Good day, and welcome to today's Jack Henry Fourth Quarter 2012 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.

Thanks, Kevin, good morning. Thank you for joining us today for Jack Henry & Associates Fourth Quarter and Fiscal Year 2012 Earnings Call. I'm Kevin Williams, Chief Financial Officer. With me today is Jack Prim, CEO; and hopefully joining us shortly, Tony Wormington, President. The agenda for the call this morning is similar to what we've done in the past. Jack will start out with some highlights of the quarter. Then, we'll provide some additional operational highlights. Then, I will provide some additional comments on the press release we've put out yesterday and provide additional comments on the financials. And finally, we will open up after that for Q&A and take your questions and hopefully, try to answer all of your questions that you may have. 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 could cause actual results or events to differ materially from those which we anticipate due to a number for risks and uncertainties, and 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 will now turn it over to Jack Prim.

Thanks, Kevin. Good morning, and welcome to the call. We are pleased to announce record revenue and earnings for the fourth fiscal quarter and fiscal year 2012. We reached 2 noteworthy milestones in the quarter, as we finished the fiscal year with over $1 billion in annual revenue and a total market capitalization in of excess of $3 billion. We want to express our appreciation to our 11,000-plus customers for their continued business and our over 4,900 associates whose hard work on behalf of our customers continues to make this company a success. Total revenue increased 7% for the quarter and 6% for the full year, all of which was organic. Operating income grew 5% for the quarter and 9% for the full year in line with or slightly ahead of our year-ago guidance. Net income and earnings per share grew 18% in the quarter and 15% and 12%, respectively for the year, both well ahead of our year-ago guidance. The economic environment appears very much as it did a year ago, stable and slowly improving and there continues to be a downward trend in the number of bank failures. While uncertainty remains in the political environment and on the international economic front, we believe the balance sheets of our customers are in better shape to withstand potential economic setbacks than they were in 2009. We saw another favorable sales environment during the year, with all of our brands, JHA banking Symitar and ProfitStars finishing ahead of their sales targets for the year. We saw a strong banking core systems sale including several in the mid-tier segment. Symitar continued to lead the credit union industry and new core system sales as it has for more than a decade. With 3 signings of credit unions over $1 billion in assets, Symitar further expanded its lead as the preferred solution for large credits unions, with 37% of this segment of the market now committed to the Episys platform. ProfitStars had strong cross sales to its non-core customer base, which now numbers almost 10,000 institutions. Our payment products had strong sales and transaction growth throughout the year. We tied a previous record high number of current in-house customers committing to outsource processing, and that combined with the high percentage of new core sales committing to outsourcing, 90% of new banking wins and 60% of new credit union wins allowed us to show a 10% sequential increase in our backlog and a 21% increase year-over-year. While delivering a solid financial performance for our shareholders, we also maintained our industry-leading customer satisfaction scores well ahead of our corporate targets. We are pleased to have recently announced 2 new members to our Board of Directors. Jackie Fiegel and Tom Wimsett, will bring solid banking and payments experience to our board, and we look forward with their input and direction. With that, I'll ask 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 8% over the prior year quarter and 7% for the year and represents 88% of total revenue. The largest contributor to this was our electronic payments revenue, which grew 15% compared to the prior year quarter and 12% for the year and represents 34% of total revenue. Our outsource data and item processing services increased 5% for the quarter and 5% for the year and represents 18% of total revenue, which is driven by both new customers who prefer this delivery 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 2% for the quarter and 1% for the year and represents 26% of total revenue. In addition, our onetime implementation revenues increased 6% compared to the prior year quarter and 6% for the year and represents 7% of total revenue. The demand for implementation services in all areas of the company remains very strong due to new business resulting from competitive takeaways, in-house to outsource migrations, conversion and merger-related activity, digital's FDIC closures and voluntary M&A, as well as additional complementary product purchases for existing clients. Our electronic payments transaction volumes continue to experience very solid growth. Passport, ATM and debit card processing volumes increased 12.7% over the prior year quarter. Bill pay transaction volumes increased 18.1% over the prior year quarter. Financial institution merchants installed and utilizing our Enterprise Payment Solutions increased to over 40,000 merchants, representing 12.2% increase compared to the prior year quarter. Merchant-related transaction volumes increased 14.7% over the prior year quarter. I would like to thank our customers to -- for their business and their continued loyalty to JHA, represented by purchasing additional products and services, as well as referring JHA to their peers. Initially, I want to thank our over 4,800 associates for their dedication, loyalty and taking care of our clients. I'll now turn it over to Kevin for further look at the numbers.

