ACI Worldwide, Inc. (ACIW) Q2 2012 Earnings Report, Transcript and Summary

Good morning. At this time, I’d like to welcome everyone to the Q2 ACI Worldwide financial results earnings conference call. [Operator Instructions] I’d now like to turn the call over to our host, Ms. Tamar Gerber, Vice President of Investor Relations. You may begin your conference.

Thank you, Sara [ph]. Good morning, everybody, and thanks for joining our earnings call. Today’s call is subject to Safe Harbor and forward-looking cautionary statements. You can find the full text of both statements on the first and last pages of our presentation deck today, a copy of which is available on our website as well as filed with the SEC this morning. Our management speakers are Phil Heasley, our CEO; Ralph Dangelmaier, President of Global Markets; and Scott Behrens, our CFO. All speakers will be available for Q&A following our prepared remarks and we’ll be joined by members of the executive management team. A last piece of ACI housekeeping to announce. Effective July 15, as part of our global facilities optimization, we moved our principal executive offices to Naples, Florida. Thanks for joining us, and I’ll now pass the phone to Phil for his remarks.

Good morning, and thank you for joining our call. Q2 represented a key milestone in our integration. We have now fully identified and begun executing our second and final phase of operating synergies in the transaction. Today we announced an additional $20 million in cost savings across the combined company. As we indicated in Q1, given the scale of the combined company, we are now executing on our plan to insource the internal IT functions, consolidate our data center facilities, and combine overlapping global office locations. With our Phase 1 and Phase 2 cost savings, we expect $53 million in annual savings when we fully implement by the end of 2013. From the team’s efforts, we expect to realize $48 million in cost savings in 2013 and the full $53 million in 2014. Importantly, in addition to cost consolidation of ACI and S1, we have begun to communicate the product and solutions roadmap to our global customer base. During the second quarter, we shared a complete view of our product roadmaps with our customers through our ACI Exchange events around the globe, as well as through customer visits and a comprehensive customer letter campaign to our entire customer base. Furthermore, we conducted an industry-focused analyst day on June 20. I’m encouraged to say that we’re receiving positive feedback on the combined company’s product direction and technology strategy. We have completed the customer and industry phasing events ahead of our planned integration schedule, and we believe this heightened level of transparency will help customers make key buying decisions and improve their confidence in ACI as their strategic payments partner. Finally, and probably the most compelling point I can leave with you, is we believe that ACI’s suite of solutions represents one of the broadest and most proven in the industry. Our product set delivers unparalleled functionality, reliability, and choice to our existing and new customers. On the corporate finance side, we had an active quarter, repurchasing 962,000 shares for approximately $38 million in capital. Year to date, we’ve purchased 1.1 million for $44 million in capital, representing nearly 3% of our shares outstanding. Lastly, we believe that our global sales pipeline is as strong as ever and is primed for very good growth going forward. Many customers who are waiting for our roadmaps now have the comfort they need to go ahead with purchase decisions. Our business focus remains the growth of new sales to existing and new customers, which will continue to build long term backlog and recurring revenue. In summary, I think Q2 was a hectic yet excellent transitional quarter. We are managing business for a very clean 2013 and have pushed through acquisition integration costs, higher deferred revenue haircut, and product roadmap decisions and communications into the first half of the year. We have diligently pursued the integration and believe that we have set the stage well for a more margin-rich 2013. I will now hand the call over to the team to discuss the business review as well as the financial results for the second quarter. Ralph, please go ahead.

