Kevin D. Williams - Chief Financial Officer, Principal Accounting Officer and Treasurer John F. Prim - Chairman and Chief Executive Officer Tony L. Wormington - President

David Togut - Evercore Partners Inc., Research Division Brett Huff - Stephens Inc., Research Division David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Good day, ladies and gentlemen, and welcome to your Jack Henry Third 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. Kevin D. Williams: Thank you, Roan. Good morning. Thank you for joining us this morning for the Jack Henry & Associates Third Quarter Fiscal Year 2013 Conference Call. I am Kevin Williams, CFO, and on the call with me today are Jack Prim, CEO; and Tony Wormington, President. The agenda for the call this morning will be as follows. Jack 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've put out yesterday after market and provide some additional comments on the financials; and then we will open up for Q&A. 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 material -- actual results or events to differ materially from those which we anticipate due to a number of 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'll now turn the call over to Jack. John F. Prim: Thanks, Kevin. Good morning, and welcome to the call. We are pleased to again announce record revenue, net income and business backlogs for our third fiscal quarter. The news in this quarter is that there's not a lot of new news, just continued solid execution. Revenue growth was strong at 10%, all organic, with good contributions from all areas. License fee rose 11% to their highest level in the last 3 years, driven largely by strong results in the Credit Union segment. Implementation fees were up across the board in both core and complementary product areas. Our payments revenues rose 18%, with double-digit growth in every category of payments. Solid attention to expense management by our managers led to a 16% increase on operating income and 25% increase in net income for the quarter. Our biannual employee opinion survey completed in the quarter showed gains in every measured category, and our customer satisfaction levels remained at their industry-leading levels. We look forward to seeing many of you at our Analyst Conference next week, where we will go into more detail on these and other areas of our business. With that, I'll turn it over to Tony for a closer look at the business. Tony L. Wormington: Thank you, Jack. We are again pleased with the strong contributions in all components of support and services, which increased 11% over the prior year quarter. As Jack indicated, 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 6% for the quarter over the prior year quarter. Our in-house annual maintenance fees increased 4% over the prior year quarter. In addition, our onetime implementation revenues increased 15% compared to the prior year quarter. Our electronic payments transaction volumes continue to experience very solid growth. Our PassPort-only ATM and debit card processing volumes increased 9% over the prior year quarter, while all of our payment processing solutions, ATM, debit and credit transaction processing volumes increased 15.4% over the prior year quarter. Our bill payment transaction volumes increased 21.8% over the prior year quarter, and our financial institution merchants install and utilizing our Enterprise Payment Solutions increased to over 45,000 merchants, representing a 17.8% increase compared to the prior year quarter. And our merchant-related transaction volumes increased 17.9% over the prior year quarter. I look forward to seeing many of you at the Analyst Meeting next week. Now I'll turn it over to Kevin for a further look at the numbers. Kevin D. Williams: Thanks, Tony. As Jack mentioned, our total organic revenue increased 10% for the quarter compared to the same period last year. License revenue increased 11% for the quarter compared to the same period a year ago, however, license fees only represent 6% of our total revenue. Support and service revenue increased 11% this quarter over the same quarter a year ago and represents 89% of total revenue. Deconversion fees in the quarter, which combine both OutLink and our electronic payments, were a total of $4.2 million this quarter, which is exactly flat with same quarter a year ago of $4.2 million. So there's no true impact to revenue from deconversion fees. To break out our support and services revenue, implementation revenues of $20.6 million in the quarter increased 15%; electronic payments of $103.1 million increased 18%; OutLink, which is our data and item processing, revenue of $52.2 million in the quarter increased 6%; and our in-house maintenance of $74.5 million increased 4% for the quarter. Our hardware revenue actually decreased 2% for the quarter compared to prior year and still represents 5% of our total revenue. Our recurring revenue, which is OutLink, electronic payments and in-house maintenance, grew 9.4% for the quarter compared to the prior year and represents 79% of our total revenue for the quarter. Consolidated gross margins improved to 41% for the quarter compared to 40% in the year-ago quarter. License margins increased to 92% compared to 84% a year ago. Support and service margins held steady at 38% compared to a year ago, and hardware margins improved slightly to 27% from 26%. To break this down into our 2 reporting segments, our Banking segment gross margins were flat at 40%, and our Credit Union segment margins increased to 42% from 40% a year ago. In the Bank segment, license margins increased to 90%; support and service margins for the Bank segment decreased slightly to 38% from 39%, primarily due to increased depreciation expense from additional investments in our company; hardware margins improved slightly to 28% from 27% a year ago. The Credit Union segment license margins improved slightly to 95% from about 90% a year ago; and support and service margins held steady at 38%, while hardware margins in the Credit Union segment decreased slightly to 24% from 25% a year ago. Our total operating expenses increased 4% for the quarter compared to a year ago. However, we did receive approximately $2 million this quarter in insurance reimbursement for some of the additional expenses related to Lyndhurst incident last year, which is included in this line. We are still trying to get additional insurance reimbursement, but this was just for one of the claims on additional expenses. Without the impact of the insurance in the quarter, our operating expenses would have increased approximately 8% for the quarter, which is just a little over $0.01 EPS impact for the quarter. As a percentage of total revenue, operating expenses decreased to 17% from 18% last year, or without the insurance, reimbursement would have been flat at 18%. Our operating margin for the quarter increased to 23% from 22% a year ago. Our operating income increased 16% for the quarter compared to last year's third quarter. The effective tax rate for the quarter was 29%, which was down from 33% last year, which is primarily due to the Research and Experimentation Credit, or the R&E Credit or some people call the R&D credit, being signed into law during the quarter, which retroactively extended the credit from January 1, 2012 to January 31, 2013, which served as a catch up in this quarter for this, as we've discussed the last quarter. Our EBITDA increased to $92 million for the quarter compared to $79.6 million a year ago. Depreciation and amortization expense of $26.2 million this quarter, which $14.1 million in depreciation and $12.1 million amortization, compared to $23.1 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 for this quarter compared to $5.9 million in last year's quarter. Our operating cash flow for the year increased to $152.4 million from $118 million a year ago. Free cash flow to-date is calculated as operating cash flow less capital expenditures of $28.4 million this year, which is up slightly from $26.6 million last year; capitalized software of $37.9 million compared to $25.9 million last year, which we are continuing to run at about a little over $12 million quarterly run rate on capitalized software, as we discussed on the previous 3 calls; and dividends of $31 million year-to-date, up from $28.2 million last year. Our free cash flow increased to $55.1 million to-date this year compared to $37.4 million last year. This equates to free cash flow per share of $0.64 year-to-date compared to $0.45 last year. Our in-house backlog, which represents contracts in hand for software, hardware and implementation services yet to be delivered, is at $100.5 million, which is up 22% from this quarter last year. Our outsourcing backlog, which is for data and item processing contracts only, was at $359.5 million and is up 14% compared to last year. Total backlog was up 16% compared to a year ago. And again, these backlog numbers do not have anything in there for electronic payments business, which is now over 35% of our total revenues. Looking forward, we finish off the year with our continued revenue growth at approximately the same pace as we have seen year-to-date. Our gross and operating margins should stay solid and pretty much in line. However, as we have talked about before, there's always some quarterly fluctuations within our margins. For the year, we are still projecting to finish in the low- to mid-teens range for growth in net income EPS without anticipating any additional interest proceeds in the fourth quarter. For your modeling, our taxes for the fourth quarter should be approximately 33%, which would make our effective rate about 32% for the full year. My best guess for next fiscal year, FY '14, our effective tax rate should be about 35% based on the current tax laws. We have just kicked off our FY '14 budget process, but initially, we don't see anything that should changed our current growth trajectory significantly, so we should continue to see top line growth in the high single digits with some leverage to the bottom line. That concludes our opening comments, and we are now ready to take questions. Operator, will you please open the call up now for questions?

[Operator Instructions] Our first question comes from the line of David Togut from Evercore Partners. David Togut - Evercore Partners Inc., Research Division: Electronic payments continues to grow at a high teens rate. In your view, how sustainable is this rate of growth? It's certainly accelerated over the last few quarters. John F. Prim: David, payments is and has been the fastest-growing component of our revenue for quite some time. We certainly expect that to be the case. We expect it to be in double digits. Whether it's sustainable at high teens or not, probably it's likely to pull back some from there. But again, we expect to see continued solid growth in the payments business. David Togut - Evercore Partners Inc., Research Division: I see. And then any thoughts on Fiserv's recent acquisition of Open Solutions in terms of head-to-head competition versus Symitar in the large credit union space? John F. Prim: Not really. We continue to do quite well. I think we've signed 3 credit unions in the quarter that were over $1 billion in assets. That was out of 11 new core sales that we had in the quarter. So we're doing pretty well and hope to continue to do so. David Togut - Evercore Partners Inc., Research Division: Got it. And then finally, Kevin, what was the software capitalization in the quarter, and how does that compare to the year-earlier quarter? Kevin D. Williams: David, actually, I don't have the -- for the quarter right in front of me. I mean, year-to-date, we're at $37.9 million cap software compared to $25.9 million last year, so it's up quite a bit. But as we've talked about since last May, our cap software has stepped up, and it has remained pretty flat at just slightly over $12 million a quarter this year-to-date as we continue with those significant projects that we've talked about all year. David Togut - Evercore Partners Inc., Research Division: What would you expect for cap software next fiscal year? Kevin D. Williams: I would anticipate for next year, David, that our cap software run rate is going to stay pretty steady with where it is right now. Because as we've talked about, these projects that we have going on are all multiyear projects.

