Q2 2020 Earnings Call

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Ladies and gentlemen, thank you for standing Bonnie and welcome to the Jack Henry and Associates second quarter fiscal year 2020 earnings Conference call. At this time, all participants are in listen only mode. I Kinda speaker presentation, there will be a question and answer session.

Ask a question during the session you want me to press Star one on your telephone please be advised to today's conference is being recorded.

Require any further assistance please press star zero.

I would not only to hand the conference over to your Speaker Mr., Kevin Williams, Chief Financial Officer. Please go ahead Sir.

Thank you Shirley good morning, Thank you for joining us for the Jackie Associates second quarter fiscal 2020 earnings call, Kevin Williams, CFO and treasurer and on the Cold days, David Foster President CEO and just the mineral protocol to Dave to provide some just box about the staver business.

Quarter, then I will follow that up with some initial thoughts and comments regarding the press release, we put out yesterday after market closed and then I will also provide some updated guidance for 420, and then we'll open the lines or Tonight.

First I need to remind you that does conclude certain forward looking statements, including remarks are responses to questions concerning future expectations events objectives strategies trends results.

Guinea stand up huge or these are subject to a number factors that could cause actual results or events to differ materially for most which we anticipate due to a number of risks and uncertainties.

The 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 in the sections that our 10-K entitled risk factors and forward looking statements.

Also on this call will discuss certain non-GAAP non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income for reconciliations burst Oracle non-GAAP financial measures can be found also in yesterday's personally I'll now turn the call over to Dave.

Thank you Kevin Good morning, everyone. We're pleased to report another quarter with strong revenue and earnings growth.

Always I'd like to begin today by thanking our associates for all the hard work that went into producing those results for our second fiscal quarter.

Due to a fiscal 2020 total revenue increased 9% for the quarter and increased 8% on a non-GAAP basis.

Deconversion fees were up about a million dollars over the prior year quarter. So although that variance contributed to our overall revenue performance. It wasn't the explanation for this very strong quarter.

Turning to the segments, we again had a solid quarter in the core segment of our business revenue increased by 7% for the quarter, an increased by 6% on a non-GAAP basis.

Our payments segment also performed well posting a 10% increase in revenue this quarter on both a GAAP and non-GAAP basis.

We also had a strong quarter in a complimentary solutions businesses, the 10% increase in revenue this quarter and an 8% increase on a non-GAAP basis.

I mentioned in the press release, our sales teams again had a very solid quarter and total sales bookings are now running 18% ahead of last year's record pace.

The second fiscal quarter, we booked 17 competitive core takeaways and 20 deals to move existing and allows customers to our private cloud environment.

We also strong sub very strong bookings in our payments and complimentary solutions segments. We signed 30, new clients, who are new debit card processing solution and three new clients on the credit card side of the business.

All of those 33 card contracts and 17 competitive core takeaways represent new revenue the Jack Henry.

Our banner digital platform also experienced very strong demand with 25, new clients signing for the full digital suite.

As you May have noticed we published a press release last Thursday regarding the availability of our new JJ bank anywhere solution I'm happy to announce the we currently have four banks in life production on bank anywhere and have several more in the cute installed.

This solution is a cloud based core and digital banking solution offered the digital only banks. It leverages. The complete set of open npis built by our bandwidth team to enable easy connectivity to the core and other complimentary functions. If the digital bank is a new charter we can provide the core and the P.I. connectivity they need.

The integrated solutions from virtually any finpac provider.

If the digital bank is an offshoot of a traditional brick and mortar institution, we can blood bank anyway, regardless of the core system. The traditional bank is running.

The solution. It's just another example of the many innovative technology solutions being offered today by Jack Henry to help our banking clients compete in the digital world.

Regarding our new debit and credit processing solution, we now have well over 600 customers live on the new platform discount includes 73 customers installed as new debit clients rather than as migrations and 13, New full service credit clients now live on the platform.

We have approximately 300 about debit clients yet to migrate and as I mentioned on the last call. We suspended our migrations during the holidays, because banks and credit unions don't like to implement changes to their card programs during that time of the year.

We completed another round of migrations in January and remain on track to complete migration process during calendar 2020.

Although we haven't done a press release on this I'm happy to announce in December we became the first processor in the country to bring a financial institution live with real time payments network through the clearing house and will bring the second customer live later this month.

As I mentioned on the last call. Our pay center solution has been designed to allow us to connect clients to the real time payments network in groups rather than one at a time.

Additionally, we provide connectivities through the single platform to multiple providers, which facilitates the more logical any fission approach for our clients than any other processor in the market today.

