Good day, and welcome to today's Jack Henry's First Quarter 2010 (sic) [Second 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.

Thank you, Amy. Good morning. Thank you for joining us today for the Jack Henry & Associates Second Quarter Fiscal 2012 Earnings Call. I'm Kevin Williams, Chief Financial Officer. With me today are Jack Prim, our CEO; and Tony Wormington, our President. The agenda for the call this morning is as follows: Jack will start with an overview of the quarter, he'll then hand it over to Tony to provide some additional operational highlights for you all, and then I will provide some additional comments on the press release we put out yesterday, and then we'll ultimately try to answer any questions you might 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 statements about the future, these are subject to a number of factors which could cause actual results or events to differ materially from those which we anticipate due to a number of risks and uncertainties. And the company undertakes no obligation to update or revise these statements. For the summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our Annual 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 be able to start a new a calendar year reporting record revenues, gross profit and net income in our second fiscal quarter. We continue to see a gradual improvement in the general economic environment and a renewed focus on the future by our customers. Sales performances in the quarter remained strong with all brands again over 100% of target, and sales projections remain solid for upcoming quarters. We are particularly encouraged that there is no single area that is not performing. We see good activity in core systems sales in both the Bank and Credit Union segments, and on products sales in both segments and in the ProfitStars customer base as well. There is certainly a focus by our customers on products that can help increase revenue and efficiency, but their focus appears to be on building for the future. Details related to the impact on interchange income from the Durbin Amendment are hard to get after only 3 months or so, but the consensus seems to be that it had minimal impact for most financial institutions under $10 billion in assets. Most seem to believe that this carve-out will lose its effectiveness over time, but as of yet, it has not been a deterrent to spending. Total revenue growth of 5%, all organic and well managed expenses in the period, allowed us to grow operating income by 11% and net income by 7%. Operating expenses were lower by 3% compared to the year ago period, and our operating income margin improved to 24%, even though our highest margin revenue category of license fees was down 12% from the same period. Although licenses revenue was down in the quarter, the comparable period is one of the highest license quarters in the last…

Thank you, Jack. We are pleased with the strong contributions in all components of support and services, which increased 6% over the prior year quarter and 5% fiscal year-to-date, and represents 88% of total revenue. The largest contributor to this was our electronic payments revenue, which grew 9% compared to the prior year quarter and 10% year-to-date, and represents 33% of total revenue. Another large contributor to this line is our software maintenance for our in-house customers, which increased 3% for the quarter and 2% year-to-date, and represents 29% of total revenue. Our outsourced data and item processing services increased 4% for the quarter and year-to-date, and represents 18% of total revenue, which is driven by both new customers who preferred this delivery model, as well as the continued movement of our existing in-house customers electing to migrate to this service model. In addition, our onetime implementation revenues increased 16% compared to prior year quarter and 2% year-to-date, and represents 7% of total revenue. Our demand for implementation services in all areas of the company remains strong. Our electronic payment transaction volumes continue to experience solid growth. PassPort, ATM and debit processing volumes increased 13% over the prior year quarter. Bill payment transaction volumes increased 18.6% over the prior year quarter. Financial institution merchants installed and utilizing our Enterprise Payment Solutions increased over 37,500 merchants, representing a 10.6% increase compared to the prior year quarter. And, merchant-related transaction volumes increased 9.5% over the prior year quarter. I would like to thank all of our customers for their business and their continued loyalty. And additionally, I would like to thank 4,700-plus associates for their hard work, dedication and loyalty to our company. I'll now turn it over to Kevin for a further look at the numbers.

Thanks, Tony. Again, as Jack said, our total revenue increased 5% for the quarter and is up 6% year-to-date compared to the same period a year ago, and actually, it was a continuation of last fiscal year, which also had about the same organic growth. Our license revenue has decreased by 12% for the quarter compared to the prior year. But this was a tough comparable with the second quarter a year ago being the strongest licensed quarter last year, and in fact, one of the strongest from the last couple of years. License revenue for the first half is still up 4% compared to the prior year. We think license revenue will continue to be fairly stable for the balance of the year. Our support and service revenue has increased 6% this quarter, as Tony mentioned, over the same year ago, and did represent 88% of total revenue. Support and service breakdown compared to the prior year: Implementation increased 16% for the quarter, is up 2%; our payments business is up 9% for the quarter, 10% year-to-date; OutLink data processing, which is just our data and item processing, increased 4% for both the quarter and year-to-date; in-house maintenance increased 3% for the quarter and 2% year-to-date; and as Jack pointed out, these are all still growing over some of the bank failures, so we're pleased to see the growth that we're seeing in these lines of business. Hardware revenue did increase 13% for the reasons Jack pointed out. Our consolidated gross margins held steady at 42% for the quarter compared to the same quarter a year ago. License margins increased to 92% this quarter from 87% a year ago, due to a decrease in the third-party software delivered during the quarter. Our support and services margins held steady at…