Our next question comes from the line of Brett Huff of Stephens Inc. Brett Huff - Stephens Inc., Research Division: One question I had. The pipeline for implementation -- or the implementation services sound like they are very strong, and I know you guys had some things that you are working on. Can you give us a sense of how that pipeline looks? I mean, Jack, you just mentioned that you signed more core processing wins, so that it sounds like that bodes well. But any thoughts on how we should think about the strength in that particular revenue line? Kevin D. Williams: I will say, Brett, that our implementation backlog is just probably at full now, as it has been in history. As Jack mentioned, we've had some very good credit union sales, but I will tell you on the banking side, which Tony can jump in here, we've had some very nice banking wins, some mid-tier deals. And our backlog is very solid for both in-house and outsourced implementations for some time going forward. Brett Huff - Stephens Inc., Research Division: Okay. And then in terms of the overall environment, has the conversation shifted any since the last couple of quarters? Are we focused more on revenue, are we focused less on cost, or are there -- was it compliance still? Can you give us a sense of what customers are really wanting to buy right now? John F. Prim: Brett, there hasn't been a significant change. It's a slow but steadily improving operating environment, and I think that's kind of reflected in the spending patterns that we're seeing. And different institutions are going to have different needs. Some will be more heavily focused on compliance. Some will be more heavily focused on revenue generation. And then as we've talked about, we've seen a good number of both banks and credit unions that are making decisions to replace their core systems to make sure they're on a platform that's better aligned with their long-term strategic plans. So it's not significantly different. It's going to vary from institution to institution. Brett Huff - Stephens Inc., Research Division: And then last question for me is a little bit bigger picture. In terms of mobile banking, I know you guys have a strong foothold in that, what is kind of the revenue model either for the banks and/or for you all on that? Is that a check-the-box kind of thing for banks, and -- or how do -- are they thinking about it and how are you thinking about it from a revenue model point of view? John F. Prim: At this point, Brett, I think it is probably for the financial institution kind of a check-the-box. I mean, it's a solution that they need to offer. I think that longer term, there is the potential for less investment in branch channels. Certainly in traditional branch channels, where we're seeing more banks starting to talk about the branch of the future, and typically that means to most of them some type of scaled-down footprint, smaller staffing, more tablet-oriented interactions with customers, both in the branch and capabilities that they would offer to the customers. So again, at some point, maybe it has an impact on their branch-related expenditures, but at this point, it's more of a check-the-box. It's a solution that they need to offer. From our standpoint, the revenue model tends to be relatively small dollars per customer using the mobile solution. We expect that to grow over time as we get more and more adoption of mobile capability. We're doing a lot of work and investment around sort of a broader infrastructure of mobile, not just "hey, can I mash this button on the phone and get it to do this?" We're certainly keeping up with those capabilities as well. But we're taking a little broader look across all of our platforms so that we have more common standards, because there are many areas of our business that are going to need and involve mobile capabilities or tablet capabilities of some type, and we're trying to have a little more consistent user presentation there. So we're doing some plumbing work, essentially, to kind of have a more consistent set of standards across the board, as well as the feature -- individual feature components, as well. Brett Huff - Stephens Inc., Research Division: And sorry, I have just one more, if I can. It's sort of a similar question. From peer to peer, it seems like most folks are either aggressively investing or somewhat investing in peer-to-peer, either be it banks or nonbanks. What is your -- I think that falls in ProfitStars for you all. How does that come along? Is it a fast growth? Is it meaningful yet? Do you have -- do you see the kind of adoption or use cases that makes that a long term, very large secular grower? Or sort of what's your take on that? John F. Prim: Yes. We have a P2P payment offering, Brett, as you know, that came via our iPay acquisition, so they've had that for a number of years. We have definitely seen an acceleration in the uptake of that product. I want to say -- I don't have the numbers right in front of me, I want to say it was somewhere in the 26% to 30% growth range this last quarter, and, quite frankly, that was lower than what it has been in recent quarters. It's been more in the 40% year-over-year growth kind of range in previous quarters, and I don't know why there would be a particular difference this quarter. But we are certainly seeing a very solid growth there. It's not a big business, but it's a nice margin contributor. I certainly think that it will be a bigger component over time. I don't know that I would predict it to be a huge component, but I think it is certainly getting more attention.

