large in-house customer that got acquired. There was a long term maintenance agreement that there was an early termination penalty associated with that went through the maintenance line. Our in-house maintenance was up 3%, which is probably sustainable for the year based on deferred revenue and some of the work orders and different things. Obviously our annual release will be coming up in the next quarter, so it is probably going to be more the 3% type range rather than the 6% plus we had this quarter.

That makes sense. Finally on margins obviously a great job there. Is a lot of that just the nice execution around the high margin EST growing fast , license seems to be doing a little better which is pretty high margin, and less equipment revenue which is low mix . It sounds like just a mix of business that you are growing the nice margin pieces better than the low margins pieces.

Obviously it is primarily the mix of our revenue that is having impact on that. We continue to leverage the infrastructure . We have the same number of data centers we had a year ago , actually we have one less as we continue to look at data center consolidation. Our passport switch is basically the same as it was a year ago for both passport and PPS for both debit and credit. We still have quite a bit of flexibility there and room to grow.

As we continue to add customers in both those areas do we occasionally need do a hardware upgrade, yes. But hardware is pretty cheap especially when you are spreading it over that many customers. It is really just execution. Can the margins go higher, maybe. Like I said early it is going to fluctuate around a little bit, but as we continued to grow our payments business and to grow our outsourcing and see the shift from in-house to outsource customers we should continue to maintain if not improve the margins.

That sounds great. Thank you.

Thanks, David.

Thank you, sir. Our next question comes from the line of Glenn Greene with Oppenheimer . Please go ahead.

The first question just taken through the revenue growth even stricken out the term fee about 8% or so. It is coming up on like two year of pretty solid organic revenue growth clearly out pacing your peers. Anyway at a high level to explain , I know your base is smaller maybe it is the mix of business, but the outsized revenue growth relative to your peers that has been going on for six to eight quarters?

Well, I think market shares gain particularly in the credit union space, certainly doing well in the banking space. New products have been well received in our customer base. It is basically blocking and tackling, Glenn. I do not know that there is anything particularly noteworthy. You commented and it is correct, weare growing a somewhat smaller base than the other guys that certainly plays into it as well. I think it is just continued execution.

There were a couple of other things, Glenn. We talked about this in the past obviously the continued move from in-house to outsourcing we are average about 40 of those year, which obvious the revenue base has double. Our wallet share is up, the cost of (Inaudible). going to go up for the FI. They take costs out in other places, but we get a bigger wallet share which does not really have much of an impact on our cost structure.

The other thing we have talked about is two or three years we actually changed some things in our sales organization for quota payment for our payments for our passport business, and our passport business has literally explode in the last two or three years. We have a very healthy backlog of inflows on those. Instead of selling 30 or 40 of those new switch deals like we were four years ago we are averaging 100 or so a year now for the last couple of years. That is driving some very nice revenue growth. Those are a couple of big players.

And then just the overall growth with online bill pay with iPay it is adding to that and we continue to see growth in remote deposit cash. So basically all of our electronic payment fronts continue to grow very nicely which is now 35% of our business and when you think about that and OutLink is close to 20%, you have well over 50% of your business that is growing very nicely. And when you have hardware slowing down , which is obviously the lowest margin business we have that make a very nice shift in our businesses.

I would just add, Glenn, too that the ProfitStars business has continued to come together very nicely over the last couple of year. That is a concept we launched five or six ago, and had a number of acquisitions. And I think we have evolved the sales structure and organization over there and I think that has clearly paid dividends for the last two to three years which has contributed nicely as well. It is just a number of things coming together.

All right. Let me ask a different question. The sales environment in the context of every new store you see on the community bank space suggest it is struggling yield curve is obviously not a community banks friend. In the context of that your backlog actually declined a bit sequentially . I do not know if there is some seasonality there, but maybe talk about the sales environment, what you are seeing and maybe , Kevin, you can help us understand the backlog trends.

Well, the sales environment, Glenn, has been somewhat surprisingly strong. Our teams have all made well in excess of their annual quota for the last two years. That is the Jack Henry Banking,Symitar and ProfitStars organization. Frankly you almost expect to see a couple of them be up and maybe one lagging a little bit, but for the last two years all three of them have exceeded their sales quota. In fact for the full fiscal year 2012 the excess over quota there were anywhere from 120% to 140% above their quota.

So sales have continued to be strong and some of that is probably that the two years prior to that there certainly has been some significant pull backs on any type of discretionary spending and maybe a little bit of loosing of the purse strings there. Q1 for us ,the September quarter, is traditionally a little slower from the sales stand point. That has not been the case the last two years. We saw a little bit more of that in Q1 just completed, but again not concerned about that . That is really normally. What we have seen for the last couple of years has been less normal in Q1, and our teams feel very good about being caught back up by the end of the second quarter. From the stand point of sales environment it is not any one area . It is a lot of the base hits that we continue to feel pretty good about the environment.