[Operator Instructions] Our first question comes from Kartik Mehta of Northcoast Research.

I wanted to ask you, your thoughts on spending by community banks and credit unions, there's been a lot of articles out that both community banks and credit union think that they can gain market share. And I'm wondering if you've seen them increase their spending as a result for new products or ancillary products in an attempt to compete with some of the larger banks?

All right, I would say, yes. As I mentioned earlier, there's a lot of focus on products that can both help them grow revenue, as well as improve their efficiencies. We've seen increase in spending around CRM systems for better booking of business and cross sale to new customers coming in. Been a lot of activity. I don't know that -- there was certainly some account pick up associated with Bank Transfer Day that took place last November. I don't know if that was huge in and on itself. But I think as much as anything else is the fact that they haven't seen a major, if any, impact at this point from debit card interchange, which, if you'll recall in the early stages of that discussion, it looked like that the impacts were going to be massive. And certainly, they have been massive for the larger banks, but it was generally believed that, that same thing is going to apply to all banks. So I think a lot of what we're seeing is just the fact that their revenue has not been impacted nearly as much, if at all, from Durbin, and I think they feel like they've got a little more room to do some things that they probably been wanting to do for a while. So it is pretty much across-the-board spending in that there's no one area that appears to be leading the charge.

So Jack, would it be fair to say that compared to 2011, I know just from a calendar year standpoint, 2012 so far, you're seeing improved spending compared to 2011?

Yes, definitely.

And then Kevin, just a question on the hardware side. I know in the past that you've had some hardware vendor incentives at times that helped margins. And I'm wondering if you anticipate any for the upcoming year or that part of the business is kind of changed now and you don't get any incentives anymore?

Well, Kartik, obviously, the whole hardware business is changed. As we've moved into an outsourcing mode, the number of large boxes and large hardware that we sell that did really drive those incentives has gone down over the years. As Jack pointed out in his opening comments that we had some really nice activity in large iSeries and pSeries in the quarter, which drove some of that. But I don't look for the incentive and rebates to ever get back to where they were onetime, because I don't think we'll ever be at the same level selling new large boxes the way we used to be. And I will tell you that even the rebates this quarter and the incentives were actually down from a year ago. So they didn't enhance the margins this quarter. It was really just what was sold in the mix.

Our next question comes from Greg Smith of Sterne Agee.

First question, Kevin, did you say there was a $250,000 gain? Was that this quarter or the year ago quarter for the plane?

That was this quarter in G&A. It's about $250,000 gain on the sale of one of our planes. And obviously, the aircraft market is really, really good out there at this time. It only took us 2 years to sell the plane.

Okay. And then, are you seeing any pick up in de novo activity or things pretty slow there still?

I think we saw one all of last calendar year. So yes, it's still pretty slow. I think, Greg, as long as the regulators are still primary focus is making sure that banks are well capitalized and trying to figure out which ones to shutdown, I think there's been 7 shut down so far in January and still focused on other things, I don't think we're going to see a big surge in de novo. I think we will continue to see some third parties buying small bank charters that want to be in the banking industry like we've seen in the last couple of years. But as far as brand new charters, I just don't see that happening in the real near future.

Okay. And then, just sort of weaving together, thinking about the balance sheet, buybacks versus acquisitions, are there any significant holes you're looking to fill, or is there any chance of a larger acquisition of a competitor? What's the latest on sort of those issues?

Greg, it's Jack. I don't know that from our standpoint, anything has changed in that regard. Our first choice is and has for quite some time been to use our excess cash to do accretive acquisitions and acquisitions that will bring profitable future revenue growth. So we continue to look for those opportunities. I wouldn't tell you that we see a whole lot of opportunities out there. Certainly, have the capacity and the willingness to do a larger acquisition, if we find one that looks like it would have the right kind of payoff down the road. But I don't think there's anything that's changed in our outlook in terms of what we're looking for or willingness to do any of those transactions.