[Operator Instructions] Our next question comes from the line of David Koning of Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: And I guess, my first question, a little bit like Brett's question, just in terms of implementation growth has been the strongest, like you said, in many, many years and the pipeline's strong. Is there a baseline kind of revenue growth next year, just if -- even if you didn't sign any new clients, I mean, are we -- or are you looking at, at least mid single-digit growth just based on all the stuff kind of ready to sign with -- I guess, are you ready, at this time, already to give kind of an outlook on next year just based on so much in the pipeline already? Kevin D. Williams: David, I don't know that you're going to see much growth in implementation. I think we're probably established a pretty solid baseline right now. I mean, our quarterly revenue year-to-date has fluctuated within $300,000, I believe, on a quarterly basis on implementation services. So that's up nicely from a year ago, but I think that's probably where we're going to stay. John F. Prim: David, I would just add to that 2 things. One, the implementation services were up across the board. They were both core and complementary products, which is good news. I would tell you that the larger implementation piece, typically those that are going to be associated with core, I wouldn't say we're 100% locked in for the next fiscal year, but we're probably not far away from it. You're looking at lead times on these new core implementations that are going to be at the low-end probably 9 months and at the high-end could be 15 months. And so I think we're, again, probably got a little room in there for some additions in FY '14. But I would guess that 80% of the available core implementation services number is probably already in there. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay. No, that's good, and I guess part of my question was more to the effect that because implementation services had been so strong this year and you're bringing so much new stuff on that, that's a good driver for total company revenue into 2014. I mean, it just feels like we're set up for another very good year of growth given what you already implemented this year, the pipeline, et cetera. I mean, is that a fair way to look at it? John F. Prim: Yes. I wouldn't -- let's not get ahead of our ourselves, but I think we feel pretty good about where we are. And again, I don't know that we're ready to give any FY '14 guidance at this point. But again, David, we're, as you know, close to an 80% recurring revenue model at this point in time. License fees are going to fluctuate. I've said before and I'll say it again, I think the long-term trend for license fees continues to be downward, as it does for hardware. But I think that the fundamentals of our business, as you've seen for the last couple of quarters, are pretty much what we think we're looking at, at this point going forward. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Great. And then just one, I guess, follow-up question. And it's, I guess, a little more for Kevin. Just it's been interesting the tax rate the last 4 years or so. Each year, it has ticked down, and I know each of you are getting that R&D tax credit, but it's kind of gotten 35% to 34% to 33%; now, it's a little less than 33%. Why has it kind of systematically ticked down? And am I right that the reason you're guiding to 35% next year is simply the assumption that you don't get a renewal of the R&D tax credit? Kevin D. Williams: Well, I mean, honestly, David, there's been a number of things that's happened in the last couple of years. I mean, if you remember in our December quarter, we settled some IRS tax audits and there was a release of about $2.5 million of refunds that we got, so that impacted the quarter. The R&D credit that came into play this year -- or this quarter was a little unusual in the timing of when they actually enacted the law and signed it, which that triggers when you can actually book it. So we actually had 5 quarters of catch-up this quarter. So going into next year, we have to assume that they will not renew the R&D credit as we go forward, which is why we are predicting a 35% tax rate without any other unusuals coming into play next year. John F. Prim: No, we did have a really good tax cap. Kevin D. Williams: Yes, we have some really sharp tax people.

And I'm showing no further questions at this time. Mr. Williams, I would like to turn the conference back to you. Kevin D. Williams: Thank you. First of all, as Jack and Tony have said I hope to see a lot of you next week in our Annual Analyst Day in Dallas, which is at the Grand Hyatt DFW. We tried to make it as easy to get in now for all of you as we can. We'll be kicking off Monday evening with a mini-tech fair, as we have in the years past, to show off some of our newer products. And then the conference will be Tuesday morning, kicking that off with a breakfast in the morning, and then we should be done by 12:30 or so. If you have not registered and would like to register, shoot me an e-mail, and I will send you the registration link. So you can still get signed up. It's not too late. I would love to see the more people there as possible. In summary of the call, we'd like to thank you for joining us today to review our third quarter fiscal 2013 results. We're very pleased with the results from our ongoing operations and the efforts of our associates to take care of our customers. With that, I would say, good morning. And operator, would you please provide the replay number.

Thank you, sir. The replay number for today's call will be (800) 585-8367 or the local number is (404) 537-3406. This concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.