Thanks Phil, and good morning, everyone. That’s a good overview. And I’m happy to provide an overview of our wins, some of the global trends, and the outlook for the second half of the year. So on Slide 6, you’ll see there’s an overview of the deals, and we’ve highlighted a few of the key deals in the Americas. We had good activity with add-on sales during the quarter across multiple products and multiple markets. Our SNET [ph] was up 51%, term extensions were off slightly due to a difficult comp against last year. We had a large term extension. Our revenue increased 41%. In Asia-Pacific, we had a strong commitment for Base24 EPS with a leading processor in Taiwan, strong add-on sales gross SNET [ph], which increased 129%. Term extensions were down due to some timing. Revenue increased 37%. In EMEA, we’d like to note significant term extension with one of our large customers, Barclays, during the quarter. We have a relationship with them for over 25 years, and in the face of difficult economies in parts of EMEA, our sales were up almost 50%. SNET [ph] was up 38% year-over-year, with great add-on and cross-selling activity. Term extensions increased 66%, and the revenue increased 18%. So turning to Page 7, you’ll see that, besides many onsite customer visits, we held 2 customer exchange events in the Americas and EMEA, and our feedback was excellent. And here’s what we have heard about global trends around the world. One of those was focused below, but I’d like to spend some time on regulations, growth, cost reductions, and innovation. And around innovation, there’s 2 that are significant: EMV and the Americas. At our event, we heard from many clients, including MasterCard and Visa, that investments in EMV contact and contact list chip technology will speed up the adoption of mobile. We see good pipelines for EMV-related activities, and given that we have a history of providing these products globally, we’re well-positioned for that in the U.S. market. Speaking about mobile, you can’t pick up the newspaper or the magazine without mobile being mentioned. Our mobile experience globally is strong, and the market buzz, we're just hearing great sales lead activity that should prove it out in the next half of the year. So talking about the next half of the year, in the Americas, the U.S. and Canadian banks are strong. Our focus will continually be on cross-selling and large add-on sales. As noted, the innovative initiatives above in the U.S. around EMV and mobile will help us. In EMEA, although some of the European countries are facing some challenges, like Spain, Portugal, and Greece, which is causing those markets to be slow in sales, northern European banks are actually in large expansion mode and looking at pan-European opportunities. There's major transformation projects are a consistent theme, and we are viewed as a strategic partner with strong long term relationships with our customers and the products to provide them. Africa also remains in good shape, and growth is still projected. In Asia-Pacific, we have a real strong pipeline around consumer payments online and fraud. We see a big focus on national payment infrastructure switches and projects in places like Australia, India, Malaysia, and Singapore, and India and [indiscernible] remain very strong for sales and are large growth opportunities. So in summary, our pipeline is strong, as Phil said, and we have lots of opportunities with new add-ons and cross-sells for the remainder of the year. We continue to be focused on our best practices, and we’ll continue to serve as thought leaderships with our customers and prospects. So thank you, and I’d like to turn this call over to Scott.