And any chance we could see an uptick in buybacks then in the absence of any acquisition activity?

Well, I think, Greg, obviously, we still got a little over 5 million shares out there under authorization. We're actually meeting with the board this week to talk about the strategies as our annual kind of strategic meeting with the board and all of our general managers and there will be a lot of things to talk about. And one of the things will be use of cash, which obviously, can be acquisition, stock buyback, dividend or whatever. I think that stock buybacks are obviously something we're going to look at. I understand from doing a little survey of my own that, that is probably the preference that people would like us use our excess cash. But I think you also got to remember, we've got a pretty conservative board. They like to have a little dry powder, so if the right acquisitions comes along. I mean, we have done a couple of better acquisitions that we've done in the last 10 years because we had dry powder and didn't have to run out and financing, and we can close the deal on a timely manner. So we've got access to capital markets. As Jack said, we'll continue to look for the right acquisitions. I mean, iPay was the largest we've ever done, believe me. We've had commitments from banks for a larger deals. We're not afraid of them. But just got to be right one to make right sense for our stockholders. And obviously, if you're sitting here, Greg, this summer, after we have collected our annual maintenance, if we haven't done an acquisition, then I'm pretty sure that stock buybacks would move to the forefront.

Our next question comes from Peter Heckmann of Avondale Partners.

Within the bill pay market, you talked about, I think, 19% transaction growth. Can you talk about how much of that you perceive to be share gain and how much of it is truly just a natural growth of transactions? I mean, it seems to me that industry-wide, or countrywide, bill pay transactions are growing maybe in the 5% to 8% range, so the 19% would suggest there is some market share gain. And if that's correct, can you kind of tell me where that's coming from or where you're having success?

Pete, I think most of that is coming from market share gains, and it's a mixture of vendors that we are taking customers away from. There's actually a surprising number of institutions that are offering bill payment for the first time. Now those tend to be pretty small, so they don't typically drive a lot of volume, but there is some content there. In terms of the same-store growth or the same bill payor growth, the end customer, I don't know that we're seeing a lot of increase in the number of bills paid per household online. There are few more households maybe they're moving in paying bills electronically than they were before. But most of what you're seeing there is market share gain. We have one, I'll say, remarketer, for lack of a better term, that worked with primarily some credit union institutions that was remarketing a different vendor's bill payment system to about 60, I believe, small credit unions. They have elected to move to the iPay product and move over to that. But as in process, probably, more than 50% way through that I think at this point. Again, smaller institutions, but every little bit helps.

The other thing I'd throw in there, Pete, is in the last 6 months or so, we've seen very good success in selling our NetTeller product into our Episys space, with the iPay solutions tied to it. So a lot of our Episys core users are refreshing their home banking. They're also refreshing their bill-pay relationship and a lot of times they are taken up with us.

That's great. How about on the corporate side? Your community banks, credit unions, selling your solutions to corporate customers and looking at things like invoice to present net and bill pay. Is there any progress there that's worth mentioning?

Well, it's not material at this point from a financial impact, Pete, but we definitely are seeing some uptake for the business bill payment capability that iPay has, particularly in the Banking business. And we're working on and expect to release in the March timeframe some iPad tablet-type applications, which will have an initial focus on business-related bill payment functions. And we think that, that will also help drive additional mobile sales, as well as additional business bill payment sales. So again, if you looked at the percentages, and I couldn't quote them up off the top of my head, but the percentages uptake of the business bill pay, the percentages are impressive. The actual material impact on the financials, at this point, is not going to jump off the page at you.

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

Firstly, just kind of follow-up on a couple of Pete's questions. The bill pay transactions obviously accelerated. You said that there were 60 new credit unions due to that reseller. Is that -- but only half implemented or so, so only half in the numbers, is that fair to say?

I think that's about right, John. About that many I think are implemented, and of course, that has also been within the last probably 60 days. I don't know that we've got a full quarter of payment transaction out of any of the half that we've implemented at this point.

But again, John, those are all very small credit unions. So even 60 of them aren't going to add up to 1 of our large banks that's very heavy and volume built [ph]. It's an avenue for additional growth.

