Q3 2020 Earnings Call
The only mode. As a reminder, this conference is being recorded after the speakers presentation. There will be a question and answer session to ask a question. During the session you already depressed star one on your telephone if you require any further assistance press stars zero I would now like to hand, the conference over to your speaker today, Kevin Williams cheap.
Central Officer. Thank you. Please go ahead Sir.
Stephanie the morning, Thank you for drawing as for the jacket Associates third quarter fiscal <unk> I'm, Kevin William C. up on Treasurer and on the called me today is David Foster President C.O.
Just a minute alternately call over the data to provide some his thoughts about the state of her business performance of the quarter as well some comments about our response related to the impacts of covert 19, and then after that I would provide some additional thoughts and comments regarding the persuasive right yesterday after market closed and provide comments regarding the guidance to four in full your airport point.
Provided in the release.
Then we will open the lines up for question to answer is first I need to remind you that this call include certain forward looking statements, including remarks or responses to questions concerning future expectations events objectives strategies trends results like any statement about the future. These are subject to a number of factors that could cause actually.
Results or events to different materially from those which we anticipate due to the number of risk uncertainties. The company undertakes no obligation to update revise these statements for a summer these risk factors and additional information. Please refer to yesterday's press release in the sections in our 10 k. entitled risk factors and forward.
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On this call. We will also discussed certain non gap financial measures, including non non gap revenue and non gap operating income reconciliation for historical non gap financial major can be found in yesterday's press release with that on now from the call over today.
Thank you Kevin and good morning, everyone. Those of you who listen to our earnings calls on a regular basis may recall, but I've started every earnings call I've ever done by thanking our employees for their hard work and dedication to our customers and our company and no time have I ever been more passionate about that point and I am today.
Since the onset of this pandemic the Jack Henry team has moved mountains to address the unprecedented needs of our customers.
At the same time, demonstrating true commitment to each other and our communities.
Give you a sense of what that effort has included you are just a few of the key initiatives completed by our team since early March.
Are crisis management team begin conducting daily meetings at the beginning of March to provide an ongoing review of information in plans for every aspect of our business.
I have been instrumental in our planning and success as the world around US has changed so significantly.
Early in March our human resources team enhanced our health care program to cover 100 per cent covert 19 related medical treatment for all employees.
You know so that we were offering fulltime work from home status on March 16, and our corporate technology services team successfully transition 96% of our employees by the end of that week.
The other 4% are required in a Jack and relocation everyday to manage one of our data center operations. Those employees began receiving bonuses immediately after we moved to a work from home status.
Or lending solutions team launched them online paycheck protection program offering for our customers within three business days of the cares at being passed in early April.
He had customers processing loans for their small businesses two days before the S.B.A. was ready to start funding those loans.
Also expanded our lending network provide support for clients were unable to book alone for one of one or more of their small business clients.
Today, we have helped our clients process almost 70000 loans through the P.P.P. program.
And lastly, as you can probably imagine call volumes in our call centres have increased exponentially as our customers and their consumers moved out of their offices due to the various stay at home orders.
During that time, not only have the Jack Henry customer service teams risen to the occasion, but they did it while improving on are already industry, leading response times and customer service ratings truly remarkable.
These are just a few examples of the outstanding efforts put forth by our team. During this crisis in the past. Many of you have commented on the unique culture at Jack Henry Culture built on the do the right thing and do whatever it takes Montrose.
Never has that culture been on display in a more meaningful way than what we've witnessed during the past couple of months.
I could not be more proud of our team and their ongoing commitment to our customers and our company and I think every one of them for weathering This storm with Grace and passion.
Of course, we are not at the end of the road when it comes to dealing with the ongoing impacts of covert 19.
We continue to operate primarily in a remote status and our customers continued to get comfortable with their new operating model.
Although most of our clients are still unsure about long term impacts on their businesses, we're seeing many get back to focusing on the day today.
A good measure of this shift is the level of engagement, we saw with our sales teams in April as things started to settle a bit.
Of particular note, we've already signed up five new core competitive take ways in April as well as a variety of other new contracts and to combine the sales organization exceeded their quota for the month of April.
We will be closely monitoring sales performance and sales pipelines as the fourth quarter continues to progress.
With that let's shift our focus to look at our performance for the order we completed in March.
Where's the third quarter of fiscal 2020, total revenue increase 13% for the quarter and increased 9% on a non gap basis.
He conversion fees were up almost $15 million over the prior year quarter with almost all of that variance attributed to a single customer in New York.
If you exclude the deconversion revenue variants and focus on the non gap number you can see we posted a very strong overall revenue quarter.
Turning to the segments, we again had a solid quarter in the course segment of our business.
Revenue increased by 12% for the quarter and increased 7% on an ongoing basis.
Our payments segment also performed well hosting an 11% increase in revenue this quarter and then 8% increase on an ongoing basis.
We also had an extremely strong quarter in our complimentary solutions businesses with a 16% increase in revenue this quarter and 11% increase on a non gap basis.
Despite the obvious covert 900 challenges for the sales team at the end of the quarter. All three of our sales groups again hip or exceeded their quota and for the year. They continue to run ahead of last year's record pace.
And the third fiscal quarter, we booked 14 competitive cord take ways and 11 deals to move existing inhouse customers to our private out environment.
Are banno digital platform continues to see very strong demand with 24, new client signing for the pool digital sweet in the border.
We also signed 16, new clients to our new card processing solution.
Speaking of the new card processing platform, we haven't been providing regular updates on our progress. During these calls for the past. Several course, we are now 82% complete with the migrations and we ended March with almost 750 financial institutions on the new platform.