Thanks, Ralph, and good morning, everyone. I’ll be starting my comments on Slide 9, with key takeaways from the quarter. Since Ralph’s already done a good job going over sales, I won’t spend too much time on that here, other than to reiterate that we saw strong sales growth in the EMEA region. We also saw strong growth in new sales net of term extensions growing $38 million, or more than 50% over the prior year quarter. Turning to backlog, foreign currency movements had a significant impact on both 60-month backlog as well as 12-month backlog, reducing both metrics by $23 million and $6 million respectively. We saw a solid revenue quarter, with our first full quarter of the S1 business contributing $43 million of revenue to the quarter. The S1 contribution revenue was impacted by $9.6 million of deferred revenue haircut. Again, that is the revenue that would have been recognized in the normal course of business by S1, but was not recognized due to the GAAP purchase accounting requirements. So really, $9.6 million of pure margin revenue that we weren’t able to recognize. And of all the quarters this year, this June quarter will see the greatest impact of that deferred revenue haircut as we roll that out to the rest of the year. Our monthly recurring revenue stream coming out of our backlog represented 70% of our total revenue in the quarter, which provides a stable, reliable, and predictable base of our revenue stream. About half of the $6 million decline in organic revenue was driven by foreign currency movements when compared to the prior year quarter, and we also saw $10 million of nonrecurring revenue from backlog that moved from Q2 to the second half of 2012, still in the full year but pushed out to the second half. Continuing on to Slide 10, with key takeaways from the quarter, the operating expense growth compared to the prior year quarter was almost entirely related to the S1 acquisition, as operating expenses for our base organic business represented only $2 million of the expense growth. We also incurred $7.6 million of integration-related one-time expenses primarily related to the next phase of our integration, which includes the consolidation of our IT infrastructure and facilities. Excluding the impact of the $7.6 million in integration related one-times, and the impact of the $9.6 million in deferred revenue haircut that I mentioned previously, we saw solid operating income and adjusted EBITDA of a little more than $9 million and $25 million, respectively. And finally on this slide, we ended the quarter with nearly $150 million in cash, and as Phil already mentioned, we used part of our cash this quarter to repurchase stock, about 960,000 shares in the quarter for $38 million. So year-to-date we’ve purchased 1.1 million shares for approximately $44 million. We used a little more than $4 million to acquire one of our Latin American distributors, and we used $3 million of our cash for our scheduled paydown of our term loan. And finally, we finished the quarter with $366 million of total debt. Turning next to Slide 11 for an update on the status of the S1 integration, we have completed the integration of our SG&A functions, and are now focused on the integration of our IT infrastructure and facilities consolidation. The IT and facilities plan includes closure and consolidation of 14 offices worldwide, the consolidation of our outsourced IT and third party hosted data centers into in-house operations. We expect these actions to result in an additional $20 million of annualized savings once complete. We expect to complete about 75% of these actions by the end of 2012, with the remaining 25% completed by the end of 2013. As a result of these actions, we expect to incur an additional $15 million of one-time expenses in 2012. That’s in addition to the $16 million already incurred for the SG&A consolidation, but we expect to be able to achieve an annualized run rate of savings at $15 million by the end of 2012 and the full $20 million of cost savings by the end of 2013. So overall, including the $33 million of cost savings we actioned in the first quarter of the year, when combined with the $20 million in savings we’re expecting from the consolidation of IT and facilities, we expect to achieve an annualized cost savings of $53 million when fully implemented. So overall, we’re very happy with the integration efforts so far. Turning lastly to Slide 12 for our full year outlook, we are reaffirming our outlook for both operating income and adjusted EBITDA for the full year, so we continue to expect operating income to be in the range of $99 million to $104 million and adjusted EBITDA in a range of $165 million to $170 million. And again, both of those metrics exclude the impact of one-time transaction and integration-related expenses. With the foreign currency movements since our first quarter earnings call, really a strengthening of the U.S. dollar against all the major currencies in which we conduct business, we expect top line revenue to come in lower by about $10 million from our previous range. Again, this being a rate issue, not a volume issue. The FX movements obviously also reduced top line expenses as well, so we don’t expect this FX movement to impact our total expectation for operating margins and EBITDA for the year. And we are also expecting a $3 million increase in our deferred revenue haircut, resulting from the purchase accounting of S1, so we have reflected this adjustment to our top line revenue as well. We are now expecting full year revenue to be in a range of $683 million to $693 million, reflecting a reduction from both the FX movements and purchase accounting revisions. As you can see here, though, due to operating cost efficiencies, we’re not expecting this revenue reduction to have an impact on our overall earnings. So that concludes my prepared remarks. Operator, we are ready to open the line to questions at this time.

[Operator Instructions] Your first question comes from Gil Luria, Wedbush Securities.

In terms of S1 and how well it’s doing as a business, can you give us an update on that? On the February call, we talked about guidance for that standalone business as $28 million to $33 million of EBITDA on $213 million to $223 million of revenue. Where are we on that trajectory for the year? Will we be able to make that trajectory?

Right now, we’re still reaffirming the full extent for the foreign currency and the increase in deferred haircut. We are reaffirming where we were in our earlier earnings call.

So from an operating income and from an EBITDA standpoint, we’re saying that we’re going to make or exceed what we told you last quarter, because we just gave you the Phase 2 synergies. And those synergies go both ways, right? It’s 2 offices becoming 1 office, 2 distributors becoming 1 distributor, the insourcing and whatnot that we’re doing. So you can’t ascribe it to one side or the other, but you can certainly ascribe it to both sides.