As we began the second half of our fiscal year, we continued to be optimistic about the strength smart technology solutions, our ability to deliver outstanding service to our customers' ability to expand our customer relationships the spending environment and our long term prospects for success with that I'll turn it over to Kevin for some detail in the numbers. Thanks, Dave.

Service and support line of revenue increased 8% compared to the prior year quarter.

Our license and related in house support created some headwinds, but both being down a combined $3.1 million for the quarter compared to last year, which primarily was due to the continued movement of customer sure private cloud, which actually is good for us and our shareholders long term in many ways.

Outsourcing a cloud services were up nicely again, this quarter and an increase of 16% compared to last year as Dave mentioned deconversion fees were up a little over million dollars compared to year ago quarter.

Processing line of revenue, which is all of our transaction remittance card and digital grew a very nice 10% compared to the prior year quarter.

Total revenue was up 9% for the quarter compared to last year and on a non-GAAP basis, our revenues up 8% for quarter by excluding the deconversion fees.

Reported consolidated operating margins were down slightly from 20.8% last year, 22.4%. This year, primarily due to lower licensees and the continued increase in additional costs related to our card processing platform migration.

Which will continue to see these margin headwinds for the remainder this fiscal year and into next fiscal year until we can eliminate the additional costs related to the platform migration.

With the cost reductions that we've talked about on previous calls that we will see the impact from in the first and third quarters ever if our 21 the impact those cost reduction will have on our quarterly and fiscal margins will remove those headwinds and allow us to return to position of leveraging our operating income margins.

Our segments operating margins continue to be very solid with small fluctuations are payments segment will continue to have that increased margin headwind going forward as additional costs continue to increase as we migrate customers to the do payments platform until we can get blast core customers off in Q4 this fiscal year.

The effective tax rate for the quarter was relatively flat with last year at 23.2% this year compared to 22.9% last year.

For cash flow include included in the total amortization, which was disclosed the press release is the amortization of intangibles related to acquisitions, which decreased to 4.9 million year to date. This fiscal year compared to 5.2 million last year. Our depreciation is up year to date, primarily due to datacenter capex in the first half last year and hard.

We're upgrades this fiscal year, which aren't in production and our non acquisition amortization was that due to more of our internally developed products being placed into production.

Operating cash flow was 215 million for year to date, which is up from 192 million last year.

During the first half year, we invested 94.2 million back intercompany through Capex and developing products, which is Oh mobile, 5% from 89.7 billion a year ago.

Britain to update your airport 20 guidance as we've discussed previously we have no control over the timing of recognize deconversion fees that we received.

However, at this time, we anticipate deconversion revenue to be relatively flat for the remainder of the year compared to last year's second half, which means F. R 20 will be up over the previous year due to the large first quarter and the small increase we had in Q2.

In addition revenue from our processing and private cloud customers will continue to grow nicely and therefore total GAAP revenue should grow a little over 9% for full year Airport 20 compared to 419.

And then excluding deconversion fees from both years and the incremental revenue contributor this year from the acquisition of DCIO, which would be about approximately $10 million for the full year, our non-GAAP revenue should grow a little were 8% compared to last year.

With increased deconversion fees offset by the continued decreased license and related inpatient revenue and additional cost headwinds for our payments platform migration. We project operating income will grow at a slight discount to revenue growth at a little above 8% on a GAAP basis, then excluding the revenue and related costs associated.

Version fees and the small net operating income impact from the acquisition, our operating income should grow between six and 6.5% on a non-GAAP basis for the full fiscal year.

We will continue to experience revenue and operating income fluctuations Twitter fiscal quarters due to license implementation payment platform migrations and software subscription usage, we anticipate GAAP operating margins for the year to be mostly in line with fr 19 at approximately 22% for the year.

And excluding all the things just mentioned, we expect non-GAAP operating margins of approximately 21%.

Our effective tax rate for the full fiscal year, we'll continue to be between 23, and 23 and half or sense.

We project Q3, EPS to be in the range of 80 to 82 cents and for the full year before 20, we're increasing our EPS guidance from the previous range of $3. A 60 cents to 364 cents, we've tried last quarter.

The current projected range of $3.70 to $3 a 72 cents.

This concludes our opening comments and we're now ready take questions. Sri We please open the call lines up for questions.

Of course as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound.

Please standby, while we compile the culinary roster.

My first question comes from Vasu Govil with KBW.

Hi, Thanks for taking my question and congrats on a quarter.

I guess the first question you have security seem pretty strong topline performance and we're seeing the guidance raise here can you talk about like outside of deconversion fees, where you're seeing more strength portion about you'd anticipated coming into dealer.

And also the sustainability of this 8% non-GAAP revenue growth beyond 2020.

So I'll comment first then I'll ask Kevin to add on anything that he wants to add so first off I think the the win rate we're seeing in the core side of the business and virtually every quarter customer. There were signing now is a hosted core customer which means you don't just get revenue pop on the front end you get revenue that layers and is sustainable normally.