Prior to the onset of covert 19, we were poised to wrap migration for for clients by June 30th and had all 136 of those clients scheduled to convert in April may and June.
In early April however, several of the clients on those lists asked us to delay the schedule because they had minimize their employee presence in their offices and didn't want to introduce any new payments solutions, while their employees and customers were working remote.
As disappointed as we were to introduce the delay in a project that has been moving along so well.
We determine it was definitely the right thing to do.
As a result, we have delayed any migrations previously scheduled in our fiscal too poor into Q1 of fiscal 2021.
Anticipate migrations for our 86 noncore clients will also be delayed as a ripple effect. So we now planned to see those migrations happened in fiscal Q3 of 2021.
Regarding implementations for other solutions were working closely with our customers who are scheduled for on site delivery of our solutions to ensure their needs are met while taking all necessary safety precautions for our employees when they're required to be at a customer site.
Delays of customer system installations due to cope with 19 have been very limited and we've developed processes to handle remote installation Lynn <unk>.
We expect these processes to provide flexibility invaluable during and after the pandemic.
We will continue to work as a partner with our customers regarding implementation plans customer service needs and support for their and consumers to ensure they get help they need during this difficult time.
Despite the uncertainty caused by the ongoing pen pandemic, let me remind you of a few of the fundamentals about our company company fundamentals, we emphasize regularly in our discussions with investors and analyst first more than 85% of our revenue is recurring in nature second we have very little that on the back.
She and we continue to operate with a solid cash position.
Third we've paid a dividend for 119 consecutive quarters, and we continue to be committed to our dividend policy moving forward.
Poor, we have an extremely engaged workforce as evidenced by our employee engagements survey results and best place to work Awards.
And finally remember that we whether the financial crisis 12 years ago with very few bumps and bruises.
As we move forward, we will inevitably continued to monitor to implement minor changes to our delivery and service models, but we don't anticipate the need to make any significant changes in the way we serve our customers.
We have a commitment to doing the right thing for our employees customers in shareholders. We believe will serve as well as we adjust to the new normal.
We will continue with our disciplined approach to run the company and expect that approach to help provide continued stability for our company as we move to the other side of this pandemic at some point in the future.
With that alternate over to Kevin for some detail on the numbers.
Today.
The services portal of revenue increase 15% compared to the par you're quarter are outsourcing and cloud services continued to be a big driver in this line of revenue within 18% compared to last year.
Mentioned deconversion fees were a 14.7 million compared to your recorder and all those are included in this line of revenue if you back out deconversion fees and contribution for acquisition. This line of revenue on a non gap basis group by 8%. The processing line of revenue, which is all of our transaction remittance and digital earned nine.
<unk> compared to the <unk> and again, there are no deconversion fees in that line of revenue.
Or total revenue was up 11% for the quarter compared to last year and on a non get basis revenues up 9% for the quarter, which is slightly ahead of our previous guidance.
Our reporter consolidate operating margins increased slightly from 20 per cent last year 21.4, which is primarily due to the increase in deconversion fees on a non <unk> decreased slightly from 18.5% last year, 18.1%. This year, primarily due to the continue to increase.
Additional costs related to our card processing platform migration.
With the delayed migrations that they mentioned we will continue to see these martin headwinds for the remainder of the fiscal year and into next fiscal year through two three there for 21 until we can eliminate the additional costs related to the platform migration with this shift and timing and the impact of covert 19.
At this point is hard determine exactly when we'll we'll see Marge improvements next fiscal year, but we will definitely see margin permits and our payments.
Two four of F.R., 21, which will get the full year impact in F.R. 22.
The impact of these cost reductions at that point, we'll remove headwinds and allow us to return to the position of leveraging our operating income margins in F.Y. 22.
Our core Inc. Aren't many segment <unk> continue to improve but the continued pressure for payments segments. We just discussed is off setting that improvement.
Effective tax rate for the quarter decrease in 19.7% compared to 22.4% last year, which is primarily due to the difference any uncertain <unk>, which reserved annually under fin 48, According to R.S. and with the laughing a statue limitations between the two periods respective reserves are released.
This corner was impacted a little more heavily due to the additional and and above normal release is related to the tax cuts and jobs Act eliminating the section 199 deduction. So there were no new reserves to offset those section 199, but were released.
At income was 73.9 million for the third quarter compared to 59.3 million last year with earnings per share of 96 cents. This year compared to 77 since last year.
The 96 cents for the quarter included positive impacts.
From deconversion fees and taxes, which were offset by the negative impact from the last one disposal of assets. Considering these adjustments are earnings per share related to operations came in slightly ahead of the consensus estimate for the quarter of 80 cents.
For cash flow, our total amortization increased five per cent your date compared to last year due to capitalize projects being place into service and included in the total amortization is amortization of intangibles related to acquisitions, which decrease the 15.4 million year today this fiscal year compared to 15.6 million last year.
Art appreciation is up your they primarily due to the timing of data center cap X. that we talked about a year ago being placed into service last fiscal year and getting it full nine months to depreciation this year.
Are operating cash flow was 276.4 million for the year to date, which was up from 233.4 million a year ago, We invested 126.8 million back to our company through cap X. and developing products, which is up 2% from 123.9 million a year ago.
Couple of comments are balance sheet, we currently on a cash position of 109.5 million.
Are we sending out annual maintenance buildings at the beginning of June in February this year, we renewed our revolver with a five year term and increase the Maxim borrowings to 700 million.
There was a 55 million dollar draw on a revolver at the end of at the end of the quarter at March 31st. However, we doing just pay paying that off a june 30th and be net cash.
We had no other long term debt honor balance sheet other than leases.
