Jack Henry & Associates Inc (JKHY) 2013 Q2 法說會逐字稿

Good day and welcome to today's Jack Henry Second Quarter 2013 earnings conference 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, Latoya. Good morning. Thank you for joining us for Jack Henry & Associates second quarter fiscal year 2013 conference call. I am Kevin Williams, CFO, and on the call with me today, I have Jack Prim, our CEO, and Tony Wormington, President. The agenda for the call this morning is as follows. I will turn it over to Jack. He will start with an overview of the quarter. Tony will then provide some operational highlights and then I will provide some additional comments on the press release we put out yesterday after the market closed and provide some additional comments on the financials. Finally, we'll open it up for Q&A and try to answer your questions.

I need to remind you that remarks or response 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 could cause actual results or events to differ materially from those which we anticipate. Due to the number of risks and uncertainties, the Company undertakes no obligations 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 our record quarter for revenue and gross profit. Operating and net income were impacted by one-time events in the quarter, as we will discuss. Although our financial reports are noisier than normal for Jack Henry, including one-time events with both positive and negative impacts in the quarter, when you look past those events, we had a very strong performance in the quarter. The most significant of these events was related to the Hurricane Sandy damage to our New Jersey facility and the subsequent recovery efforts. This facility provides item processing services for over 100 financial institutions and hurricane damage required relocation to our disaster recovery facility.

Longer than expected delays in the initial recovery effort led to delays in processing and other issues for customers. The one-time costs incurred include compensation to customers for the problems and inconvenience they experienced in the recovery. Significant lessons learned from this event have been applied to all of our business continuity plans to assure that these issues will not be experienced in any such future events. Recovery of some portion of this charge via insurance claims is likely, but any such amounts are unknown at this time. Despite these distractions, we again had strong organic growth, revenue growth of 9%, leading to a record revenue quarter and gross profit increase of 14%. With the inclusion of the one-time disaster-related charges, operating expenses increased 35% and general and administrative costs increased 103% in the quarter. Operating expenses increased 5% when excluding the charges and G&A increased 1%.

Operating income decreased 1% with the charges and increased 20% without them. Sales were strong in the quarter in all three brands. Our credit union sales team had strong, new core and EFT processing sales. The banking team had a strong quarter in spite of some delays from customers impacted by the hurricane events. Since the significant majority of those sales were for hosted solutions, any delays would not have impacted overall financial results in the quarter. PROFITstars continued to successfully leverage their base of over 9,000 financial institutions that are not using a JHA core system for a solid sales quarter. All of our payments businesses saw strong growth, as Tony will address, and the PassPort debit and credit transaction processing growth in the credit union segment was a strong contributor to the improved gross margins in that segment.

The backlog showed very solid growth on continued strong sales of both in-house and outsourced solutions. I would like to thank our over 5,000 employees for their continued efforts on behalf of our customers that allowed us to deliver these solid financial results. I also want to assure our customers, shareholders, and employees that we are fully committed to seeing that the one-time events in this quarter will, indeed, be one-time events. With that, I'll turn it over to Tony for some additional business updates.

Thank you, Jack. We were pleased with the strong contributions in all components of support and services, which increased 11% over the prior-year quarter. The largest contributor continues to be our electronic payments revenue, which grew 18% compared to the prior-year quarter. Our outsourced data and item processing services increased 11% for the quarter, our in-house annual maintenance fees increased 4% for the quarter. In addition, our one-time implementation revenues increased 8% compared to the prior year quarter.

Our electronic payments transaction volumes continue to experience very solid growth. PassPort ATM and debit card processing volumes increased 10.4% over the prior-year quarter, bill payment transaction volumes increased 18.4% over the prior-year quarter, and financial institution merchants installed and utilizing our enterprise payment solution increased to over 44,000 merchants, representing a 14.7% increase compared to the prior-year quarter. Merchant-related transaction volumes increased 25.8% over the prior-year quarter. I'll now turn it over to Kevin for a further look at the numbers.

Thanks, Tony. As Jack mentioned, our total organic revenue growth was 9% for the quarter compared to the same period a year ago. License revenue was down by 3% for the quarter and represents 5% of our total revenue. Support and service revenue increased 11%. We had deconversion fees in the quarter in both OutLink and our electronic payments, totaling about $3.5 million this quarter compared to $1.6 million in the same quarter a year ago, which does represent a little less than 1% of support and service revenue growth in the quarter. Without those, our true support and service revenue growth would've still been a little over 10% growth. Support service breakdown -- implementation revenue of $20.9 million was an 8% increase for the quarter, electronic payments of $98.9 million was an increase of 18%, OutLink of $52.4 million was an increase of 11%, and in-house maintenance was $78.1 million, with a 4% increase over last year.