Those customers are signing a seven year contract. These days sometimes tenure contract.

The payments business. So we've talked many times on this call about the reason that we went through the the conversion to the new payment to the card platform. The reason was we were not only not winning customers five years ago, but we are starting to lose customers because the functionality wasn't there.

Today, we're signing new customers, bringing new revenue and because of the functionality on the payments platform that we didn't have before and we certainly are seeing a good demand as reference on the call I pointed out we signed 30, new debit and three new credit customers just in the single quarter.

So that certainly is adding and is sustainable for us.

The interest that we have on the digital side of the house I referenced 25, new clients for our full suite digital banking platform.

That is continuing to grow and we're continuing to see strong demand in that area. So and I could list. The number of other products, but those are kind of the headlines as far as where a lot of the product growth is coming from and and that growth is still out there the pipeline to solid I mentioned the sales team is running well ahead now this year not just ahead of.

What their quota was but ahead of last year's record record pace, that's the important points here.

Running ahead of last year's record sales here.

So a lot happening as far as new product sales and then having whatever you want to add to that.

Thing I'd add to that is if you remember last fiscal year, we signed 57, new core customers. We signed 22, new core customers. This year to date, so we're keeping pretty much on a pace of want a week.

Last couple of years.

As we continue to convert migrate those customers over to our platforms I was going to continue to drive both core and company revenue and as Dave mentioned is only comments, we continue to see a very solid move over existing in house customers from in house outsourcing, which is just very nice built inorganic revenue as we move.

Those customers over and we get a large wallet share out of those institutions.

Great. Thanks, that's very helpful and just a quick follow up on the M&A environment that we're seeing in the banking industry. There's been a couple of merger of equals where I guess you guys are the core provider.

For one of the parties and be the potentially larger than average client relationships for you and I just wanted to get us and for how you're thinking about your competitive positioning about winning these conversions.

If you think steel competitors may have a better hand, given that them more dominant player market.

Certainly you know it's no secret that some of our competitors have more dominant position in the.

The upper tiers of the market, but we're well positioned we've talked many times on these calls about all the solutions that we've been rolling out to serve larger financial institutions. The thing that I would encourage you to keep in mind, though and I I feel great about our position with some of these deals that are happening right now, but you know the thing to keep in mind is these days.

The core represents a certainly a nice piece of the business, but because so much. So many of our solutions are offered through the Profitstars channel today, meaning they are provided regardless of what the course solution is as possible for us. These days to lose on the core side and still have would be a win for Jack Henry because those larger Institute.

Since oftentimes oftentimes our in house, rather than hosted and so they're not paying nearly at the rate of a hosted customers in on our private cloud and if they retain some of the complimentary solutions, which are hosted in private cloud of Jack Henry now that can end up being a real win for Jack Henry. So we are we are in several of those deals and we are.

Well positioned when those deals, but as you point out we're not the dominant player in that space and so if we were dilutive in the quarter side, there's still a tremendous amount of opportunity for Jack Henry in the noncore piece of the business with those customers and just a reminder, those those those customers are typically in house customers. So.

If we would have loosen, we're losing in house maintenance and none of those customers is talking about represent more than 1% of our revenue.

Got it thanks for the color.

Thank you. Our next question comes from Kartik Mehta with Northcoast research.

Hey, good morning, Dave and Kevin.

Dave I wanted to just ask a little bit about migration, you're doing on your debit and credit customers and I think last time, you talked about that retention was really good youre not seeing any leakage of clients I just wanted to find out.

Where that stood at and where you stand in terms of net client Paul as you roll out this new platform.

Yes, I think as the good question Kartik the lease so I didn't want to get the impression on the last call and I certainly wouldn't on this call that we haven't lost any customers, but the good news is I think every one of them.

You shouldn't say every but the vast majority that have gone away and there aren't that many have been because they were acquired along the way. So we have had 30 or so customers 40 somewhere in that range that have been acquired emerged along the way and so when they get acquired.

Sometimes their businesses combined with somebody else, if it's a Jack Henry customers potentially go to a different platform. So we've lost a few along the way because of mergers, but I don't know of more than a handful that we've lost because they've decided that.

Oh were you're going to put us through a conversion we ought to maybe look at other solutions, let's look at going someplace else. So thats been a very small number there have been some that as I mentioned have have been lost because of because of M&A, but I would offset that with all of these new customers that we've signed a headline didn't hear is 73, our live already and we have a number in the Q.

73 that were not Pan JAK, and we have anything anything before the debit processing side before after this.

And Kevin I know the savings from this platform.

Yes.