We are closely monitoring of modeling all lines of revenue and watching relatively relative key performance indicators were focused and monitoring cost controls, especially in significant areas cost like headcount trap travel meetings and discretionary spend in our guidance, we're anticipating a slow rebound in debit card usage.
As parts of the company reopened or parts of the country reopen I'm sorry at this point. It appears that income from deconversion fees will be down approximately $1 million compared to last year's queue for which just remind you we have no control over the timing of recognize deconversion fees that we receive.
<unk> are gap guidance revenue for Q. for his arrange a 408 to 415 million with E.P.S. of 77 to 79 cents per share. Our full your revenue guidance was increased revenue range of 1.6 ipod billion to 1.7, O. 2 billion with a four year earnings per share of.
$3.83 to $3.85.
We will continue to experience revenue and operating income fluctuations between our fiscal quarters due to various things such as license revenue imitation timing are ongoing payment platform migrations and also software subscription usage, which obviously, you'll see into one of next year.
We anticipate gap operating margins for Q. for to be down a little from last year's fourth quarter. So for the full fiscal year. It should be mostly in line with F.Y. 19, a proxy 22.5% operating margins are effective tax rate for F.R. 20 should end up at approximately 23% for the <unk> fiscal year.
As we have historically done we will be providing revenue and earnings guidance for F.Y. 21 during our Q4 and you're in earnings call that we will have an August. We're currently in the process of developing our budget's rapport 21, and evaluating the overall impact to be anticipated unexpected from coven 19.
At the same time developing our airport 21 budget, we will be focused primarily on target. Some forecasts specifically for Q1 of F.R. 21 to assist with the guidance will provide in August. However, let remind you as I know you'll be working on your models before for artificial guidance as Dave mentioned are a recurring revenue.
Today is over 85% and if you remove the one time deconversion fees in total revenue.
Revenue is actually a little were 88% of our total revenue so you'd be sure and use those as you're building your models for F.R. 21, before we give official guidance at our yearned earnings call.
This concludes our opening comments, we're now rates that questions. Stephanie will you. Please open mccall lines up for questions.
At this time, if he would like to ask a question. Please press Star then the number one on your telephone keypad that Star then the number one on your telephone keypad till asking question.
Yeah. Our first question comes from the line, Dan Parlin with RBC capital markets.
Thanks, Good morning, and I hope everyone is.
Healthy and say I wanted to start off just at a high level in terms of as you've had conversations are both of you have had conversations with your your bank partners.
Wondering what type of you know in fact, they're providing back to you in terms of the health of that channel like right now it feels like things are relatively stable, but it does also feel like things are likely to get worse, there and so I'm just wondering where.
What kind of anecdotal evidence here, you're hearing from those partners.
In the morning down with Dave.
So good question, obviously, probably not a surprise to you the talking to a lot of our customers here in the past several weeks a tough to U.C.E.O.'s just in the past three four days and I think the.
Assistant feedback from them is you know so first of this this crisis that we're in right now was caused by a health crisis not by a financial crisis. Obviously has created ramifications. So throughout the U.S. economy, but you know the banks and credit unions that we work with them the C.E.O.'s that I'm talking to have emphasized over and over again that there yeah.
The health of their institutions was really very solid before this came onto their well capitalized.
There are a credit quality is high plenty of liquidity and so they're feeling generally pretty strong about the about the opportunity in the future going forward. They for those who chose to participate in the P.P.P. program. They were being paid by the S.B.A. to to a process those loans.
So there's an income stream for them there and that's helping for some institutions. Some have been very successful in the P.P. program and so they feel strongly about the fact that they're not only helping small business than helping save main street by being administrators of that program and working with small businesses to help them out but there is the benefits.
There's some revenue coming into the financial institution that helps.
States in P.P.P.. So generally yellow you know everybody is concerned about what future looks like here and when do things quote unquote returned to normal generally they're pretty.
Beat that they can whether this storm and yeah they'll have to deal with some businesses that maybe troubled and they may have some you know mortgage payments that they're going to have to except the idea of delaying a mortgage payment and so on but they're generally pretty positive about the the future and I think it's because they recognize that although this is you know turning into a fund.
Crisis, it wasn't caused by by banks like the the one that we went through 12 13 years ago.
The other day certain point I mean, we we came out of that one in 2009 2010 pretty much on skates and that was a financial crisis. So I mean, obviously, there <unk>, there's going to be some some issues with the financial industry coming out of this but obviously the good thing is day said <unk> most finances sue.
In this very very well capitalised was strong balance sheets and and they seem to be still on a pretty good place.
That's great and this is a quick follow up in terms of trying to understand the implementation cycle impact I mean, I think you gave some good color there, but it does seem like there's going to be some air pockets. They get created and so what I'm I'm actually interested in is can you just help us understand how you would do.
Digital knowledge transfer if you couldn't be physically I'm cram for some of these if this if this was much more protracted than say the one quarter that you're kind of alluding to pushing to kind of I think the first quarter <unk>. Thank you <unk> sure Yeah, and it's you know it's been it's been fun and exciting it's kind of remarkable frankly to.
The implementation teams shift gears into a a a new mode of delivery. So a lot of the solutions that we deliver were already.
Lured virtually and we do training on line, we do training, we weren't using a whole lot of video to do training before we are now.
As people become much more comfortable with the video technology, but we did a lot of implementation remote previously now many of our teams have adapted the way they do implementations adapted the way they do training taking advantage of virtual tools like video to do to do training. So it really hasn't interrupted.