Thanks, Tony. Total revenue increased 7% for the quarter and 6% for the year compared to the same periods a year ago. But within this total revenue, our license revenue decreased by 8% for the quarter compared to the prior year. License revenues for the full year was actually up 3% compared to the prior year. Support and service revenue increased 8% this quarter, over the same quarter a year ago and represented 89% of our total revenue. This line increased 7% for the full year. Within the support and services, it breaks down into the 4 components that we always talk about: implementation, electronic payments, OutLink, in-house maintenance. Our implementation services increased 6% for the quarter and 6% year to date compared to prior year. Our electronic payments increased 15% for the quarter and 12% year to date. OutLink increased 5% for both the quarter and year to date, and our in-house maintenance increased 3% for the quarter and 2% year to date. Hardware revenue actually increased 6% for the quarter and 3% for the entire year compared to the prior year periods. Our consolidated gross margins decreased slightly to 41% for the quarter compared to 42% the same quarter a year ago. License margins increased to 90% this quarter from 88% a year ago, while support and service margins decreased slightly to 39% this quarter from 47% a year ago. And our hardware margins decreased 25% from 27%, primarily due to sales mix and lower rebates that we got this quarter compared to a year ago. To break this down into our 2 reporting segments, our banking segment gross margins decreased to 40% compared to 43% a year ago, which is a tough comparable, but this primarily in the quarter due to onetime -- some onetime write-offs with some underperforming assets and year-end clean-up items that we did as of June 30. Our credit union segment margins increased to 41% from 37% a year ago, primarily due to solid increases in license revenue and OutLink and electronic payments penetration and growth in those lines of business. The bank segment license revenue of $9.1 million was down 14% from $10.6 million a year ago. The margins improved to 88% from 86% a year ago due to the sales mix of the license components. Support and service revenue for that bank segment increased 5% to $180.5 million from $171.3 million a year ago, and margins decreased to 39% from 41% a year ago, again, due to the items I previously mentioned, some year-end cleanup. And hardware revenue increased 7% to $11.3 million from $10.6 million a year ago, but margins decreased to 26%, again, due to significantly lower rebates in the quarter. In our credit union segment, license revenue increased 8% to $4.9 million from $4.5 million. Margins increased to 94%, again, due to sales mix and sale of fewer third-party products. Our support and services revenue increased 18% in the credit union segment to $56.2 million from $47.9 million a year ago, and margins improved to 38% from 34% a year ago. Our hardware revenue increased 5% to $4.6 million from $4.4 million a year ago, and margins improved to 23% from 22%. Total operating expenses increased 3% for the quarter compared to the prior year and as percentage of our total revenue, decreased to 18% of total revenue from 19% a year ago. This is primarily due to higher selling and marketing expenses, which is primarily driven by sales commissions this quarter, due to increase in the revenue and sales bookings, which is offset by slightly higher capitalization of R&D projects, which caused R&D to be down slightly, as we've got some very large projects in the works that are being capitalized. And G&A was also down a little on the quarter. Our total operating expenses for the year are up 2%, and decreased to percentage of total revenue to 18% from 19% last year. Our operating margin for the quarter stayed level at 23% for the year, improves 23% from 22% compared to a year ago. Net results with operating income increased 5% for the quarter and 9% for the year compared to the prior year. The effective tax rate for the quarter was 28.5% compared to 34.9% last year, primarily due to the completion of an IRS audits of some tax returns for several previous fiscal years, which has resulted in a total of $3.3 million with interest of previously unrecognized tax benefits related to those years that we recognize in the quarter. The impact of this with the tax effected issue interest impact was approximately 3% impact to EPS, which means that we came in just slightly ahead of consensus estimate for the quarter. Our EBITDA increased approximately 6% to $86.2 million from $81 million a year ago quarter. For the year, EBITDA increased by 8% to $332 million from $307 million a year ago. Depreciation and amortization expense of $24.2 million this quarter, with $12 million in depreciation and $12.1 million in amortization, compared to $22.9 million in depreciation and amortization this quarter last year. For the year, depreciation and amortization was $94.6 million with $45.3 million depreciation, $49.3 million in amortization compared to $90.5 million last year. Included in the total amortization is the amortization of intangibles from acquisitions, which was $5.8 million for the quarter and $24.2 million for the year. Our operating cash flow increased to $264.6 million from $240.1 million a year ago. To firm up some guidance for 2013, we anticipate that our revenue will continue along the same trends that we've seen the last fiscal year. There's been nothing really significant to change that, so we think our revenue will continue to grow in the mid-single, potentially little higher revenue growth, which we will get some leverage from that. So we anticipate that our operating income will grow in the high-single, potentially low double-digit range for FY '13. That concludes our opening comments. With that, Kevin, will you please open up the line for Q&A.