Articulated in the past a little bit and I'm wondering as you get more into it.

That's changed at all as to the dollar amounts you can save from this conversion.

No I mean, the dollar amounts I gave previously Kartik I think are still pretty solid I think theres still some potential upside.

To those numbers you know, we always try to be somewhat conservative and cautious when we give.

Numbers like that the numbers I gave for savings that we're going to see as we shut the two platforms down in in Q4. This year in Q2 next year.

Obviously as Dave mentioned, we're we're still on course to get all of our core customers off in Q4, and then the remaining non core customers office second platform all hi.

By the end of Q2, so we'll see those those nice caution and obviously if you try to take those.

Those cost savings that we're going to see that up provide in the past and just throw those into this years quarter, obviously, the margins look a whole lot better.

And then finally, just Kevin just I was just want to make sure on the deconversion fees as of now when would you can see you would expect second half of this fiscal year to be the same as second half of last fiscal year.

That's what it looks like right now card okay. Thank you very much.

Yes.

Thank you. Our next question comes from John Davis with Raymond James.

Hey, good morning, guys.

They may want to Scott on the bookings number 18% is pretty robust. We're also trying to number last time, you gave it all kind of quarterly basis. So.

Does that compare with.

Last quarter or last year, and then how long does it take for those bookings to turn into revenue typically.

I don't I can't give you an accurate number as far as last quarter, but it's my key point there was were up 18% year to date over last year at this time.

So it's again, it's not a comparison to quota it's a comparison to actual performance last year by the sales team bookings up 18% I. I can't give you an accurate number as compared to last quarter last quarter was strong, but the second quarter combined with the first quarter produced this really outstanding run rate for the half of the year.

As far as when things translates revenue because today most of the solutions that we sign our we're delivering as a hosted.

Solution, regardless of whether its core into the other things we deliver it's rare for us anymore to sell a license Cup your software and so in every one of those instances then where it's a hosted in the cloud delivery.

Revenue was layered in over time, so you know quarter conversion, usually you start to see processing revenue a year or so after we signed a deal payments can.

Contract you can start see revenue often times within a quarter or too.

So it just depends on what the solution is what the timing is and sometimes that's driven by US we need X amount of time in order to complete the conversion, sometimes it's driven by the financial institution, because they need to do training and we'll make sure but he's ready for whatever it is that we're delivering so.

It's it's all over the board as far as when things get get layered in.

When the revenue starts to produce but I think the key point in that is today, it's rare for us to see it in the same quarter or the next quarter because it's so rare for us to sell a license version of the solution.

Okay. That's helpful.

Just quickly diving a little bit on payments kroeker third straight quarter of acceleration that was north of 10%. This quarter you called out some of the the new wins, there, but how should we think about that kind of going forward.

Waiting for it could come back down a little bit as comps get tougher, but it keeps kind of growing faster. So how should we think about that going forward as a business that can grow double digits in the near term or any changes to the longer term outlook for that business.

So John this Kevin.

I mean, and we've talked about this makes sense for me. If you think back three at three to four years go when we started this migration we were we were losing.

Quite a few customers off our Devon platform, because we did not have the technology. They want to when we made this this move over two years ago and came out and told World. We were going to make this move we kind of stock the bleeding, but we're still losing customers good with customers that have already signed leave at the time.

So about a year ago. We finally finally totally stopped bleeding, we started signing a few new customers up as Dave mentioned, we side quite a few new customers last year, we continue to sign them. This year and we're not losing those customers now so.

The growth that we're seeing right now.

I predicted this a year ago and I was very hesitant to do it but I think that's accelerated payments growth is going and we're going to see that for the foreseeable future.

Because of the new wins that we're having.

Obviously, the new wins that Dave mentioned, we size quarter, none of those are embracing the revenue yet.

Gotcha and quickly just on the revenue guide for the full year Theres about a 70 basis point.

Tailwind from the.

Video deal.

Even if I back that out it looks like you guys are kind of calling for deceleration on the back half of the year. Despite I think what would be easier comps I know last year, we had a lot of accounting related noise that messed up does that kind of quarterly cadence, but any recent accounting perspective or otherwise.

Well, John we still have that you said the same accounting noise because remember under six so six.

One is going to continue to be a very strong quarter because of all the all the software as a service that we saw in subscription software we work as a 100% that revenue in Q1.

So I mean Q2 was was actually a little stronger, but it was going to be Q3 in Q4 will be a little slow slower growth in the first half just because Q1 will continue to be our strongest quarter under the new six so six rules.

Okay, all right. Thanks, guys.

Thank you. Our next question comes from Joseph Foresi with Cantor Fitzgerald.

Hi, My first question is just around the competitive environment. Obviously your competitors are going to sort of some massive M&A at this point.