I mentioned in my opening comment that hasn't interrupted our our implementation pipeline much at all in fact, I think it was two weekends ago. We didn't three core conversions on that same weekend. It was either two or three weekends ago and we're installing you know <unk> digital sweep has always been installed virtually not always but.
You are so has been installed as a virtual into also.
So the teams have adapted and and we're delivering things differently. There are some customers who aren't 100% comfortable all the time you know they want somebody there to hold their hand until we know we kind of work through that but but most of our solutions now we're in a position to implement Berkeley.
And for some invitations I mean, we still are sending people on site, which is one of the nice things about having our own corporate planes. So we can safely take our employees to the facilities and worked for the banks through a suicide discussing relationship and also we have always done a lot of classroom training.
Virtually which we are doing that we've got several several classroom set up with with multiple monitors to do training. So that that was already in place. So you know the nice thing about this as we were already 27 per cent of our employees will work, a remote anyway, and and probably another 25 or 30% work wrote it during at some point during.
The week. So <unk> this was a pretty easy adaption for us to get to where we are today.
It's great to hear thank you so much.
Yep.
Your next question is from the line last two got deal with <unk>.
Hi, Thanks, good to talk to you in that everyone is doing well I guess just the first question on the revenue D. salaries sitting in the fourth quarter I mean, even executing the deconversion feed it feels like that would be a slight slowdown could you talk about what's driving the in fact by segmented that mostly the payments segment, where you expect.
Thing to see the weakness if you could get some kind of that.
Yeah, I mean <unk> the primary dry we're seeing and what we're projecting into four is is we did see a slowdown or debit card usage in in the last half of March or even though we still had strong payments growth for the quarter.
And so we we continued to see that that slower a debit usage in in April and like I said moment comments. We're we're assuming it predicting that we will see some rebound in June as as the country open opens back up.
That is that's the primary drag on the revenue growth into four.
Got it that's helpful and I guess I know you will get guidance between 21 next quarter, but.
You know <unk> I guess, it would give us some high level color like you would think that fourth quarter <unk> in terms of goods wave circuit that'd be I get back depending on you, but you see on sales and if you could perhaps compare and contrast, how the impacts that I might be different from what you assign the great financial crisis back then I guess revenues would have went from double digit to flat and then break.
Back pretty quickly like what kind of sort of you know look have a week on my you see this time. Thank you. So so I see I think it's a little different now to look at our financial as compared to what what you saw back in the financial crisis.
And the difference is A.S.C. six or six because remember we're now under different Rev. Wreck rules. When we were back then so when we were able to start delivering software and and little quicker back then, which obviously, we don't deliver a whole lot software now.
So you're you're not going to see a sudden rebound. However, we've been under S.C. sexual six for two years now are we will be by the end of this fiscal year. So so now you've kind of see the fluctuations created in our financials. The last couple of years, which Q.T. One is typically the high quarter now because of all the software usage and subscription revenue.
That has to be recognized at the beginning of the year, which that grows every year as we continue to sell those throughout the year.
And then it kind of tapers off throughout the year from from do you want to queue for which is kind of opposite from away. It used to be so I I think as I said moment comments, which recurring revenue being 80% of our total revenue we still have a solid backlog you know through Q1 ourselves bookings, we're still up 12% over last year as day pointed out is opening.
I'm asked we actually exceeded quota for April so so do we anticipate some headwinds on sales, yes, but having said all that I I feel really good going into F.Y. 21 at this point.
Thank you that's very helpful.
I think a key point to remember there is that you know when we signed a new core customer we don't see any of that revenue four months after that customers sign in and then once we do start to see revenue it's layer it in as opposed to getting a a pop in that revenue. So so <unk> and that's core now many of our other solutions are maybe a little shorter.
Implementation timeline, but it is rare for us to sells you know, we're not a cell and bill kind of company normally were a cell and put it in the backlog and it gets rolled out and the revenue gets layered in so that's part of the predictability of the model.
Thank you. Your next question comes from the line of David Togut with Evercore I.S. I.
Thank you good morning, Kevin and Dave Hope, you're posting Wow <unk>, just spreading to the earlier question.
Could you talk about potential inflection points you know in the business as a result of Coven 19, you know for example, you've had very strong demand for awhile for Banno digital Sweet, but do you expect to see and accelerating shift toward digital banking.
It was more consumers, perhaps don't want to walk into.
Bank branches.
And it's a good question, Dave and definitely I think you're on the right track there. So the the things that we're you know seeing right now it was interesting as the whole Cobin 19 thing was coming into play here. So.
Think back to the beginning of March and then the mid March there was a lot of speculation that people would immediately tried upgrade their digital presence will in fact, the reaction was kind of the opposite I don't want to mess with anything right. Now my customers are all like consumers are all you know changing their behavior I just want to leave things alone right now, but now that that settled in we have a lot of.
Customers realizing that the that for them to be successful going forward. They do have to seriously to look at upgrading their digital presence.
It's not just you know what we used to call mobile banking against the entire digital banking.
Sweet, including opening accounts on line and so on so we definitely are seeing a shift and interest to shift in conversation about that as people are are thinking about the future and trying to make sure their position well for the future and I think there will be there will be more things commercial online commercial lending and we've talked many times on these calls about the.
Outstanding Technology, we developed for commercial lending online, we had signed the number of banks in some credit unions for that technology, but many of them still viewed commercial lending as opposed to consumer resale ending commercial lending they viewed as that function, where somebody has to come in to the branch you know you can't possibly do a commercial loam without looking that person.
And the I well now today guests, what they're doing a lot of commercial lending over the over the digitally and so we have a number of customers looking it up reading that a piece of technology as well. So I think you're absolutely a spot on as we look for the future digital will be much more of a topic than it has been yeah. Another thing I'd throw out there David and obviously.