Right, and if you look at the measures, we provide the revenue and expense contribution of S1. And if you look at it on a non-GAAP basis, and that is adding back the $9.6 million of deferred revenue haircut, the S1’s contribution this quarter was about $53 million of revenue, $41 million of expense to get us around $13 million of operating income.

Got it. And then, so my follow up is about a comment you made about bringing IT in-house. If I remember correctly, you outsourced that to IBM as part of your deal from a few years ago. Combining that with the fact that IBM is terming out your contract at the end of the year, should we be concerned about your ability to sell with them side by side, to sell to IBM-centric banks?

No, I think, I wouldn’t say that at all. I would say that our relationship with IBM is a co-prime to co-prime. We’re side by side prime contractors is basically the way we do business. I think it’s very safe for us to say we have never done more side by side business around the globe than we’re doing right now with IBM. And that would be true from a pipeline as well as actually doing business.

Your next question comes from George Sutton, Craig-Hallum Capital.

So you obviously reported a somewhat complicated Q2 and the optics aren’t pretty, but I think the most important question I could ask is, as we look out to 2013, you’ve kind of walked through with us how the numbers might start to look in 2013 given the math of the acquisition. Is there any change in your thoughts relative to 2013 based on what we’ve just discussed?

No, I think, again, the math is pretty much the same as we’ve discussed in the past. The $23 million for haircut will go away in 2013, so all else being equal, the revenue will step up. We’ll have the $48 million of cost savings and obviously we get -- we're getting -- the first $33 million, we’re getting that 3/4 run rate this year. But we’ll get a full year of the essentially $48 million run rate at savings next year. And then we pick up another 6 weeks of operations of S1 next year, at our richer margins. So that’s pretty much the same, I think, we’ve talked about in the past.

George, I think it’s fair to say that, from a GAAP standpoint, the quarter is cluttered, and we don’t give quarterly guidance. I think you know that, right? And we've told you what we’re going to deliver for the year. We’re still fully committed to deliver for the year what we want to deliver for the year. I’m glad you asked the 2013 question, because I view my #1 mandate is to deliver an integrated company that largely doesn’t have any trailing costs or trailing tasks into 2013 in terms of bringing the company together. I see too many companies where they aggregate their acquisitions versus integrate their acquisitions. The first 3 years I was here I ended up integrating acquisitions from 20 years -- that had taken place 20 years prior. So we don’t apologize for the amount of pain that we’ve taken ourselves through this quarter and a half. If you think about it, we’re only a quarter and a half into this. And we probably have another -- we're probably on the down slope in the quarter we’re in right now in terms of the pain, but if you just think about the amount of work these guys have done -- and we don’t say do this project because it isn’t deferred, and save the deferred one for a different. Quite honestly, if we could have done all $23 million of the deferred revenue in this quarter, we would have happily of done it, right, to have it behind us. And of course, we don’t control FX. We just control the way we have revenue and expense around the world so that we’re naturally hedged. And that one’s outside the acquisition. But I will tell you from an effort standpoint, and as kind of the leader of 3,500 people, I couldn’t be more happy with what they’ve done in the last 90 days. And 2013 is going to look very good as a result of that.

Ralph, I had a question on your EMV discussion relative to the Americas. So I viewed EMV as helping drive more PIN-related transactions, which would be great for you. It sounds like you actually view it as a more holistic change agent for other parts of your suite. Is that what you’re trying to say?

Yes, exactly. It’s PIN and it’s going to drive other adoption, like it’s going to be a lot easier to do mobile with EMV, right?

I think EMV’s going to play a bigger role in mobile than it’s going to play in PIN-based.

Your next question comes from John Kraft, D.A. Davidson.

I apologize if I missed this, but you talked about the official announcement of your product roadmap. I guess I would assume that the bulk of the questions have been due to how you might integrate the Base24 and the Postilion. Are you planning to retain 2 separate products and sort of cross-pollinate features with each? Or are you moving to 1 single consolidated product?