As far as backlog, Glenn, obviously you have to look at two components we have in-house and outsourcing. Or in-house backlog was essentially flat. It is down less than 1% from our June quarter, and if you look historically we have typically burnt any where from 5% to 9% of in-house backlog in the first quarter, which tells me with software license revenue being strong that our sales, as Jack pointed out, continue to be pretty strong in the quarter for in-house backlog to remain flat. As far as outsourcing you have to go back and look at last year .

In the last 12 months our outsourcing backlog exploded from 288 million to 343 million at June 30th. It went down a little bit this quarter, it went down 3%. Like I said in the second half of last fiscal year was the vast majority of our in-to-outs which loads up that outsourcing backlog. We had some very nice wins in outsourcing in the second half of last year. As you start thinking about it when you are rolling $25 million to $30 million a quarter out of outsourcing backlog it takes a whole lot of renewals or new contracts just to replace that. So my point there is yes it went down roughly $10 million from June quarter or 3%, but we are rolling $25 million to $30 million out of backlog on any given quarter because it is so large , which means we still had a pretty healthy sales quarter.

Understood. One more quick one. Your margin commentary is probably the most optimistic I have heard in a while. From the context of that how much of a drag do you think the whole bank failure dynamic has been for the last two to three years on your margins?

Obviously it is different any different in any given quarter or any given year, Glenn. The bank failures could have easily been 1% to 4% in any quarter depending on when they hit and which institution hit in any given quarter.

The impact on margins is probably greater than the impact on revenue . We are looking at a 1% to 3% headwind on revenue, but the problem when that goes away is there is typical not a lot of cost that goes away with it, so the impact on margins could be potentially ahead of the impact that we have seen as a percentage on revenue.

But that really depends on like I said which institutions fail in any given period , because if they were in-house customers, very little impact on margin . If they were outsourcing, huge impact on margins any given quarter.

Okay . Thank you.

Depending on the financial institution.

All right. Thanks

Thank you, sir. Next questioner is John Kraft with D.A. Davidson. Please go ahead , your line is open. Your questions please.

Good morning. Looks like a great quarter guys.

Thanks, John.

First for you, Jack, and some what of a follow-up to Glenn's question . In light of the improving trend it sounded like, Jack, your commentary on the overall industry was more optimistic incrementally than you have been in the past. Digging in to the trend of those in-house customers moving to outsource contracts some have speculated that part of that acceleration in the last few years is because the banks are struggling . Is that something that you might see slow down as they start to recover?

John, I don't think so. There were some banks who probably had a tendency to look at that option in 2008, 2009, 2010 . The reasons 130 or so have probably made that transition it is over 200 now in the last five to seven years and the reasons are all across the board. It is not just because of capital outlay required to keep their systems current and updated. It is any number of things and it is different potentially for every bank.

The other thing we are seeing is we have seen fairly steady interest on the bank side in making that transition again for whatever the variety of reasons would be. But we have seen growing interest on the credit union side who are probably three or four years behind on that concept of maybe a preference for outsource delivery rather than in-house. So we have seen stronger movement on the credit side in the last couple of years. I do not think the economy is necessarily a significant impact as much as the number of technologies and deliver channels and everything else the institutions have to have available.

So we still see a good bit of activity out there at this point. Do not see it slowing and frankly some slowing on the bank side would likely to be offset by increase interest on the credit union side.

Okay. Great. One for you, Tony. The transaction volume and growth that you rattled off really across the board looked to be higher than we have seen for a long time if not ever and clearly it looks like some of that share gains. Any way to give ,particularly on the bill pay , a same-store sales type of number , and second part of that is given what you have seen on the horizon is it reasonable to expect these elevated levels will continue?

I think the increase is due to our share gains that we are seeing in the bill pay market as well as increased activity just in general in what we are seeing with the existing institution that are out there. I don't have same-store numbers in front of me to provide those to you. But we continue to see strong elevation in our transaction volume increases across the board really.

As far as pipeline are these numbers that might continue through this year , fiscal year?

I would certainly expect them to continue somewhat into the year. I would tell you that a significant increase in bill pay volumes really started a year ago which will anniversary in the up coming quarter, so I would expect the bill pay numbers to decrease in the next quarter because we had elevated transaction volume percentages in the December quarter a year ago , so I wouldn't expect them to be as high next quarter . This quarter would be the last quarter that really has had some of the jump that we have seen . Although it continues to increase I expect them to be higher than they have been a year ago, but they will probably be off from what this quarter is.

Okay. Got it. Thanks , guys.

Thank you.

Thank you, sir. Next question is Peter Heckmann with Avondale Partners. Please go ahead.

You had put out a press release a couple of weeks as regard to hosting some third party app . I think there were some Microsoft office applications. Can you talk about some of your strategies there in terms of not only selling third party software which you have for a long time, but now beginning to host third party software?

I do not know there has been a significant change there. We have a very strong partnership with Microsoft as you may know and have been solution provider of the year for them on some of our products. Microsoft is very interested in seeing their cloud business increase , so we are kind of partnered with them to offer some of their office applications in the cloud using their hosting quite frankly for that. We have had some interest in that. I do not anticipate that being a significant revenue generated at this point in time.