I would tell but you know just Dave pointed out and is opening comments you know we signed 11 additional existing core customers to move from end to out I think over 19, who's going to continue if not accelerate that trend somewhat and I I think are hosted network services.
Offering, we'll probably grow even faster than it was because I think some of these f. eyes are realizing that they really don't want to have to mess with any of the technology I would rather us do it again, it's it's that's a prediction on my part is too early to tell but I I have to believe that that is going to be part of this whole conversation inept or 21 going forward.
Thanks for that just to follow up question on capital allocation priorities, Kevin you highlighted the strength to the balance sheet. How are you thinking in this environment about capital deployment. When you look at you know your share price, obviously dividends have been a priority for many years and then.
Chill acquisitions to the extent seller expectations have come down you know versus let's say six months ago.
Yeah. So do I mean, obviously, we're in a very capital position you know it as day pointed out with pay dividends for 119 strict orders I don't see us breaking that string a web board meeting next week. So at that point, we'll probably get announcing another dividend of course, that's up to the board nuts me. So dividends is a priority, but you're absolutely right. We're we continue to talk to bankers.
About potential image they activity out there and we think that there'll be some some better opportunities later in this calendar year and into next calendar year.
In fact, <unk> I'd emails from like three different bankers. This morning, I want you to seven calls to talk about potential deals and everything. So obviously number one priority is to continue to look at those acquisitions.
The give our shareholders continued strong return we will continue to increase dividends and will continue to look at buying stock back I I think under the circumstances right now I don't know that that would be viewed extremely <unk>. Obviously, if there was a dip in our stock price, we would probably jump in with both feet.
Thanks, very much be while.
<unk>.
Your next question is from partake Mehta with North Coast Research.
Morning, Kevin and Dave.
Kevin just to get your perspective, I know in August to provide a lot more about F.Y. 21, but Dave and you talked a little bit about credit card migration and impact on margins and you look an F.Y. 21 early on would you expect non gab operating margins to be flat and apply 21.
Or are there headwinds that could prevent bad.
So and again, we were just for our budget cores at this point partake, but you know some margins non get margins.
Q1 should be slightly better because of all the software usage in suffer subscription revenue the gets recognized with very little cost in in the first quarter, which should be enough to offset the the increased cost for the payments migration.
After we do the the M- M- migrations and Q1, we should get some relief I'm not sure exist exactly right now what that relief will be off the payments migration as we're able to start shedding some things down. So so few too you might see <unk> you know basically flat I think two three will continue to go down a little.
Because the the continued pressure from migration and then we should see a nice popping margins in Q. for so again, we're still in early but just say is so what I'm, hoping for cardiac is the margins for next fiscal year or at least equal to this year.
But again, it's really too early from even even make that prediction.
No <unk> no that's the Apple cabin.
And then Dave you talked a little bit about a one of the things that cobin 19 is bringing is maybe more in house customers looking at going to outsource <unk>, what kind of revenue contribution or growth contribution has that had he in the past and seems like that could help accelerate revenue. So I'm just trying to understand maybe.
How much of a benefit that's been in the past and what you think it could do as we go in in the future.
Mmm things Cardica essentially a when you go from inhouse to outsourcing the revenues to Jack Henry is doubled because we're taking on you know all the processing responsibility for that customer I. I think you could you could probably figure out that our our costs aren't of old because we we roll them into an existing infrastructure so revenue essentially.
Doubles, and usually when we signed a customer go for him out in house to do our host or a private club environment, usually they also take on other products at the same time. So there's this AD on effect of them, adding a products those decisions are easier for them in that environment, because there isn't a capital outlay.
Usually that decision to add a product doesn't need to go to the board for approval. They can just added into their monthly fees. So they're usually pretty comfortable talking about adding things that they wanted to add for a long time. So that move has definitely been a key driver for us in the past and will continue to be for quite some time, even if we speed up the rate of.
Of migrations here, we have many many quarters.
Have a customer activity in that area before that runs out so lots lots of runway yet you know <unk>, 61% of our customers are currently in our private clouds. So you know almost 40% of our close in 1900 core customers are still in house that.
As the option to move over and as far as revenue contribution you know in any given quarter year. I mean, if you go back for the last eight or 10 years I mean, we've we've average about 45 to 50, a year, but the revenue contribution in any given year can be so significantly different based on the size of the institution is that we move in any given.
Quarter or year.
Thanksgiving takes Dave really appreciate it.
Yep.
Your next question comes from John Davis Square that Raymond James.
Egg morning, guys glad you're Ah Terry well, Kevin thoughts on a payments business for a second yeah. If you assume Jan fab, we're probably a double digit growth ill I think march probably accident downloaded single digits.
Seen any improvement in April and then kind of what's embedded you have positive.
Payments growth embedded kind of in the guy for four Q. and a color that would be helpful.
So for the entire quarter isn't going to be some growth E.S.J.D., but it's going to be back end loaded in the quarter. Because April we continue to see some some headwinds from lack of usage as people were staying at home I think as as now we're seeing countries perked open up against <unk> pretty early as Hell, but I think we're going to see some.
Increase in May and then hopefully a decent rebound in June, but it's not going to be much growth over last year's number.
Think one important thing to keep in mind here. So that's focused on our debit business are are the processing business, but you know there are three aspects are payments business and they include built a and R.E.P.S.E.C.H. origination robust to capture business will T.B.S. and.
And I pay the are built they business both are performing well they did not see a big they saw that for one week that we can March where you know nobody knew what was going to happen tomorrow, but.