How how what is what are you seeing.

From a day to day when perspective, how distracted do you think those players are and is creating an environment, where you're allowed to take.

More market share.

It's a good question Joe I've been hesitant on these calls in the past to say that are a major competitors are so distracted that thats going to create a whole bunch of opportunity for Jack Henry I've had a number of people in the industry suggest that thats happening in is probably going to happen.

Our win rate is running right now in the core side at little over one Nucor deal per week, and we've been at that pace for about two and a half years now.

We see a lot of interest and Jack Henry solutions as I mentioned before sales are up overall.

Can I attribute that to our competitors taking their ask them. All I don't know that I'm prepared to do that yet, but we are certainly.

We are certainly engaged in a lot of deals right now and the pace of activity with Jack Henry is no. If I can say at an all time high but it's probably about an all time high right now as far as interest and Jack Henry solutions and the pace of.

Of interest that we see out there in the market and I'm not ready to do ascribe that to.

Anything specific happening with our competitors I just know there's lot of interest and Jack Henry Technology solutions.

Got it and then you talked a little bit about we've seen some solid results from some of the upgrade of your offerings.

That's my my read on it.

And I'm wondering do you feel like you've got the full suite in place now and that maybe that upgrade I'm just trying to get at what is causing sort of the pickup over the last 12 24 months.

In deal wins do you feel like maybe see improvement in your suite of offerings and that.

Some of the card upgrades or product upgrades on the card side are.

Leading to it just trying to get a sense again, what what's causing the uptick.

Yeah, I do I think it's a solid observations. So we spend a lot of time was particularly in the last year and a half for two years talking about all these new technology solutions, we've rolled out Treasury management, and the bandoliers Sweet digital Sweden or enterprise risk management solution and now I just today talked about bank anywhere we've been we've been in the market almost a year, but we hadn't thought.

But on this call yet because we wanted to make sure that everything.

Proved out and so yeah, I think you're I think you're right. It's a combination of new look and feel new user experience for some of the solutions. We've had for a while than we've rolled out a number of new technologies from the ground up new technology to our customers and prospects that we just didnt have two or three years ago, and so I would.

I think you're on the right track there with the idea that it's a it's the kind of a refreshed and a much broader suite than we had previously and then you add to that some acquisitions that we've done recently, so we haven't done through acquisitions, you've seen us doing less two three years haven't been needle movers as far as revenue is concerned they have definitely been needle movers from a strategic point of view suite.

Created this very robust commercial lending center suite now that is getting a lot of attention I didn't even talk about it on todays call, but I've talked about it many times the past that was a very intentional move up a few little acquisitions that we put together to create that new solution. The Geo acquisition, Kevin highlighted the revenue contribution on the call earlier, that's not a needle mover for Jack Henry from a strategy.

The point of view it definitely makes us a differentiated solution with our digital suite. So I think the combination of all of those things has positioned us position as well on the challenge when you're in our businesses you're never done you constantly have to be reexamining, your solutions and refreshing and trying to find that opportunity to differentiate from everybody else but.

Feel great about how we're positioned today with the things that we've been talking about on these calls for the last couple of years.

One other thing at three or 300 Joe's.

Again, I think we have very clear focus we go to the market primary with two flagship products silverlake on the bank side and if so encouraging side.

Those are the products that we spend our R&D dollars on in Silverlake was pick last year by I'd say is the best core system for banks and the $1 billion to $50 billion space. So when you get that reputation and you have the core products to wrap all that new technology that Dave mentioned around those things.

The combination of all that I think is why we continue to win and continue to win in the market.

Got it in the last one from me, Kevin I'm glad you said something.

It for you we've been waiting for the margins to expand in free cash flow to pick up due to the sunset of the products I know you said that.

It's a next year event.

Can you just give us an update on your level of confidence that were finally going to see that next year, and maybe a little bit of detail around why.

You have that level of confidence thanks.

Well I mean, obviously, we know what our cost is in the platforms that were running on those on the preferred debit card systems today, we know.

Personnel.

We'll be going away. So we know what those hard dollar cost SAR and there's additional costs throughout the organization that will also be able to eliminate so for the numbers that I gave in the numbers that are going to go away.

Kind of in in two big Traunches in Q4. This year in Q2 next year I am extremely confident that those those costs will go away and we'll see very nice increases in margins in both Q1 in Q3 of next fiscal year.

Great. Thank you.

Thank you. Our next question comes from Peter Heckmann with Davidson.

Good morning, gentlemen, thanks for taking the question can you talk about any regulatory deadlines, including fee so that that.

Turning into some of the bookings.

And anything else that it's on the on the radar that May Act as a catalyst first upgrade.