Well, of course, Postilion is going to continue to support the African continent the way it has the last 20 years, and we’re totally committed to that. Postilion’s going to be used as our premier retailer platform around the world, and EPS is going to end up being the financial services engine around the world. Actually, I will tell you that there was probably -- there was some noise around that, now, a fair amount of noise. But actually, there was much more noise about our roadmap on the online side of our business, and how we were going to bring together the different pieces of that, and that culminated very well in that by June 20, I think, we took a -- I think we froze a lot of people at the 11th hour of trying to make decisions, because in a lot of cases we were the #1 and #2 decision, and they wanted to make sure they didn’t pick the one that they thought we’d sunset or do something negative to in that process.

That’s right. And so we communicated via letters to our customers at the end of April, and then in June at our user conferences, and we had about 500 people at those between Europe and the Americas. We went through and detailed all of the roadmaps that we had, what products we're keeping, how we’re integrating those. And it was received extremely positively by our customers, and Phil is exactly right, that it allowed people now to really understand what the right product is to buy for them as they go forward. So it kind of started to open up the sales channels a lot more. So I think that was really well-handled, and it was done very quickly in the integration process. So our customers were satisfied.

And then, I guess, my follow-up would be on potential decisions to divest. It sounds like the roadmap may have included basically keeping and retaining all of the products.

We haven’t made final, final decisions on all of our products, but we have made -- we are doing very well with our community banking product. And because they were Postilion, we didn’t get a real look at them until we finished that process, whatever you want to call it, with the Justice Department. So we didn’t really get to look at that until the end of February. And we want to make sure that we accrue all the efficiencies before we decide that we’re going to keep or not keep those pieces of the business. And right now, I will tell you they’re performing at or better than expectations. So they’re not a drag on the business.

Your next question comes from Brett Huff of Stephens, Inc.

One question on bookings. I think my math is right, that if I take out the S1 portion of bookings, that, that came in at about $117 million organically for ACI. Is that math right, first of all?

That sounds right, yes.

Okay. And when I look back sort of over the last 5 years, I think your average for 2Q -- and I think these things are somewhat seasonal, has been about $108 million, so a little bit above the average. But I think you guys have talked about trying to hit -- and again, correct me if I’m wrong, a little above $500 million in annual bookings or sales. And so we’re tracking a little bit behind. We know that 4Q is usually big, but can you just give us any color on how that looks? And both, Phil, I think, and Scott and Ralph all said that the pipeline looks good, but I’d just like a little comfort about how that’s going to play out, if you can give it to us.

Well, one thing I can tell you that the second quarter cannot -- there’s no way we’re going to sit here and justify what we sold in the quarter when we froze the marketplace during the quarter in terms of which way to go with the products and whatnot. So we’re not going to describe this quarter as it relates to other quarters, because it’s one-off. We have not given guidance for full year sales, but I will tell you that -- and I think it’s really clear that with having gone through the renewal cycle once, since sunset with all our customers, that renewal is not our big focus. We’re very comfortable with the renewal cycle, and we’re very comfortable with attrition. So what we call SNET [ph] is our real focus as a business, sales net of term, which is growing the backlog of sales to existing and new customers. And we are comfortable we’re going to make or beat that number for this year. Without quantifying anything, yes, we are going to look more like ’08, ’09, and ’10 than we did ’11. 2008, 2009, 2010, all the hard work we went through to try to get 40-some percent of that at the beginning of the year. We’re not back to square one, but the acquisitions put us back to the task of evening out the year.

And then just a follow up is just specifically on EMEA. It looked like that was very good. Can you give us a sense of how EMEA and specifically continental Europe performed, maybe by both ACI and S1, just so we get a sense of kind of the organic ACI growth? It sounds like it was good, but can you just give us more color there?