Absent that one week volumes continued to be up year over year. You know those are are part of the key payments infrastructure melody discretion in a lot of that stuff. So those continued to be up here over your even though you know there's this impact on the <unk> switch I think that's important to keep in mind that that helps offset some of the potential channel.
Engine that nobody business.
Okay, and then uncomplimentary, obviously really strong growth and a quarter sampling better than than I thought anything to call out and how she was saying about the sustainability of that growth, which I think that's dover tend to double digits and the third quarter.
Yeah. It it's so part of it as digital so digital is in that in that Pukka, then certainly a a big chunk of that was our continued implementation of digital solutions are Treasury management solution is some of the things that we've talked about here recently online commercial lending. It's on a number of those things are in that bucket and we had a strong.
Order.
All of those areas will it be as strong next Porter you know I don't know that I can say that but it's certainly isn't area of growth for us and it's a particularly strong area focus for our customers. So.
I think you can assume that that that segment will continue well.
Okay last one for me I think April today, I think you cited for competitive take ways, which is not too far off the run rate that you've been kind of averaging but any commentary on or what new R.F.T.'s look like 'cause assuming that those kind of take away you want an April those were kind of well under way, how we started to see our opinions go by.
Back out or or you know banks kind of just all crane down for for the meantime.
Yeah actually I quoted five for the month of April and of course, I was first time I've ever first time I've ever recorded on earnings call, what's happening in the current quarter that we're talking about but I thought it was important for you all to know that sales is really continue to perform well but to your to your question R.S.P.'s. We've had some are he's come in I think it's logical for you to assume and for anybody.
I think the the R.P. volume has slowed down a little bit, but I will tell you that are pipeline has not dropped at all so what that means as as your booking deals as deals are getting signed going out. The final you know there are new opportunities coming in the finals. So that we ended April with essentially the same size type line that we started April with.
Even though the sales team.
Exceeded their quota for the month of April So I think that's a good sign that there are still activity out there and as I mentioned give a lot of bankers now that are starting to think more in terms of of returning to focusing on the day to day I won't say, they're thinking about returning normal because they still don't know what normal is they're focused on the day to day and they're thinking about things.
Like digital and about you know Kevin mentioned, R.H. and S.R. hosted network solutions, a service things that will help them with deficiency things that will help them with expense control.
There is a lot of talk about bankers now focusing on moving to a a single source of provider, which is great news for Jack Henry because we have such a broad sweep of of solutions and so you know we believe that may help us pick up some some business where customers maybe we're using a small third party for one piece of.
One piece or 10 pieces of their solutions that maybe they'll bring one or two or three of those to us as their focus more on minimizing risk and.
Working with a single source provider. So I think there are a lot of things happening right now that bode well for Jack Henry.
We need a little more time on or about to to really you know say with confidence that the sales process isn't going to be negatively impacted the other thing I'd point out J.D. is is obviously back in 2009, which was obviously different different times in different circumstances, but it was still kind of a hailstorm that that the the financial institutions are going through today.
In 2009, our our core system evaluations actually increased from what they were before the financial crisis started we did have a lag in summer account many products, but I don't think we can see that this time because of the increase demand for digital and some of the things that they've mentioned why commercial lending so I I think.
Continued university position to to face the these challenges going forward.
Okay, alright, thanks. Thanks.
<unk>.
[noise]. Your next question comes from the line of Peter Heckman with Davidson.
Hey come morning, Thanks for taking the question how are you going to handle use your conferences trade shows and and how much do those typically contribute to sales of salary products.
Yeah. So it's a good question, we actually I'm, a I'm dressed up today for the first time and six weeks I've actually got a sport coat on because as soon as we end this call I'm going to go and record a virtual presentation for our first claim conference since the the pandemic struck so what we've done we normally host a.
I find conference in April and one in May and the one in May of course normally leads up to the analysts conference that we tend to visit with all of you at both of them I've been turned into a virtual conference and so we have and these are smaller conferences as opposed to our large companies is at the end of the year. So I think I saw this morning.
Somewhere over 400 attend these currently that are registered for this conference. So we'll be doing that virtually ah continuing to share information with them virtually we have the next the our normal are big annual conferences would be in September and October we're still talking about what we're.
Are going to do with those conferences, so will people be comfortable gathering in large group for a a industry conference in September and October as I sit here right now I don't know so that's a a big topic for us and as you point out those are a good opportunities from up for us on the sales side to to share information about product and so.
So no. We're we're doing a lot of remote demonstrations today and this hills organizations pretty quickly move toward focusing on a remote demonstrations back in March and so.
If we aren't able to host the large client conferences at the end of the year confident that we'll be doing virtual conferences and included in those conferences will be opportunities for us to demonstrate solutions.
The good news and all that is when you do a remote conference you tend to get a lot more people who sign up because there's no travel expense and so you know it may expose us to more more eyeballs than we would in person, but we're not we're not at that point, yet we're ready to make that decision and Pete the the.
The education conscious we have the big ones for for credit unions, and then for the J.C. for banking Profitstars I mean, those are truly education conscious is there's some sales option is <unk>, yeah and those are quite a few leads typically yes, but those are truly education <unk> and if we do have to go virtual we will still do large education portions of that for peace.
<unk> want to sign up because that's what we want to do to make sure that our customers continued to learn how to better use our product some make their institutions more efficient.
Got it got it Okay and then one other question I had just on on on a real time payments the relief yet out earlier in the we.
Can you talk about some of the use cases for real time payments and and and what feeds might look like.
Bank might charge to that to to pay her and then lastly, <unk> you know.
What will those payments.
Yeah. That's a good question I think you know that that opportunity is still developing not only for us, but certainly for our customers I think a lot of our customers aren't exactly sure yet what the what the two depths of the opportunity as for them.