Well, I mean, just trying to get a better feel for essentially how your growth doubled over the last few quarters. So we can talk about that off-line. But going back to the business bill pay, are you seeing any benefit or any better looks from kind of the acquisition turmoil that's happening with some of the vendors that are typically involved in some of the more corporate bill pay cash management applications?

No, Pete -- John, at this point, that hasn't had much of an impact in our area. Actually, the 2 vendors that I think you're probably referring to that are in acquisition/merger discussions, actually both happen to be at some level a remarketer of the iPay business bill payment products. So at this point, I don't think it had a significant impact, if anything we're seeing some of that settle down might actually help us a little bit. In terms of customers that are concerned about what's going on there looking in our direction, really haven't seen any motion there.

Okay. And then a couple for Kevin. Going back to the G&A that was down materially from last year, I guess looking forward, isn't the user conference in the December quarter, did that occur and if so, wouldn't we expect going forward that they'd even tick down sequentially from here?

-- Well, I will say, John, that yes, you're right. User Conference was in the December quarter, our Bank User Conference. Our Credit Union Conference is September quarter, Bank Education Conference is the December quarter. So when we said we see a tick down in the March quarter and we might, but I will tell you that we had such a drop this quarter of about $1 million for legal fees and litigation settlements and different things that, that's the kind of wild card going forward because obviously, we have constant things going on with the patent trolls out there and different things. So we might see a sequential tick down in G&A, but -- that we would typically see, but for some of the other onetime thing this quarter, I don't know how significant it will be in the next quarter compared to this specific December quarter.

Okay, that's fair. And then just lastly, housekeeping. Recurring revenue still 80%?

It actually dipped down slightly to 79% this quarter, but still roughly 80%, yes.

Our next question comes from Glenn Greene from Oppenheimer.

First question, Kevin, or maybe even Jack. But the growth on the backlog, either quarter-over-quarter or year-over-year, was pretty impressive. I think we've got to go back to like 2008 to see sort of year-over-year trends like that. Maybe a little bit of color there. And more specifically, were some of those press releases, Brookline, Union Bank sort of included in there? Just a little bit more color on the growth on the backlog, outsourcing specifically.

Yes, Glenn, that's a large part -- large part of that is what's probably making that up. We've had pretty good success in the last year, and certainly, in the last quarter with signing mid-tier kind of that over $1 billion asset-sized financial institution on the banking side in particular. And out of the 5 that we've signed in the last 9 months or so, mid-tier banks that have elected to come our direction, I believe, I'm right, Kevin, that 4 of those were outsourcing, 1 was going to do an in-house license. And I think probably there were at least 2 in the current quarter that would be adding to that backlog. So Kevin, I'm trying to think if there's anything else. Particularly some end-out migration.

Yes, 2 other things. We had a very nice quarter of end-out migration that contracted that obviously impact the outsourcing backlog, Glenn. But then, I'll also say that we had a very good quarter in first half in Credit Union Outsourcing contract that the Credit Union Outsourcing backlog jumped up significantly compared to the prior year. So it's really a number of things and basically, we're kind of clicking on all cylinders on several fronts.

So a couple of follow-ups relating to those comments. So one, the in-house migration comment. Coming back a few quarters, I think you guys have been giving metrics on how many banks have been transitioning from in-house to outsource. Do you have that either for the quarter or year-to-date?

Yes. It was roughly in 20 in the first half, if I'm not mistaken, between Banking and Credit Union.

It's 12 for the quarter and 19 year-to-date.

12 and 19, which is probably comparable to the last couple of years, it sounds like?

It would be tracking -- if you annualize that first half, it would be tracking right on last year's number.

Yes. It's actually ahead of the first half of last year, but it's exactly half of last year's total.

So last year was 38, is that what you're saying?

Yes.

And then it sounds like -- so 5 mid tier bank wins, I guess, you said in the last 9 months and I assume these are all sort of takeaways?

Yes...

But not they are all takeaways?

[indiscernible]

In some sense, what's happening? You haven't really had a product refresh? Is it -- why are you winning -- it's good for you but why are you winning these deals?