Again, I think it would be disingenuous comparing what we booked in this quarter to a normal quarter. And because of the way we will end up moving the roadmap, the ACI -- Base24 to financials, we’re going to probably do better than we expect. S1, Base24 -- Postilion to financials, by definition, is going to do worse than we expect, because we made the decision one way. The online business is -- leans more heavily toward S1. So we expect that we’re going to do better on the S1 side on that. And we said that Africa was doing -- Africa and retailers are both doing well. So I think that’s the most honest way to answer. The market’s beginning to behave -- behaving the way we’ve now drawn out the roadmap.

Your next question comes from Wayne Johnson of Raymond James.

I was hoping that if you could just break out a little bit on just the demand outlook on the continent of Europe. I know you guys have good demand in Africa and potentially parts of the Middle East. But excluding Barclays, can you just kind of give us any commentary on the appetite for sales to new clients? And I'll stop right there on that, and I have a follow-up.

I’ll let Ralph actually answer the question, but I think we said, I think I said and Ralph said that our pipeline’s never been better than it is in Europe. And why don’t you give some color on that?

Yes, sure, that’s easy. So most of the European banks, continental Europe, and most of the European processors are already customers of ours. And they’re expanding dramatically throughout pan-Europe, which is what we talked about in our opening comments. And so our products fit perfectly into what they’re trying to do from an expansion point of view. So as Phil kind of mentioned, sometimes it’s always hard to call the exact timing of signing, where it’s a Q3, Q4 deal. But we are regarded as the premium supplier, and we are regarded as a strategic partner to those customers. And so we’re involved in lots of strategic discussions with them. So we feel very good about the pan-European continent, given what’s going on there.

Okay, so, another way of saying -- I appreciate that color. But another way of saying that you haven’t seen any reduction in demand or activity, just on the continent, as it relates to the financial institutions in that geography?

So overall, I would say no. Now, when you get into specific countries, some countries are down a little bit than maybe the trend lines, but overall, I would say it’s positive and up.

Could you give us an update on the prospects for entering Japan and any kind of color on that country?

Yes, so Japan, we’ve got a major initiative going on with a large Japanese processor, and we also have some other customers there. And that project is a multiyear project which is going very, very well. We’re actually ahead of plan, and the customer is extremely satisfied. And I think once we complete that project, which will be toward the end of this year or early next year, then that’s going to be a real gateway for us to do a lot more business into Japan.

[Operator Instructions] Your next question comes from Tom McCrohan, Janney Capital Markets.

Can you help us understand the phasing of adjusted EBITDA for the rest of the year? So if my math is right, about $55 million or so of adjusted EBITDA for the first 6 months, you're well under the guidance of $165 million. So it kind of implies that the run rate for adjusted EBITDA is going to ramp up pretty considerably in Q3 and Q4. So just, if you can just kind of talk to that and help us understand the phasing, that would be helpful.

Yes, I think if you look at the phasing of revenue and -- well, I guess, first sales and revenue as EBITDA, I think it’s going to look more like it did prior to 2011. I mean, that's where -- 2011 is probably an anomaly in terms of our quarterly phasing. But because of the timing of sales and revenue, I would expect EBITDA to trend consistent with that, and with Q4 being pretty strong.

And then in terms of the adjustments that you make in your slide -- you don’t provide an adjusted EPS kind of number. You do a non-GAAP number and the adjustments you make for adjusted EBITDA. The list is a lot longer than the adjustments you make for your, call it, non-GAAP EPS. The $0.16 number for the quarter doesn't really -- you can’t fully appreciate that if you take your adjusted EBITDA on a per share basis, it’s like $0.65. So there’s a big gap between the $0.16 and the adjusted EBITDA on a per share basis. So is there any reason why you’re not providing kind of a walk with the similar adjustments? I think that creates some confusion. I'm trying -- and consensus for the quarter was I think in the $0.30 range. So there’s a lot of noise between GAAP and non-GAAP. And there’s no consensus on the Street on what the right non-GAAP number to use. And I don’t know how that benefits anyone. So is there any reason why you’re not providing a walk and guiding people to some sort of non-GAAP number?