Hardware revenue decreased 9% for the quarter compared to the prior year and represented 5% of total revenue, same as our software did. Our recurring revenue experienced growth of 10% for the quarter compared to prior year and represented 79% of total revenue for the quarter. Our consolidated gross margins improved to 44% for the quarter, impacted by 1% for the de-conversion fees compared to 42% in the same quarter a year ago. License margins decreased to 91% this quarter from 92% a year ago, due to sales mix. Support and service margins improved to 42% compared to 40% last year, and hardware margins were flat with last year at 31%. To break this down into our two reporting segments, our bank segment gross margins improved to 44% from 42% a year ago and our credit union segment margins increased to 45% from 41% a year ago, due to the increase in outsourcing and electronic payments within the credit union segment. In the bank segment, license margins decreased to 86% from 90% a year ago, support and service margins for the bank segment improved to 43% from 40% a year ago, and hardware margins remained level at 33%.

In our credit union segment, license margins improved slightly to 96% for the quarter compared to 95% a year ago, support and service margins improved from 38% to 41% this year, and hardware margins improved to 25% from 23% a year ago. Total operating expenses increased 35% for the quarter compared to prior year, which this included the $13.7 million expenses related to Sandy. Without these operating expenses, it would have only increased 5%. As a percentage of total revenue, our operating expenses increased to 23% from 18% last year; without the one-time costs, it would have been level at 18% of total revenue. Our operating margin for the quarter increased to 26% from 24% a year ago, excluding Lyndhurst. But including it, our operating margin decreased to 21% as reported from 24% a year ago. Operating income increased 20% for the quarter compared to last year's second quarter, excluding the one-times, but actually decreased by 2% because of these one-time costs.

Our net interest expense was down slightly this quarter just because of the continued payments on our funding. The effective tax rate for the quarter was 31%, down from 36% last year; primarily due to the release of some previously unrecognized tax benefits that were recognized in this quarter due to finalizing an IRS audit on previous years. The deconversion fees I mentioned earlier included in support service added approximately $0.025 EPS to the quarter, which, as we mentioned in the press release yesterday, our normal operations without the effect of Sandy and the tax release generated $0.54 EPS for the quarter. Net of this deconversion revenue, we would've been at about $0.51 or $0.515 EPS. Again, this $0.03 compares to a $0.01 EPS impact from deconversion fees in the same quarter a year ago. EBITDA was relatively level at $84.2 million compared to a year ago; however, without the effects of the disaster, our EBITDA would have been $97.9 million or an increase of 16%. Depreciation and amortization expense of $24.2 million this quarter was $12.3 million in depreciation and $11.9 million in amortization compares to $23.7 million in depreciation and amortization this quarter last year.

Included in the total amortization is the amortization of intangibles from acquisitions, which was $5.3 million this quarter compared to $6.2 million in last year's quarter. Operating cash flow year-to-date increased to $119.2 million from $96.3 million a year ago. Free cash flow year-to-date is calculated as operating cash flow less capitalized expenditures of $19 million, which is up slightly from $18.9 million last year, capitalized software of $23.8 million compared to $15.7 million last year, and dividends of $19.8, up from $18.2 million last year. Free cash flow increased to $56.6 million year-to-date compared to $45.4 million last year, which this equates to free cash flow per share of $0.65 year-to-date compared to the $0.52 last year.

As Jack mentioned, we had nice growth in our backlog, in-house backlog, which represents contracts in hand for software, hardware implementation services yet to be delivered is at $89.8 million, which is up 22% from this time a year ago. Our outsourcing backlog, which is for [data and item] processing contract is up 19% compared to this time a year ago. Total backlog was up 19% and as a reminder, there's nothing in our reported backlog numbers for any of our electronic payments business, which currently represent 35% of total revenue for the quarter.

Looking forward, without all the noise in the quarter of the Lyndhurst costs and the tax benefits, and the increase in deconversion fees, we would have been at about $0.51 EPS for the quarter and $1.00 year-to-date. However, this is a $0.03 shortage from the consensus out there, which puts us a little behind for the year on EPS. Revenue growth should continue, probably at a slightly slower pace than year-to-date, because hopefully, we will not have any more deconversion fees that added 0.7% growth in the quarter and 0.4% for growth year-to-date. Our growth in operating margins should stay solid and pretty much in line; however, there's always some quarterly fluctuations, as we all know.