Yes, good question, Pete two years ago, or your and a half of our whenever it was Cecil is definitely a catalyst for us and I was excited to talk about Cecil back then.

Today, although.

We had.

First wave I guess January Onest went into effect for the second wave that timeline has been extended and so Cecil is definitely not a driver right now everybody who needed a January if one has it and for those that needed in the second wave. This the smaller institutions. They have been given an extra repreve. So there's not much.

Not much action right now when it comes to Cecil and beyond that no major regulatory change that's driving.

Revenue for us or any of our competitors and Theres just not a lot happening there that is producing revenue. Obviously, we have lot of expense around regulation, we're constantly having to ensure that our systems comply.

But no revenue drivers right now.

Being.

Fueled by regulatory change.

Got it got it and then.

Another question on the commercial on the commercial lending where it is that products that and the competitive landscape. What are some of the differentiating aspect more on the origination or management reporting side.

That's the unique piece of that solution is that it does all of those so it's designed to be a an online commercial lending solution, meaning the borrower can apply for a commercial loan online all electronics. So they don't have to drop off pay performs at the financial institution. They can do everything electronic.

It has a quick decision engine that came through one of the small acquisitions that we did so if the bank chooses they can automate the decision process. So the borrower for a smaller commercial loans borrower and get an automated decision back in our 30 minutes or whatever the bank sets for larger loans. They would normally send the two loan committee or at least some.

More formal review, but still can provide the response online to the commercial borrower and then for the bank. So it's not just the front end origination of loan to the borrower is for the bank the manage the loan through the life of alone. So as requirements come up for example on an annual basis for the banker to receive financial statements and and.

Review and approve those financial statements and that's all automated into the same platform. So the back end functionality at the bank.

Is is there as well so it's completely differentiated as compared to any other solution out there that's doing a commercial online commercial lending offering.

So very people, who tend to dig into a commercial lenders who dig into it.

The impressed and love the solution and the peak loan officer for the financial institution likes it because it's a it's a tool that allows the bar or the lender to be more efficient and spend more time with their clients in less time administering.

Dealing with administered via.

So.

Being widely paled by lenders as a productivity tool as well.

Great I appreciate it.

Thank you. Our next question comes from Glenn Greene with Oppenheimer.

Thanks, Good morning, Dave and Kevin.

I guess, just first question you sort of alluded to the number of competitive takeaways I think it was 17 in the quarter can you just sort of first of all what was it year to date and can you sort of frame that relative to a typical year. It strikes me as.

And acceleration improved competitive position for you.

For the quarter it was Glenn but if you look at the first half of the year. So Thats 23 year 24 for the first half of the year.

Which is why I said earlier, our pace for the last two and half years has been one a week.

And we're on we're continuing on that pays so that that sometimes the thing about core decisions is they can laps over into the next quarter. So we didnt have as many as normal in the first quarter, but a lot of those were really close to signing they fell into the second quarter. So it.

Kind of evens out so I'm I'm very comfortable saying, we're on the same pace, which is leading the industry by far the same pace that we've been on for the last two and a half years or so which is about one nucor customer per week.

Okay and then.

To an earlier question you alluded to sort of I think the pace of demand at an all time high I guess the question is why.

You can sort of alluded to a number of factors market environment, you alluded to better product suite.

I don't think you want to go there, but maybe a better competitive situation given your competitors may be distracted is there anyway to sort of frame. It why you're seeing sort of an all time pace with the mail.

Yes, I wish I could give you an absolute answer Glenn I think it's a combination of several of those things as I highlighted earlier on the call I think these new solutions that we've rolled out here in the past two three years are getting a lot of attention a lot of demand the payments platform treasure management solution. The ban on digital sweet commercial lending centers we.

Enterprise risk all these things that we've been talking about that we rolled out in last couple of years are creating demand not only for the solutions, but theyre, creating kind of maybe a refreshed.

View of Jack head space as a leader when it comes to new technology and doing innovative things with technology I think it's a combination of a variety of things of and when you. When you are winning at the pace that we have been on the core side people hear about that and so then there's there's some of that the.

Chatter that happened type of these guys are winning these core deals they must be doing something right, meaning it's a combination of all those things coming together and though right now we don't see that slowing down.

Okay, and then Kevin I think you said outsourcing grew 16% in the quarter.

Hi, Jeff is its new deals sort of converting on sort of mid teens sustainable.

Well I don't know because I don't have mid teens sustainable Glenn and I mean, if you look back the last two years, our outsourcing has been growing at the 12% to 13% range. So I mean, it popped up a little bit, but I think in that fall, 14% is very sustainable.

Okay. Thanks, guys.

Yep.

Thank you. Our next question comes from Dave Koning with Baird.