Glenn, I think that particularly in the banking space, it's probably back to that point that I made earlier that people are a little more focused on the future. It's not been but 1.5 year, 2 years, but frankly, people were wondering whether any banks were going to survive or not. I think people kind of moved past that and certain of them realize they are going to survive and are planning somewhat more aggressively for -- position themselves for the future. There's talk about consolidation that will likely take place in the industry to some extent, I don't know that I've seen that accelerating to overall rate that are going to be much greater than what we've seen for probably the last 10 years. But I do think that has also been the case for the last 10 years, that most of that net consolidation will be at the low end of the market, have more financial institutions moving into that. $500 million to $1 billion and over a $1 billion space where they need a little more robust systems and capabilities than what they might be using today. So I think that in the majority of the cases that we find in recent months, it's been the case of what the solution we need for the next 10 years, and we've been fortunate to win a fair number of those.

So Glenn, the other thing I would point out is, if you think about these mid tier wins and obviously, I'm very excited about the success we're having in the market, but the impact on the quarter is really only some implementation revenues.

Exactly, yes. That's sort of future revenue. But how much, on the $5 billion asset bank, what kind of like the future potential annual revenue once that's fully converted?

Well, it's going to depend on the mix of products, did they get bill pay? I mean, in some cases, bill pay can be as much or more than the core processing number. And outsourcing a bank, I mean, they'll be paying you up $80,000 to $100,000 a month would not be an unreasonable number would it, Tony?

No, it's certainly could be that.

Without bill pay?

Right.

Right. I mean, on top of it, you have ATM and debit.

I mean, a bank [indiscernible] Glenn, a $5 billion bank, it could easily be $250,000 a month.

Our next question comes from David Koning of Robert W. Baird.

I was wondering, on the payments line, I know it has been growing 12% to 13% the last few quarters, and in this quarter, it came down just a bit to 9%. But is there a good reason that, that ticks back up to the low double digits again over the next few quarters?

Part of the challenge there has been bank failures. I think, certainly, the boost to organic growth just getting past bank failures, which are trending certainly in the right direction. It came down substantially last year and hopefully, that will be the case this year as well. I think that certainly has had some impact. It certainly has also some pricing compression in the marketplace that we have been seeing and continue to see. It looks like that in some cases, there may be some shifting of transactions from debit to credit processing. We seem to be seeing a little bit of that on the Credit Union side, the PPS product related to the PEMCO acquisition indicate that there could be some of that activity as well. Again, I think that there is certainly opportunity for it to move back into double digits, but I think a lot of things have to align properly.

The other thing I want to add, Dave, obviously Remote Deposit Capture was just growing like gangbusters there for 3 or 4 years. And I think we've hit some level of saturation there. I mean, obviously, we're having good sale, but it takes a lot of those now to move the needle.

Yes, okay. And then the one other thing, obviously, bankruptcies seemed to peak now, whatever a couple of years ago, and have come down nicely, but M&A activity is still quite slow. I'm just wondering if, as the banks heal, if we do see an improvement in the M&A market, is that over the first couple of years of that improvement pretty nice positive given implementation work, if banks are joining each other and maybe termination fees in the early stages. Is that kind of how you see it playing out maybe over the next couple of years at some point as M&A picks up a little bit?

Well, Dave, if all the supposedly experts out there are right, which I think the 3 of us in this room kind of tend to agree with them, I think most of the M&A activities going to happen in the smaller banks, banks typically under some number. That number's still yet to be determined, but you hear anywhere from $150 million to $500 million. But the smaller the banks are going to have more of a challenge to be able to afford the regulatory compliance and the changes that the regulators continue to push down on them. So all indications are -- is that, that's going to happen. Now obviously, we don't like our potential market shrinking, but the fact that if that truly is where the mass majority of M&A activities happen is in the bank, that's actually positive for us because that's not an area of the market that we particularly play all that well as we've talked about before. So as the banks consolidate and merge, and you get a couple of $250 million banks that go together and now are $500 million bank, they are actually now in our sweet spot, and that's actually a positive for us in some regard. So yes, implementation is going to be strong for that, but we also continue to win new core business which hopefully that will drive more implementation than just M&A.

Yes, okay. And then, just the last one. OpEx, there have been quite a few questions, I don't know already, but I guess just high-level, for about the last 10 years, operating expense has been very tight range, right around 19% to 19.5% of revenue kind of year in year out. And the last 4 quarters have been more in the 18% to 19% range, now on the lower end of that. And I know you called out the gain and stuff, but it seems like you might be at a new kind of baseline where maybe we're closer to 18% going forward now than that more 19% to 19.5% just given the scale of the business. Do you think -- were that kind of a new level now?