[Operator Instructions] Our first question comes from Rayna Kumar with Evercore.

I'm calling in for David Togut. Will this software capitalization for the fourth quarter? And how does that compare to last year? And how much software R&D do you expect to capitalize in FY '13?

It was up about 20%, if I remember it correctly, from last year in this quarter due to some large projects we've got going on, especially in our credit union side. Cap software for this year should be about level in FY '13 for where it was in FY '12 because a lot of these -- the majority of these projects are long-term projects. We've got the experienced project on the bank side. That is an ongoing project and then some large projects on the credit union side, our multiyear arrangement side. I think cap software in 2013 will be somewhere in line from where it was in 2012.

Okay. And just one follow-up, I noticed G&A was down 4% for the quarter, while revenue was up 7%. What were the components of that decline in G&A?

Primarily, it's professional associate costs and some litigation settlements that occurred in this quarter last year that were not in this quarter.

Our next question comes from John Kraft of D.A. Davidson.

First off, just a quickie on tax as going forward for you, Kevin, what's your best guess?

Well, that's a wild card, John. I don't know that we have any more wildcards like we had in this quarter because that was just an IRS audit, which obviously, when you have a refund like that, it actually has to go in front of the -- a federal tax joint committee to get approval on that, so the timing of that was unknown. It happened this quarter, so we had to book it. But for FY '13, you all should probably, at this point, John, use 36%, best guess. The wildcard is the R&D credit that's there. And I think, that's probably the only wildcard out there that I'm aware of this year.

And then looking at the backlog, another record in growth, trying to reconcile that with some of the -- looks like acceleration and some of the electronic payments. Your growth, I think Tony said 18% in bill pay transactions versus last quarter. If I have my number's correct, it was 14%. Were there bigger implementations in the quarter? Or what do you attribute to the acceleration?

The acceleration in the backlog, John?

Well, actually, sorry, no. In the electronic payment, the bill pay specific transactions.

Yes, because remember, John -- just to clarify it, there is no electronic payments in the backlog.

Right. [indiscernible] was what [ph] ?

Backlog is...

Looking at last quarter's record backlog, did you have some of those implementations kick in or was that really sort of a true same-store sales underlying growth acceleration within the customer base?

Okay, but, John, remember there's no electronic payments in backlog. Outsourcing backlog is just data and item processing, so we can't really tie those 2 together. The growth in electronic payments is just coming from increased adoption and I'll tell you, the decrease in bank failures.

Our next question comes from Peter Heckmann with Avondale Partners.