Hey, guys, great job and I, just got a few numbers questions I guess just to make sure I think you said before there is about 16 million cost savings. Once you you kind of.

Move off the old platform.

And I think you said a third in fiscal Q1 of 21. So if we think Thats 16 million, it's kind of 4 million per quarter, a third of that 4 million comes off in fiscal Q1, and then the full run rate is off by Q3 is that still the right way to think of it.

Yes.

Okay. Okay. Good.

And then the second one is just free cash flow the pattern change this quarter like you had an outstanding cash so usually fiscal Q1 in four really strong in Q2 in Q3 are we just normal seasonal patterns, but Q2 was like really strong. This quarter is that a new pattern or did something change like just for just for this time.

Well a couple thanks, Dave I mean, we if you look back over historical numbers, you're absolutely right. We've always been extremely strong in Q1 Q4, because our annual maintenance billings.

But as our business continues to shift to more not only of recurring but more of a monthly billing and and cash inflow from our from our private cloud at our outsourcing and also for payments then our Q2 in Q3 are no longer cash marine quarters are both going to start.

Let's turn to generate nice cash so it's starting to level I'm a little bit.

And to that point, if you look back our trailing 12 months were just over 99% conversion of net income to the free cash flow. So we're getting right back up to to that 100% I think you know again, when we get into.

Fr 21, I think our conversion rate is going to be well backup of 100% conversion as we are able to pick those additional costs out.

Okay, Great and just one last quick one last year, the organic growth patterns, starting in Q1 went 8754.

This year now it seems more like I think Q1 was nine Q2 is eight in it kind of feels like the rest of the youre going to be right around eight so it's a much more stable year I know Q1's, a little higher still but is that more is this year more than normal Q1, a little higher and then the rest of your about the same compared to last year, where it kind of decelerated through the year.

Exactly on point, so the resi or is going to be brought at 8% and we're going to finish the year GAAP like I said, yes over 9% and non-GAAP over 8%.

For the year.

That's really good thank you.

Yep.

Thank you. Our next question comes from Brett Huff with Stephens.

Good morning, Kevin and Dave.

Morning.

Three questions for me number one Dave you mentioned, the Treasury and cash management solution, that's kind of a favorite of mine to understand because it's such a new product in such a fragmented market.

Any data on the wins, there or uptick or downtick or kind of how the interest and progress on that one.

Sure, Yes, we signed seven treasury in the quarter, we have 36 lives now and.

Oh I Didnt bring the statistics certainly I just got the numbers for number of businesses a number of users.

Live on the platform. It's it's impressive number of businesses and end users at those businesses using the platform, but 36.

36 institutions live today.

That's helpful and then to the point of moving up market are you kind of frame this up before and talked about the card business and how that product was needed to kind of service. Some of the larger banks I think same thing with the cash management I think sort of similar with the commercial lending I know, there's a couple others on probably missing, but as we sort of arm ourselves to compete more effectively to move up.

Market, how is the conversation going with those bigger banks be they banks for whom you do profitstars things and are trying to sell them a core off a competitor or maybe you're just going in cold to a bank where there you don't have much relationship at all and this is also frame. The context of these couple of big deals that are mergers or M&A that how are those heralded.

Conversations going and what is the.

What are you hearing from those banks, where are you scorn points and where is the negotiation still sort of ongoing.

I'm not going to.

Specifically about any negotiations, but just in general I think the the banks of that size. It's it's been interesting a lot of those conversations because there is there's a great deal with the satisfaction pack more than I realized and I've been in this business 34 years, they feel dissatisfaction among the banks those size around the top.

Mix of integration and.

The ease of connecting to third parties, whether it be through a traditional tool or and Apiay set theres a lot of frustration lot of demand among those customers. So that bodes well for Jack Henry we have a great track record of open connectivity developing tools that really make life easier for the institution, but that together with all of these new solutions.

We've been rolling out that are specifically designed for larger institutions.

We're scoring a lot of points there now it's no secret and I I referenced at earlier on the call.

If you don't have a track record in that space. They above 50 billion and assets. That's the that's a difficult decision for somebody to say, okay. I think I'll be the first one to partner with these guys to go into that space on the core side. So they are ongoing conversations were scoring points. But then there are things that work against us and we're just going to continue hammering away.

But for Jack Henry It is a we're committed to moving up market and you've seen us make a lot of moves here in the past few years and we're going to continue moving in that direction, but we don't have to be were notably the dominant player among $100 billion banks to be successful we have lots of.

Runway here doing what we are doing and have been doing kind of slowly, but surely growing up into that space.

That's helpful. And then last one for me just this whole Mitek Wells Fargo USAA thing that's going on.

It's hard for us to kind of figure out when you pull that string who might get ensnared in that how does that does that relate to you all in any way or how do we think about that anything to worry about there.