All of US I think our customers and Jack Henry We view, the real time payments opportunity very differently from the Zell opportunity So's L., you know real time, Peter P., but as we've stressed many times on these calls you know there is not really have much of a money making opportunity when it comes to Zell, it's hard to make money on free right. So zal has.
Then as not in a focus as far as the the money making opportunities for real time payments. There definitely is a money making opportunity there because not only will be used for consumer payments, but we see it being used for for commercial payment. So our expectation is that it will definitely impact check volume because keep in mind.
Today, well most of the paper check volume that's out there is is in business payments I think it will play a role when it comes to check volume I think it will play a role in displacing A.C.H. transactions are happening out there today. So that you know that as a as an opportunity as far as we're concerned and then.
You know <unk> card, maybe but I think it's much more likely to to replace A.C.H. and current paper check as through real time payments start to roll out.
Okay. That's helpful. Thanks, Dave.
Yep.
Your next question comes from Dave <unk> with Baird.
Yeah, Hey, guys, Thank you and I.
I guess first of all just to follow up kind of my card X. question. When when you talked about March in what was that all kind of <unk> fees like when you said you expect it up somewhat in fiscal 21 was that acts trophies and including term fees I would imagine it might be down a little just giving you get the big terms. He this quarter.
It would be sure yes.
Okay.
One other one just on margin.
You know, we we can see the margin coming down a little bit obviously with that the implementation and and and all that <unk> <unk> <unk> <unk> no touring fees take on all implementation stuff is it are the the core March and still going higher in in what's driving that just core core revenue growth.
So you you kind of cut out there Dave so.
To recap I think which said, what's what's driving the core revenue growth and and all setting the the negative in payments is that right.
Yeah, I I was just just trying to understand to make sure that the core margins are still going up when you exclude all the the one off stuff Oh, Yeah. I mean, you can just you can look at the.
Just the segments in U.S., both gap non gap when it for the quarter on margins for payments Uncomplimentary, obviously, the big driver that is a continued growth in the end out like I said my opening comments I mean, our our hosted in cloud services, 18% this quarter over a year ago and still <unk>.
Digits I think on an ongoing basis, we're still like 12 or 13% for the year or so that's been the same for the last three or four years I don't see that changing going forward or even into next next year complimentary continues to be driven by a lot of of our private club products like digital and other things, but a lot of other products that are added into.
Our our private choir core customers. So both those segments grew nicely and <unk> essentially offset the decrease in margins in the payment segment.
Yeah Gotcha, Okay. That's helpful. And then in that finally is there any big difference between like <unk>.
What your core clients are doing in a in an environment like this relative to your like Profitstars clients like is there at all it divergence in kind of how you see activity over the next couple of quarters, you know what one growing a lot faster than the other or is it just all all pretty good stuff.
No I'd say, it's all there is no difference between core and Profitstars as far as sales success.
Or a you know what we're seeing so I emphasize the the core deals that we've done in April just because I knew that would be on your all you all his mind.
Wondering whether that big revenue drivers totally stopped but no profitstars performed really well in April and has continued and let the same pace.
Alright, thanks stay well and not great job.
<unk>.
As a reminder, if you would like to ASCII question. Please press Star then the number one on your telephone keypad.
Next question comes on the line, Brett half with Stephen drink.
The morning, guys got everybody to Jack Henry is doing okay and thinking the questions. First one is on both of you mentioned they think the relative optimism of banks I think probably relatively better than me in many on this call would soon.
Is there something unique about the group that you hear more optimism from you know or their balance sheets different all the different sized are they different you know focused banks more commercial less commercial whereas it fairly broad base.
It's it's fairly broad based.
I tend to talk the C.E.O.'s of banks and credit unions that are on the larger side of our base. So we'll say you know our largest customers today run up in the 30 billion space and it's rare for me to talk to a C.E.O., though.
Financial institution, that's 250 million, it's much more common for me to talk to somebody Who's you know in the billion.
Range and I think the the consistent theme there is what I emphasized earlier that they feel strongly that the their balance sheet, a strong there well capitalised. They haven't taken on risky loans, yes, they have bills, they're going to have to work through with their with their customers, but the P.T.V. program. You know many of them have gotten into that and the big way.
And the P.P.P. program includes a forgiveness component, which will be working on with a lot of these <unk>.
Of our customer's going forward and they tend to know their customers and so they know they know that you know what their situation is and their ability to work through these things over time no. It can't predict the future any better than you were I, but I think they're generally fairly optimistic that they'll be able to weather the storm and and be okay because they.
You know about the strength of their their balance sheet and the strength of their world portfolio and the other thing or <unk>. Yeah. I mean that are just margins <unk> actually went away that I mean, they're very sensitive back to where there were three years ago and and they whether that storm I figured out a way to get non interesting income and different things. So I mean, it's it's <unk>.
Playbook that they were using three years ago.
That's helpful.
And and then just in terms of digital usage, you talked about a pause.
In evaluation of digital products I think Dave you said, maybe for a week or two and then.
<unk> resumed which is a good sign we've gotten a lot of questions on the actual usage, so I get sort of same store users.
Typical bank X.Y.Z. that might have had 5000, banno or not tell or whenever the project, they're using goto did that and go up meaningfully. It's folks you know got more fearful of going into a branch me to D.C. just to see absolute number of users spike.
The number of users went up for sure I can't I don't have those numbers in front of me, but the number of users went up active users went up significantly the thing that was really startling to me was so you know we enter this a period of pandemic and everybody staying home and so the number of registered users active users volume when.