For the year, we are still projecting finishing in the low to possibly mid-double-digit range for growth in net income and EPS. However, as a reminder, both revenue and margins typically go down sequentially in the third quarter of our fiscal year, which is the March quarter, due to a number of things. First, our annual release fees of bank user group in the December quarter adds revenue, but the larger impact is the fact there are two less days in the March quarter for processing of electronic payment transactions and our in-house maintenance revenue, which these combine for an average of approximately $2 million in revenue a day at current levels. Two days is a significant decrease in this quarter compared to last quarter. Also, both of these are strong margin businesses, which is why our gross margins get impacted in the third quarter.

Also, just to add some noise in our upcoming third fiscal quarter, the R&D credit that was signed into law earlier this year and made retroactive from 2012 will be recorded in our third fiscal quarter, as required by GAAP, and will be a positive impact of $0.04 to $0.05 EPS in this quarter. This concludes our opening comments. With that, we are now ready to take questions. Latoya, will you please open the call lines up for questions?

(Operator Instructions)

David Togut, Evercore Partners.

Could you give us a sense of whether you think the high teens growth in electronic payment services is sustainable? It seems like that growth rate continues to accelerate and some of the underlying drivers seem to be putting up very high growth rates. Maybe you can talk about why some of those growth rates are high and whether you think that's something that can continue?

I'll make one comment and see if Tony has any additional color on it. I think that the numbers should remain at similar levels. One of the things we've seen is increasing traction in the credit union segment with our acquisition of the former PIMCO business that we've rebranded as Payment Processing Solutions. We've had some very solid uptake in the credit union industry for some of the credit card transaction routing offerings that we did not have prior to completing that acquisition. That certainly has helped on the credit union segment side and I believe our sales have been pretty solid on the banking side, as well, for new EFT.

Yes, we had a very strong sales quarter this quarter for the banking side, for our ATM debit card processing. We're also continuing to see nice transaction volume growth in that business as well, which would account for what we're seeing in the way of revenue growth.

Thank you. Could you give us your insights into what implications you see from Fiserv's recent acquisition of Open Solutions; particularly what this means from a competitive standpoint in the credit union space versus Symitar?

We think the transaction makes sense probably for both companies. We certainly have had very solid competition for quite some time in both the banking and credit union segments. We've got significant momentum in the credit union segment and certainly anticipate that we will continue to win our fair share of the business. But I think the two companies are probably better off today as a result of the acquisition than they were separately, previously.

Thank you. A final question, Kevin, can you quantify software capitalization in the December quarter versus the year-ago quarter and what your expectations for total software cap are for FY13?

Yes, Dave, as we mentioned, our software cap ramped up in our June quarter last year and has remained relatively level at about the $11.5 million, $12 million range a quarter and I said it'd probably be at that level for the next couple years. For the quarter -- for the year to date, it was $23.7 million compared to $15 -- let's see, hold on. I have to find it David. I said in my opening comments, now I lost it. Yes, it was $23.8 million in year to date this year, $15.7 million year to date last year. So, it was sequentially about $11.5 million the last three quarters. That's probably where we're going to finish out the year, just double that. We're probably going to be up a bit, be at about $46 million for the year.

Thank you very much.

Glenn Greene, Oppenheimer.

Thank you, good morning, and nice results.

Thank you.

The first question, I want to just talk a little bit about the outsource backlog growth. It was a heckuva quarter and you've been having a number of these. I wanted to just get some sense of how much of that's coming from the credit union side versus the banking side. And really, in the context it's like the sales environment for each and what you're seeing?

Glenn, the sales environment's been very good on both banking and credit union. Credit union, in particular, has been very strong. While we do sell a higher percentage of outsourced solutions on the banking side, 90% or better of all new core transactions on the banking side are outsourced. On the credit union side, that number is probably about 60%. But we had, in addition to solid outsourcing sales in both, we also had good movement -- or signings, rather, of in-house customers looking to move to outsource processing. Several of those customers were pretty good size, $1 billion in assets or larger. That certainly contributes nicely to that backlog, but again, I think the sales environment is pretty solid in both segments.

All right. On the margin side, obviously, a nice uptick excluding the Sandy effects and the credit union side the 45%, I think, was probably a record?

It is.