That's possible, Dave. I mean, if you look at the history of the OpEx line, I mean, you kind of go back to -- if you're looking back 8 years ago, that's kind of when we put PeopleSoft in. We had a whole bunch of additional costs that kind of jumps it up. And then we had a flurry of acquisitions in the last 8 years where we've done close to 19 or 20 acquisitions since 2003, which obviously, that has an impact on G&A. So you're right. I mean, I congratulate all of our managers for maintaining the G&A at 19%. There's some things that are flopping around in there, like some things that can impact the quarter like litigation and settlements that we talked about earlier that can impact on a quarterly basis. So do I think we set a new level? I think potentially, we have. But there's always that wildcard out there on an unusual thing that can impact the quarter.

We've also got just generally an improvement in economy is going to put some pressures in some areas, wages and some of those kind of things. And as the economy continues to improve, we'll come into play like the rest of the world. Merit increases in the recent years have been at lower levels than what we have typically done historically. And again, at some point, that probably starts to swing back in line.

Our next question comes from Evan Switzer [ph] of RBS.

Kevin, quick question for you. The win rate this quarter, how is that compared to historical win rates?

Evan, this is Jack. I would say on the Banking side, it probably compares fairly consistently. On the Credit Union side, I would say, if anything, the win rate is probably increased at this point.

I think regards to the mid-tier deals that we're talking, Evan, is that's what you're referring to?

Yes.

That's not so much that our win rate has changed. It's more of the institutions have actually made a decision. Because it's amazing how many institutions actually go through an evaluation process and their final decision is to not do anything.

Got it, excellent. And in terms of the backlog, do you see growth in the backlog coming mostly from the Credit Union side or mostly from the Banking side?

For the outsourcing, it's pretty evenly split. I mean, both sides had very nice quarters.

And on the license revenue side?

Our in house was basically flat sequentially, Evan, so both sides are driving that with nice wins. As Jack mentioned, one of the mid tier deals was an in-house deals, so there's nice things there. We had a decent quarter for complementary products. We had a great quarter for in-house Credit Union core deals. And as Jack mentioned, those sales pipeline all look really good going into this quarter. So backlog where it is.

And if you saw an increase in the in-house backlog, it would be more likely to be coming from the Credit Union, simply because 90% or more of the deals that we do on the Banking side are outsource transactions, and we're somewhere in the neighborhood of 50% on the Credit Union side. So for that reason alone, I think if we were to see growth in the in-house backlog, it probably likely borrowing some kind of a onetime large banking transaction, it would be more likely to be coming from the Credit Unions.

Our next question comes from Brett Huff of Stephens Inc.

Two quick questions. One, you mentioned pricing pressure and I recall in payments, and I recall a couple of years ago, maybe the 1.5 years ago, that you had some big renewals on the debit side. Is that -- are we having some rollover there again, or is this just general debit processing pricing pressure that exists in sort of the mid market bank space overall?

This is Tony. I would tell you that we have had a number of renewals that happen on any given quarter basis and pricing pressures in a renewal deal are pretty strong, but they're also strong in competitive takeaways. We had hoped to see those pricing pressures subside a bit, but we're continuing to see them as strong as they have been in the past.

Okay, that's helpful. And then second question, there's been some talk -- you guys are talking about bank consolidation. And my understanding is that you guys continue to face a headwind, both revenue and margin wise, from bank consolidations, whether they'd be forced or maybe not. And I'm curious if you guys could tell us this quarter, did you see that start to abate or increase relative to the headwinds you've had over the past couple of years? And where and when -- sort of when does that start to taper more if you guys had to look out and give a thought on that?

Well, Brett, I mean, as far as M&A activity, I'm not sure that, that has changed dramatically or the impact, at least, to us. The real impact for the last 4 years is actually the bank failures because -- especially on an outsource deal. I mean, when they deconvert, you lose that revenue immediately. FDIC has made very clear there aren't any contract, so we don't get any early termination fees. So the biggest impact the last 3 or 4 years has been that. Now you're right, in 2010, there was 157 bank failures. In 2011, there was roughly 92 bank failures. So it did go down 40%. The other thing that I would say in 2011, the average asset size bank of sales was smaller than the year before, so the impact is diminishing. And I will tell you that based on some of the numbers I've looked at, the grow over is actually going to get easier for us next quarter, as long as the regulators will start leaving our customers alone.