Did the data center consolidation project get completed in the fourth quarter? And will we be able to see that in margins in the first half of fiscal '13?

No. Peter, as we indicated previously, we're-- that's looking to be completed in the fourth calendar quarter, so by the end of December. It is progressing right in line with what we had talked about. There will be some slight improvements in margin between that and another consolidation project that we have going on that would likely show up in our fourth fiscal quarter. Both of those are going to be completed in the fourth calendar quarter of 2012 with some slight improvements to be seen in the fourth fiscal quarter FY '13.

Okay, okay. And then good solid organic growth in the quarter, do you feel as if you're starting to see the headwind of bank failures to moderate a bit?

Yes. It's a little bit of the time. It's not -- its kind of going to continue to be a gradual thing. We're still going over. We still had a few failures this year but fewer than last year and smaller than some previous year. So I definitely think we're gaining on it.

Okay. Okay. And then, I see that you did buy back some stock in the quarter. Relative thoughts about uses of cash flow and keeping some debt on the balance sheet? Is it still acquisitions kind of be in a preferred use of cash? And should we infer that you're just not seeing the right deals out there?

Well, Pete, I would tell that currently we have a little over $200 million in cash. We've got about $125 million left on our term note, but the all-in cost of debt on that is about 3%, so I don't know that we're any hurry to accelerate payments on the term debt. We'll probably keep some dry powder. Obviously, we would love to find the right acquisition, and there's some out there, but finding the right one that fits our requirements, as you know, has always been challenging to find the right ones. But we will keep looking. We still think that's the best use of our cash. But having said that, without finding the right acquisitions, I'm sure we will continue to opportunistically buy back some stock.

Your next question comes from Nathan Novak, Baird.

With operating expenses, you mentioned earlier, it's pretty much at its lowest as percentage of revenue or it has been in quite some time. What are the drivers of that? And do you consider that possible to still decrease going forward?

I don't know if we can decrease them anymore. We've been very good at maintaining our -- especially G&A and R&D for several years. I mean, selling and marketing continues to go up. R&D continues to up as a percentage of revenue. We have done a very good job of holding G&A in line and getting leverage for several years now. I don't know if we can take that down any lower as a percentage. A lot of that depends on the wildcards, the litigation and different things out there that we have no control over that flush through G&A. But I think we can maintain the percentage of revenue at similar levels going forward through FY '13.

Got you. Would it be fair to say any potential margin expansion might be possible to more easily leverage gross margin instead of operating margin?

I don't know if I'd say it'd be easier because the wildcard you've got in the gross margins is implementation revenue that can bounce around a lot -- quite a bit, and that can have the biggest impact on our margin in any given quarter. But I think for the year, there's some potential expansion in gross margins, as we continue to see the trend from our in-house customer needing outsourcing. We continue to bring on new customers, and our payments business continues to grow. As far as the operating margin line, I think there's still some probably leverage in the G&A line. Selling and marketing will continue to go up, as revenue goes up. R&D will continue to be 6-ish percent of total revenue, so as revenue growth because we'll move up in a bigger banks. So I think there are some potential leverage to both lines, but I don't know that one's any easier than the other.

Got you. And just last one for me is just a housekeeping one. Interest income, higher in Q4 and it has been in quite some time. What was the reason for that?

What was?

Interest income.

Interest income was basically from the settlement from the income tax. We got some interest from that, and then there was another settlement that we got some interest income from. So that won't be there going forward.

[Operator Instructions] Our next question comes from Brett Huff from Stephens Inc.

Can you comment a little bit about the -- I think it's your analyst day, you guys had talked about the headwinds that you see from bank closures or at least forced bank acquisitions among some of your customers and some of the headwinds you see in terms of organic growth from that? Can you talk about the state of that kind of a headwind, whether you see it abating more? I think, you had talked about it. It was abating a little bit, and hopefully, over time, it does that. And then the potential impact on your margins over kind of whatever time period you think that starts to taper more.