You mean on the -- but we do provide, in the press release table, we do provide a walk of adding back deferred and adding back the one-time to get to our adjusted EBITDA. That’s the $0.16 you’re talking about.

Well, the $0.16 does not add back the deferred revenue. The adjusted EBITDA number does. So the $0.16 adds back, if I’m reading it right, the amortization stuff and noncash stock options, you get $0.16. If you add back the deferred and the one-time costs, I think you get to a much bigger number. Well, we’ll take that offline. It just seems like you could drive a truck through the different EPS numbers floating out there for your stock. I know there’s some noise, but the sooner we can resolve it, I think the better for you guys. In terms of the deferred revenue, given that it is such a high-margin adjustment, is it fair to say that the deferred -- the $9.6 million, you’re adding a similar amount of deferred revenue to an S1 today as you’re being impacted by? So there will be a step function up next year in terms of what’s now a headwind becoming kind of step function up next year. And the only reason that would happen is if you’re adding as much deferred today as you’re taking away right now from the acquisition accounting, if that makes sense.

I don’t think the deferred is going to be a headwind.

No, no, what he’s saying is is that this year we’re haircutting our revenue by $23 million, because of the deferred. And he’s saying that come next year, a lot of that $23 million will come back.

Right. It will come back.

Because you can see that now, right? You’re seeing the deferred being added now. So if it’s coming back, it’s going to be added now, and you’re going to recognize it next year.

That’s correct. The answer is, you’re right. What was this year a wind in our face will be next year a wind at our backs. Isn’t that the question you’re asking?

Yes, exactly. It’s a headwind.

And you’re exactly right. Yes, it’s a huge headwind. And it’s purchase accounting, unfortunately. But the good news is we're taking it all -- we originally thought we were going to take part of it this year and part of it next year. We’ve now said we’re going to be able to absorb it all this year, so what’s a huge wind in our face this year is going to be wind at our back next year. That goes to my initial comment, saying that my #1 mandate is to clean all this noise out in 2012 so that in 2013 we’ve got a clean balance sheet and income statement.

Got it. And my last question, then I’ll jump off, it's more on the mobile side. A lot of the stuff you guys do is behind the scenes, and it’s kind of hard to get your arms around what role you guys play. And I know you guys are playing an important role for banks in terms of payments. And there’s a lot coming with digital wallets. Visa’s coming out with a digital wallet, I guess, later this year. Are you folks part of that process, as banks start to embrace this new [indiscernible] wallet? Are you part of that ecosystem in any way to kind of enable the banks to roll out these new offerings that are around the corner? Outside of EMV.

Yes, so, this is Ralph Dangelmaier. We actually are part of the ecosystem in several ways. So number one is if somebody takes a wallet from Google or from Visa or from one of the phone telcos, that what the wallet is, is a place to put credit cards or loyalty cards or rewards points or couponing. So when that goes into the wallet, when someone goes out and buys something from the wallet, it goes through the normal channels it would. So whether it goes through a POS device or it goes through a credit card, we then are driving a lot of those devices on behalf of the processes of the banks. So we get transaction increase. The second place we play is also we --those are being linked up, generally, to the same fraud systems the card systems have and we have a fraud engine. So that actually links to our fraud transactions. And the third place that we play as part of the ecosystem of the wallet is people are now issuing virtual cards, and from our point of view that’s no different than issuing a plastic card. So we can actually help in the issuing of it. And the last place that we actually play is on the merchant side. We help the merchants with reward tracking and those kind of products. So we actually have a play on the merchant side as well. So there’s multiple steps in the ecosystem that we actually play as part of a wallet. So we feel the whole mobile wallet, mobile payment, as the market moves to that, that will be good for us and our selling and revenue campaigns.

At this time, I’d now like to turn the call back to Ms. Gerber for closing remarks.

Thank you very much, Sara [ph]. We are out of time, but thank you for listening and joining us, and if you have any follow up questions, please call me directly and I’d be happy to address them. We’ll speak with you next quarter.

This concludes today's conference call. You may now disconnect.