I know, Kevin, you in previous years have been hesitant to suggest margins could move much, but I feel like we're at a -- I want to get a sense. Are we at a new higher level and can we continue to rise from here? Any reason to think not? I know you've also had a headwind from the bank failure environment for a number of years, which continues to lessen, is that a factor helping your margins at this point?

It's obviously a factor, Glenn. I'm not sure how to quantify how much pressure that is. As, obviously, the bank failures continue to anniversary, it decreases the headwinds on both revenue growth and margins. As far as the credit union side of the business, it's really due to, as Jack mentioned, the PPS, the electronic payments business, and the PassPort, the success we're having over on the credit union side. The outsourcing, as we've commented the last probably four years now, the trend of in-house outsourcing started on the bank side and it sped over to the credit union side.

I will tell you, year to date this year, we've actually had more credit unions sign up to move from in-house then we have banks in the first half of the year. I think that's going to continue now. Can we maintain a 45% margin? I think it's going to fluctuate a little bit. As I mentioned, we go into the March quarter, I think all of our margins go down as they do every year in the third quarter, for all the things I highlighted in the opening comments. But I think we are at a place where we can continue to trickle up margins slightly, but they're still going to fluctuate from quarter-to-quarter.

I would just add as well, that a potential offset to that improvement is the likelihood of continued declines in license fees. The market is shifting away from the traditional license model. It isn't dead, but it's probably dying. I don't know how long it's going to take, but the software is more and more not the preferred method of contracting for products. Certainly, the margins associated with license fees are dramatically higher and as that continues to tale off, as we frankly think that it will over the long-term, that's going to have some impact on margins as well.

All right. One final clarification question, for Kevin, in your outlook comments when you were talking about the current results, and I may have misheard this, but it suggested that, based on the $0.51, your viewing normalized ex the conversion fee in the quarter that you were behind schedule? I misunderstood that?

No, what I meant was -- on what our actual reported results were for the quarter was $0.47 was $0.03 behind consensus estimates.

Okay. Never mind. Thank you.

That's what I was referring to, Glenn.

Okay.

Sorry for the confusion.

Dave Koning, Baird.

Hello, guys, great job.

Thank you.

My first question just on the guidance comments, when Kevin mentioned low to mid double-digit net income in EPS growth, is that assuming the previous tax rate assuming that 36% stayed constant? Meaning, it'll be a little better than low to mid double-digits due to the IRS refund and then the R&D credit this quarter?

Yes.

Okay. Okay. What's the ongoing tax rate going to be like? If after this last quarter was an adjustment and then Q3, obviously, the R&D catch-up, but what would you expect the ongoing tax rate normalized to be?

Yes. That's a good question, Dave. This whole fiscal year 's effective tax rate is going to bounce all over the place because of what happened this quarter with the set on the IRS audit and with the R&D credits next quarter. Our effective tax rate for the year probably is going to be, I don't know, 30% or 31%. Then next year, we'll have the R&D credit for the first half of the year and then it expires again, so next year's probably going to be, I'm guessing, in the 35% range for the year.

Okay. Lower in the first half and then higher in the second half?

Yes.

Okay. Finally, it sounds like that the shift to outsourcing is almost happening a little faster, it sounds like, than maybe what you would have even thought a couple quarters ago. Does that mean that the license line, it's been in slow growth mode; maybe instead of slow growth maybe it's flatter and then obviously the support and service line continues to be really strong?

Dave, my prediction, again, long-term is that license fees continue to taper off. I don't know that we necessarily see a steep drop, but, again, I think customers are moving away from the license model and I believe that's going to continue.

Okay. Great. Thanks. Good job.

(Operator Instructions)

Pete Heckmann, Avondale Partners.

Could you talk a little bit more about the flooding issue? It seems like that the charge is awfully large compared to the relative amount of revenue that you would probably generate through that item processing center. Where some contractual obligations or some SLAs in the contract that required penalties over and above what you would normally receive for that type of service?

Pete, no. I think, frankly, it reflects more our feeling about what was fair and appropriate for our customers. It was a very difficult event for our customers, for our Company. We felt like that the right thing to do was some reimbursements for the difficulties that were encountered there and more of a quite frankly, thinking more about the long-term relationship with those customers than a short-term impact in the quarter.

Okay. It seems to me like that could be several years of profits from item processing, would that be correct?

I don't know, right off the top of my head.