Kevin, you have the number you quoted about the what the outsourcing growth has been in the last quarter, absent bank failures. I was trying to remember that number. I think it was 10%?

It wasn't quite 10%, but it was almost double growth of what it actually was for the quarter without the bank failure impacts. And you throw the in-house in there, it was just the impact on the quarter on asset basis, Brett, you're looking at several million dollars of revenue that went away. And obviously, our cost structure doesn't go away. So you're right. It impacts revenue and probably even more our margins.

[Operator Instructions] Our next question comes from Tim Willi of Wells Fargo.

I was just curious if you could give us some thoughts around -- your comments around spending and the mentality or the attitude of the mid and small-sized banks. If we look forward, obviously, mobile banking sort of the next big thing potentially. The big banks pretty aggressive with it and typically, that's the case when the big banks go after something pretty aggressively, and then the mid and small size follow. I'm curious about 2 things. One is, do you think that the smaller and mid-sized banks are following on the mobile front more quickly than maybe they did when the Internet banking and the bill payment curve was sort of playing out? And then second, does that discussion around mobile and mobile banking and Internet banking and all this stuff, does it actually lead the banks doing some deeper soul-searching about the systems they have in place to sort of move into this sort of next-generation of how people do things? Is that plausible? Is that big dollars? Is it just a very nice underpinning? Anything you can give us on sort of those types of conversations, and maybe just thoughts you guys have from where you've sat for the last 10 to 15 years in the industry?

Yes, Tim, I think that any survey that you look at, and I probably seen a half dozen of them in the last 90 days or so, kind of the #1 area of spending that they comment on that you're likely to see in financial institutions is in and around the mobile, and in some cases, tablet applications. So we've had pretty good success with our banks and our mobile offering. In the sense that, what are we, 400?

We're right at 500 mobile banking financial institutions.

So we've had success finding financial institutions already, and certainly, with some somewhat less concerned about bank survival and Durbin interchange impacts, I think that some spending is likely to continue to pick up, and again every survey would point you in that direction. I think that there is a fair amount, Tim, of looking at your electronic delivery channels in general. Your Internet, your Internet banking, your mobile and how all of that ties together. Again, we've got very significant penetration on the Banking side of our business with our Internet, and as a result mobile typically as well. The Credit Union side, as you know, we began offering our NetTeller Internet banking solution there about 2 years ago. We're seeing very strong adoption over there. A lot of refreshing of the electronic delivery channels appears to be taking place there. So the soul searching that you mentioned I think is largely going to be around electronic delivery channels, and in some cases, it may be around the core. Does the core interacting with the electronic delivery channels deliver the right kind of integrated solution to the end customer, the end member in the case of Credit Unions? So having said that, mobile, in and of itself, is not going to be a major revenue driver. The challenge with mobile is that's another -- yet another service that banks can't charge their customers for. They're pretty going to have to offer it for free. So if there's any reluctance to having mobile is the fact that it incurs cost and it's difficult for them to clearly see where there is revenue to be gained by doing it. So recognizing that, we've priced our mobile solutions to try to make it very attractive for a very fully featured system deliverable. But again, I think, where the potential upside comes from is people look at the refreshing of the entire electronic channel and/or in some cases, core to get to that integrated delivery is where there is probably a better opportunity.

I'm showing no additional questions at this time. I'd like to turn the conference back over to Kevin Williams.

Thanks, Amy. In summary, we want to thank you for joining us today to review our second quarter fiscal 2012 results. We are pleased with the results and the efforts of all of our managers and associates to help control costs, and at the same time, continue to take care of our customers. The 3 of us, our managers and all of our associates continue to focus on what is best for our customers and our shareholders. Again, thank you for joining us today. With that, Amy, would you please provide the replay number?

Ladies and gentlemen, this conference will be available for replay after 11:45 a.m. today through February 8, 2012 at 11:59 p.m. You may access the replay system at any time by dialing (855) 859-2056 and entering the access code 44485245. That does conclude our conference for today. Thank you for participating in today's conference. You may now disconnect.