Up there was you know over over the first couple of weeks. There there was about a 40% increase in volume of transactions. The thing that caught me off guard thankfully our team was ready for it when the stimulus or check started to come out so that Monday and April whatever that Monday was on that single day.
We saw 63% spike in in usage in in people hitting their account.
As compared to the prior week and that we hadn't been up as I mentioned earlier over prior over you know reeks prior to that so you know what people were doing was they'd go on and see if my stimulus check their yet no and then five minutes later as my stimulus <unk> no isn't they stimulus check their no no every five minutes they were hitting their accounts of volumes just went through the roof. So it wasn't that all the sudden there were a whole bunch a new.
Active users it was people just over and over checking to see if they had their stimulus check the positive. That's all settled down now, but the real the true run rate per day is up like I say, roughly 40% of or what we saw before all of this started.
Great. That's helpful always appreciate the inside guys they say.
<unk>.
Yeah.
Again to ask me questions stars in the number one your next question comes from 10 Willy <unk>.
Hey, Thanks, and good morning.
Dave just one question I had regarding I.
I guess digital and spending by the banks.
<unk>.
I guess, there's always been a long debate about.
You know are the bigger banks waning because they have these large budgets for their own discretionary investment strategies.
The counter argument is always banner that people like yourself are able to arm the mid to small size banks to be just as effective as those large ones.
And I guess, given again sort of the acceleration and the technology Kirk it's happened over the last couple of years.
You know it could you just sort of the grass your thoughts about where sort of your core customer base is competitively.
Then to the extent that you're actually sort of keep an eye on fundamentally because a lot of down our private entities as opposed to public is there you know actually quantifiable evidence when you look at their deposit grow their lawn gross.
<unk>, yes, yeah, absolutely by working where people like yourself or your competitors, who was married to small size institutions.
Very competitive and performing versus the third monolithic entities that get a lot of that airtime on disability, she et cetera about their technology investments and then I had a quick follow up.
Are you packed a lot into that question them. So I may I may talk for about an hour and a half here to answer your question, but I'll try and and do a concise and a concise manner. So first off your right in the major players are spending a lot when it comes to technology and and let on digital I would challenge. Your your statement about you know us trying to position.
Or a banks to offer the same service as those banks that is not what we're doing we have in very I think thoughtful and the way the designed our digital solutions to offer a competitive edge to our customers as compared to those solutions in the functionality of the functionality is just is just different.
And I won't go through all the all the puts and takes here, but I feel very strongly that we've created a better solution because we know that for our customers are banks and credit unions to differentiate against those players in a digital world when that that whole aspect of walking into the branch and facing a smiling face across the teller line.
Is not there anymore. The technology has to help you differentiate and we've done that with our with our solution. So we believe strongly that we've delivered something that truly isn't differentiator our customers I don't know that we have customers, who can say to you well on the loan growth side. You know, we can point to the digital presence I'm I believe that's there, but I don't think people are tracking it.
As much as on the deposit girl aside and we have a number of customers who absolutely can point to the digital platform as as a providing a new opportunities for them to grab a customer growth and overall deposit growth through that channel. So there is anecdotal evidence and you know you'll see more and more press releases and.
And marketing releases from us on those type of topics as as we continue to see more one of our.
Of our customers, who is kind of a power user the mantle Sweet recently did a podcast with the A.B.A. and emphasized how significant the opportunity has been for them to to large but at 25 billion dollar Bank I think 20 billion dollar bank. They did upon cast with the A.B.A. and this was a key part of their discuss.
<unk> the solution is differentiated them in this miss world of digital so like I say I could talk all day, but that's kind of the short answer to your question as short as I can make.
No. Thank you didn't know like my quick follow plus just on M. and a bit more from the perspective of your customers show. You've also over time sort of showed that you know the sweet spot of your customer base.
Probably are more likely to be acquire or shut the low end <unk>, what sort of M.L.U. situations, where your customers tend to get larger periodically you'll lose one that gets sold I'm just sort of curious when you <unk>.
You know are your bankers were they you know in the mode of 10 years into our recovery prior to Cove. It in a mode of looking <unk> built their balance sheets and move forward and then again just sort of assuming that that mentality will come back as we sort of come through this period of time did you feel as if you know.
Your customers were out on.
Outlooking for deals with them and eight to build their own franchises, but that changed at all.
So you write many of them were active in harmony in fact, a little while ago I reference to the fact that we did three quarter conversions on one weekend one of those those a brand new quarter, Jack Henry that was converted that day, but two of them were existing customers converting fired ah institutions into there.
Into their bank and so our customers would definitely on the <unk> track acquiring other institutions prior to cope with 19 I'll be honest with you I haven't heard anybody one way or the other say whether they thought this was going to provide enough 30 for them or if they were going to you know this was really going to put them off the idea of.
Being more M&A have not had those conversations everything I've been talking to people about has been you know the future as far as there are there a balanced cheap than their interaction with their customers and that kind of thing, but I would expect that once recovery starts to happen those bankers will be out looking for acquisitions, just like we are they actively looking for acquisitions.
They'll be looking to see if there were opportunities.
Great. Thanks very much.
It makes him.
Again, if you would like to ask a question. Please press star than the number one on your telephone keypad will pause for just a moment.
Mm.
There were no additional questions at this time, Sarah I'll turn it back over to you from a closing remarks like Stephanie.
Extra join US today again, we're very pleased with results from our ongoing operations and the efforts of all of our associates to take care of our customers.
Executives managers <unk> continue to focus do what is best for customers in the shareholders again, thanks for joining today and with that I would like.
I would like for Stephanie to please replay the or provide the replay number.
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