But, Pete, the other thing you've got to remember is that even though we're just talking about an IT center, the vast majority of these customers are also on data processing centers and that's the relationship that we want to protect, because obviously that's where the profits come from is from the data processing side of the business. Yes, it might've been more than our IT profits were, but it was the right thing to do. There was, also -- other than just reimbursement to the customers and [compensating] them, there was also a pretty big chunks in there for our people's time, the overtime they worked, the relocations, moving people around, the property damage.

As Jack mentioned in his opening comments, I have filed some insurance claims, which are not reflected in the financials because we are not allowed to book insurance until you know that the claim has been accepted and approved and there will be other claims filed for some of this. There will be money coming back in. At this point, I'm not sure what that dollar amount is.

As regards as a follow-up on the capitalized software side, could you just describe some of the projects that are going on there and the relative timelines for them going into a live release?

Yes, this is Tony. We've got several significant projects, one of which is a new user interface that streams across all of our core and complementary solutions. It's a very large project that's been ongoing for some time and will continue to take place in the future. We continue to look at many things that are internet and mobile that we're working with that is in those numbers, as well as a significant architectural upgrade of our Episys solution and credit union market and probably a few others that I'm forgetting. Jack?

Those would certainly be the larger items, but when you have as many products as we have, there's always a need of ongoing architectural refreshes whether it's an asset liability management stand-alone solution or a core solution. There's continuous development on an ongoing basis on all those products that adds up.

For a continuous development of products that are in the field would you necessarily typically capitalize that?

Depends on the nature of what we're doing. If it's a significant re-architecture of product that's going to be likely to be able to be capitalized.

Pete, its [why] comes down to the accounting rules. If you look at a project and it meets the rules that are required to be capitalized under GAAP, then we have to capitalize it, which means it's going to be a product that either extends the life of a product, it's going to generate more revenue, or it generates new sales. If it falls in that bucket, it's capitalized. If it's just an enhancement that's not going to do any of that, then no, it gets expensed.

Okay. Okay. Talk about the relative interest from your customers from real-time processing versus multi- batch?

Certainly our credit union solutions are all real-time, always have been. On the banking side of the business, real-time is not a concept that has caught on or frankly, even requested in looking at RFP solutions and those things. It's pretty unusual to even see a question in the RFP regarding real-time capabilities. Will that, over time, become more of a more important factor? Possibly, but we certainly aren't seeing it near-term.

However, Pete, with some of the features that we have in our banking solutions with memo posting [another thing], it gives the effect of real-time currently today.

Okay, all right. That's helpful, thanks.

Brett Huff, Stephens, Inc.

Congrats on a nice quarter. One quick question, somebody, I think, asked about some of the other M&A going on. What about the ACI/ORCC deal and your thoughts on changing competitive landscape in bill pay because that or -- and also internet banking?

Brett, I don't know that I see that changing anything. It's the same product we've been competing with quite successfully for quite a while. It's under new ownership, probably not unlike the other transaction that was mentioned. It probably clears up some question marks around financial viability, of the previous company. Other than that, possibly making people a little more comfortable in looking at that solution, competitively, we frankly don't see it changing anything at all.

Okay. A follow-up question on the conversation before about in-house to outsourcing, that's been a trend over time. I just want to make sure I heard you right. It sounds like the accelerate -- that banks continue to do that, credit unions have accelerated a little bit. Is that the right takeaway?

If you look back over a three- to five-year period, the number of credit union transactions has been steadily growing. They came to that party a little later than the banks did, but in the last few years, it's definitely been picking up. We had a number of transitions that have taken place in the first half of the year or signings to take place. The other factor that is influencing it, Brett, is that the size of some the customers that are doing it, it's not just the small bank who's overwhelmed necessarily by technology. We're seeing some $1 billion to $2 billion banks that just don't want to manage the technology or either staffing issues or whatever their motivations might be. It has appeal to some pretty sizable customers, so even a smaller number of customers, but bigger customers could make a difference in that number as well.

Can you guys give us a sense of -- your organic growth has been really good and it sounds like a good chunk of that is from the cross-sales you're doing and getting some of the transaction growth and the payment stuff that you invested in. But it also seems like this is contributing to that. Can you give us a sense of how much this in-sourcing -- in-house to outsourcing contributes to the organic growth in a rough sense? Is there any way to quantify that for us?