But I think it is further an indicator of the trend away from hosting things that have traditionally been hosted in-house not just core systems but even e-mail and other office applications that you might host in-house on a server. While the demand for that right now we think is still pretty low, I think the longer term trends are towards hosting a lot of those types of those services. We are looking at various ways of being able to continue to provide what is needed.

All right. That is fair. And then can you remind me, I do not think there is a fee on the disaster recovery side when a bank activates their recovery program , but can you talk about if you have had many banks affected this week with the hurricane, and if you are expecting any incremental revenue in the quarter.

We have had some banks impacted. I do not think that the revenue that would be generated from that would be note worthy.

Pete, there is an additional fee when they actually do declare a disaster. But as Jack points out is not even a blimp anywhere on the screen that you will see.

Okay. We have read more recently about increasing amount of attacks both financially motivated as well as politically motivated on banks and other financial institutions. Can you talk about the relative demand for security and the services surrounding security. Is there an additional opportunity there on the revenue, or conversely are there additional costs that you would expect to help protect these banks from hackers and intruders?

That is a great question, Pete. We certainly are seeing a demand for a number of our security related products . As you may recall when we did the acquisition of Gladiator a few years ago while the services that they were providing at the time; intrusion, monitoring, and prevention of bad guys accessing financial institution. Good service, that was not really why we bought them.

It is a good and necessary service, but we bought them with the intention of developing a more all encompassing approach to security that would not only be from the firewall out but would also monitor core systems and related activities inside the firewall which quite frankly most studies would tell is where on a percentage basis the largest amount of fraud that committed is on the inside rather than bad guys getting in. We have completed that product a couple of years our Enterprise Security Monitoring Solution. We have had very strong demand for that.

Sales were up significantly last year and continue to be up at significant rate. Now, again, that is a recurring revenue model, so in any given quarter will not make a big impact, but , again, does add nicely to recurring revenue and backlog over a period of time. I would also say related to your question about potential increased cost , I would tell you that frankly there are likely to be some increased cost to Jack Henry for some of our security related requirements. As you know we run one of the largest Internet banking operations in the country.

Certainly has seen the headlines in recent weeks about Denial of Service attacks on some of the large financial institutions, and while we have very strong systems in place and spends large sums of money already in that regard there is some potential for us to need to spend more. Again, will that show up in any significant way in any numbers that would be apparent to you , I doubt it. But again it is an area we have to continue to stay on top off.

Fair enough. Thanks for all of your responses and great quarter.

(Operator Instructions). Our next question comes from Brett Huff with Stephens Incorporated. Please go ahead, your line is open.

(Inaudible). Brett Huff. Good morning , guys , and congrats on another great quarter.

Thank you.

So given you continue to have lots of dry powder on hand, can you maybe give us an update on where your heads are at just regarding general capital allocation and maybe just an update on the general M&A landscape. Thanks.

Obviously we have net cash now of a little more than $100 million. We tried to buy stock back this last quarter. We bought back a little bit, but it was a pretty short window of trading for us, because the Company plays by the same rules that Jack and Tony and I do when we are black out so is the Company, so we were not able to even be in the market until we announced year end earnings which was the end of August, and then obviously we were blacked out again at the end of September.

So pretty short period there plus our trading volumes were down. We hit an all time high in the stock, so it was just not a real optimal time to be in the market and even though we were in the market it was a challenge to buy much volume. We will continue to look at that. We will continue to look at acquisitions. We would love to find the right acquisition that fits our criteria, but they appear to be few and far between out there, but we will continue to look for those.

Obviously we will continue to discuss with the Board uses of our dry powder, as you so put it, in regards to dividend or additional stock buy backs or whatever or potentially even paying down our term debt and cutting back on our cost of interest. That is pretty much where we are at. It has not change a whole lot over the last year. We will continue to try to be opportunistic to get the best return for our shareholders.

Okay. Great. Thanks, guys.

Thank you.

Thank you, sir. (Operator Instructions). Presenters, at this time I am showing now additional questions on the phone line. I would like to turn the program back over to Mr. Kevin Williams for any additional or closing remarks.

Thanks, Hewie. In summary , obviously we would like to thank you all for joining us today to review our first quarter fiscal 2013 results. We are very pleased with the results. We think they are very strong and a very good start to our fiscal 2013.

We also want to reflect the efforts of all of our associates that have helped control our costs and help drive our revenue and at the same time continue to take care of our customers which is obviously the most important thing to do to take care of our customers which obviously will in turn take care of our shareholders. Again thank you for joining us this morning. With that, Hewie , would you please provide the replay number for the call.

Yes, sir. Ladies and gentlemen , this conference will be available for replay after 11.45 AM Eastern Time today through November 8, 2012, 11.59 PM Eastern Time. You may access the remote replay system at any time by dialing 1-855-859-2056 and entering the access code 52275498 and international participants may dial 1-404-537-3406. Those numbers again are 1-855-859-2056 and 1-404-537-3406. Access code 52275498. That does concludes our conference for today. Thank you for your participation and have a wonderful day. You may now all disconnect.