Well, I mean, obviously, Brett, the number of failures is down this year from last year, and the size is down. Jack mentioned at the analyst day, the real impact and headwind to us depends on which customers it is, depends on whether they're in-housed or outsourced. It also depends on what are those failed institutions out there our customers are buying, whether they go in-house or outsources because there's a lot of different variables out there that you can look at. Are the headwinds getting fewer? Yes, just because the number of failed institutions is going down. But how do we quantify that into decreased headwinds? I mean it's kind of a crystal ball right now at this point. It's is it going down? Yes. How much? At -- in any given quarter, I don't know I'm ready to say that.

Brett, to the extent that we can look at previous failures of our customers and when they fail, we certainly can look at, okay, well, we got to grow over that particular slice of revenue, and that's pretty well baked into the guidance that Kevin gave earlier. But beyond that, as Kevin said, there's just a lot of variables, which ones and when and how big, those kind of things that are really hard to predict.

Great. That's helpful. Then finally, last question is on the revenue growth for electronic payments obviously continues to be really good. Can you give us a sense of -- I think you guys are doing a really good job of additional penetration, selling that stuff to all your customers, net teller customers and things like that. How much of your sense of that is same-store sales growth of that 15% revenue growth on the electronic payment versus sort of taking share of wallet from other vendors or other providers who were providing that before. Any sense of how that breaks down?

Yes. This is Tony. The same-store growth is very strong. We ran adoption campaigns for the entire year, for instance, in the bill pay side of the business. And while we grew at 18.1% for the quarter for the year, our same-store sales for bill pay transaction growth was around 16%. So significant campaigns for adoption, and I would tell you that our number of subscribers per institution is at an all-time high. So a lot of that growth is coming from just continuing to increase the adoption within our existing institutions, even though we had a very large number of institutions that we converted in both Q3 and Q4.

Our next question comes from Nathan Novak with Baird.

Just a couple of quick more on guidance for me. This time around, you did say operating income, high single, potentially, low double digits, correct?

Which is the basically the same guess I gave last year, and the reason I give that guidance is -- rather than EPS -- is because I -- in answering your earlier question, the tax rate is a wildcard. If you want to assume a tax rate of 36%, then you're going to get about the same leverage to net income that we're going to get to operating income. If the R&D credit kicks back in, then net income is going to be significantly higher new, it will be in the double-digit growth. So I'm just trying to give you all what I think you should put in your models in. You all can put your own income tax rate and whatever else in there.

Very helpful. And does that assume any incremental share buybacks at all?

No, no buybacks or acquisitions. We never assume those in our guidance.

Our next question comes from Peter Heckmann with Avondale Partners.

Follow-up, Kevin, so can you give us the total software capitalized for the year. Was it something around $30 million, $32 million?

Total for the year was $37 million.

$37 million. Okay. And so -- I guess it's fair to say that a higher level of software capitalization added a bit to margins in '12, and if we look at last software capitalization next year, you removed some of that benefit and on a net basis, compared to what's being amortized? You expect software capitalization be a benefit to earnings in '13?

It'll be -- potentially a slight [indiscernible], but not too nice it was this year; and also, our CapEx for this year was $41.4 million, which is up from last year. That is probably about the same run we'll have in FY '13 from a CapEx perspective. As we've got some of these projects like the data center consolidation and other things going.

I'm not showing any further questions at this time. I would like to turn the conference back to Kevin Williams for closing remarks.

Thanks, Kevin. Again, we want to thank you for joining us today to review our fourth quarter fiscal 2012 results. We look forward to FY '13. We're pleased with the results and the efforts of all of our associates and to help control our cost and at the same time, continue to take care of our customers. Jack, Tony, and I want to thank you for joining us. Our executives, managers and all of our associates continue to focus on what is best for our customers and our shareholders. With that, Kevin would you please provide the replay number?

For U.S. callers, the replay number is (855) 859-2056, and for the local callers also that's (404) 537-3406. And this does concludes today's presentation, you may disconnect, and have a wonderful day.