I don't know if I can quantify it for you, Brett, but as we've said in the past, and you've heard Jack and I say this for the last three or four years because we've got the slide that actually shows it. When the typical bank or credit union goes from in-house to outsourcing, the wallet share that we get from that FI essentially doubles. Whatever they were paying us for in-house maintenance, hardware maintenance, DR, whatever, on average, we're going to make -- we're going to get double the revenue out of them the next year. Plus it ties them into a long-term contract, plus if they get acquired, they have an early termination fee, which they don't have if they're an in-house customer.

There's a whole bunch of positive things that go with this move besides just the doubling of revenue. Obviously, the contribution from the revenue in true dollar amount is going to alter significantly from quarter-to-quarter, year-to-year depending on the makeup of the banks that we move. For example, two years ago, we had 45 FIs that moved over, but last year, I think, we had about the same number, but if the makeup is, the average asset size has doubled last year, then the wallet share we're going to get out of them is going to be a whole lot more. It's a moving target, but all I can say at the end of the day, Brett, is it's a really good thing for Jack Henry long-term and it is having a very nice impact on our overall growth.

Further clouded, although we're, we believe, now getting past this point, but we talked a good bit about the headwinds from bank failures that we've dealt with over the last few years and certainly those have slowed down, but you've still got to grow over the previous ones. I think for the most part, we're largely there. But even the growth that you see coming from end out transitions has been offset somewhat by the bank failures and the lost revenue there. Separating those numbers out just makes it a little bit more challenging, but again, it's a phenomenon we expect to see to continue moving forward.

Great. That's what I needed. Thanks for your time, guys.

Greg Smith, Sterne Agee.

Just wondered about how we should think about the use of the balance sheet over the next year? Are you looking for acquisitions? If, let's say we don't see anything, would you be inclined to buy back more stock? Just can you help us out there, please?

Yes, Greg, obviously, we've been looking at acquisitions and we will continue to look at acquisitions, trying to find the right one. But as you well know, we've got a pretty rounded product suite, so it's not like we have any big gaping holes to go find something. But we will continue to look and then I'm sure we'll find something down the road. But, yes, in lieu of that, if we don't find the right acquisition, I'm sure we will get a little more aggressive in buying back stock. We did not buy stock back this last quarter, primarily because of the Lyndhurst event. I had about 300 of my employees blacked out during the quarter and if I got my employees blacked out, then I black the Company out.

Got it. Okay, that makes sense. There's been some talk about some of the M&A. Is there really any further consolidation, any meaningful consolidation to go at this point in the industry? Do you think we're pretty much done, there'll be small things here and there? How do you think about that?

Greg, I think it's largely down to smaller kinds of transactions. Kevin mentioned that we continue to look at acquisitions and frankly, we looked at both of the ones that were mentioned earlier on the call. They solve different problems for somebody else than they do for us. If I'm buying a product that I've already got that product in my suite, then my incremental revenue gains are going to be probably modest. My cost takeout, it just depends, but generally, there's going to be a lot of integration effort associated with that. If that solves a big enough problem for you, then it's worth doing, but if not, we're better off focusing on continuing to offer the best of breed solutions that we already have.

But as I look out there, I can't tell you that I see any significant core consolidation opportunity like the open transaction out there. Certainly, everybody knew something needed to happen there because of the balance sheet challenges, but getting away from that one that was fairly obvious, I don't know if there's anything that's obvious to me that needs to happen. The folks that are out there are doing okay and operating pretty well and I'm not aware of any pressures that are going to push anybody to go to anything as a result of anything we've seen thus far.

Okay. That's helpful. Thank you.

Thank you. There are no further questions at this time. I'll turn the call back over to Kevin Williams for closing remarks.

Thanks, Latoya. I just wanted to mention that you all will be getting invitations shortly and a hold the date email for our annual Analyst Day. If you want to mark your calendars, it will be held at the Grand Hyatt at the DFW Airport on Monday evening and Tuesday morning, May 6 and 7, which will be the Monday and Tuesday after our third quarter earnings call. We hope that all of you can find time to join us for that annual event. In summary of the call, we want to thank you for joining us today to review our second quarter fiscal 2013 results.

We were pleased with the results from our ongoing operations and the efforts of all of our associates to take care of our customers. Our Executives, Managers, and all of our associates continue to focus on what is best for our customers and shareholders. With that, Latoya, would you please provide the playback number?

Yes. Ladies and gentlemen, this conference will be available for replay after 11.45 Eastern today through February 13 at 11.59. You may access the replay system by calling 800-585-8367 and entering the access code of 90545827. Again, the number is 1-800-585-8367. The access code is 90545827. That does conclude our conference for today. You may now disconnect.