I don't know that there's nothing to worry about it potentially effects all of us that are in this space that offer.

Imaging solutions, whether it be image viewing through an internet or digital banking solution, whether it be capturing texan converting them to images.

Those so all of those technologies, which all of US that are major players in this space offer those technologies.

Those are potentially a potentially come in place orders for all of us, but at this stage of the game I wouldn't categorize it as something worry about but it's certainly as something that we have our have our eyes on great. Thanks for the time guys appreciate that.

Thank you. Our next question comes from David Togut with Evercore ISI.

Thank you good morning, as you sit down with that banking credit Union Ceos can you comment on their 2020.

I T budget growth outlook.

Top spending priorities and then.

Any nuance you might offer.

Lets say between larger banks in smaller banks would be greatly appreciate it. Thank you.

Sure Dave I'll get survey information here in the next the within the next month or so I think there a couple of surveys that we depend on every year. So everything I'll share with you as anecdotal, but the thing that I can say is in the fall of each year. I think you know we hostess I host a CEO conference on the banking side on a separate one on the credit Union side, and so those kind of.

Recessions, we usually have to 300 Ceos those meetings those conversations.

Often and I'm talking about the future for spending in their demand for technology and so on and I can tell you as of this late fall just before the holiday season.

Ill optimism and their commitment to continue to spend was was still there I mean, there in particular things like digital so thats why I think a lot of demand we've talked about here around digital any of them are trying to figure out how to modernize the consumer experience for their consumers and for the tools. They can use to modernize that so that brings into play the online commercial.

Lending centers, we touched by that brings into play of analysts we talked about.

So CEO optimism continues to be high they've kind of adjusted to the interest rate environment that they live and they're not happy about it but they have adjusted to it and and we don't see that slowing down and that anecdotal I'll get.

More formal survey information here certainly before the next earnings call, but I don't expect a major shift just based on what I'm hearing from the CEO Dr.

I appreciate that and then just any nuance or kind of anecdotal information from your conversations between.

Say mid to large sized banks and smaller banks, you've had good traction with treasury management and the up market space. So when you speak to some of the larger banks are there any difference in terms of spending priorities.

Mantech here for 2020.

Yes, it's a good question I think the but maybe the only nuance there would be the larger banks are intensely focused on their efficiency ratio and are looking for what are those tools that can help drive their efficiency ratio up.

The smaller banks efficiency ratio is a topic, but they're not as intensely focus not as ready to go spend money just to improve efficiency ratio with larger banks that is absolutely a key topic for them, that's probably the major difference that I see in the conversations.

I understood. Thank you very much.

Thank you again, ladies and gentlemen, if you have a question at this time. Please press Star then one key on your Touchtone telephone. Our next question comes from Charles Nabhan with Wells Fargo.

Hi, Good morning, and thank you for taking my question I was hoping you could comment on the long term margin profile of the overall business.

Given some of the momentum you've generated in.

Some newer solutions that may not have been.

As material contributors in the past.

I'm wondering if we look past 21.

Elimination of some of the.

Redundant card platform fees.

The revenue mix changes do you envision any material changes to the overall margin profile or any seasonal patterns.

Well so this Kevin.

I don't think here you guys seem thats much seasonal change because I.

I mean were 86% recurring revenue now thats only going to get bigger a you know payments continue to make up about 36% of revenue.

Our outsourcing and private cloud offerings are about 25 or 26% of revenue and the balance of a recurring revenues announced maintenance would slowly shifting over to outsourcing, which those margins continue improve a little bit.

Our payments business continues get larger so as I said my opening comments once we get through.

First half of 21 and get the costs of the those additional cost taken out we're going back two or more traditional margins and at that point, we'll go back to getting some some traditional margin expansion of 50 to 100 vis a year for the foreseeable future.

Great appreciate the color. Thank you.

Yep.

Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to management for any further remarks.

Thanks, Sheree first of all.

I'd point out the once again will be holding our annual analyst day.

In the Dallas, Texas very on Monday May 11, and two Brett Huff point. So we will have the many tech fair again, so some of the products that will be highlighting there will be our digital solutions the commercial lending platform.

Our payments platform that we've spent much time talking about and treasurer and cash management. So invitations will be going out of the next few weeks that event. We hope many of you on this call and others can make it to the event. This year naira, Paul we're pleased with results from our ongoing operations and the efforts of our associates to take care of our customer.

Our executives managers and all of our associates continued to focus on what is best for customers and our shareholders I want to thank you again for joining today and Sri will you. Please now provide to play back number.

Hi, yes, the playback number will be 805 583.

Even with conference I'd number eight to one eight 009 again that 805 58367 conference I'd number eight to one eight 009.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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