Q4 2020 Jack Henry & Associates Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the Jack Henry and Associates fourth quarter fiscal year 2020 earnings conference call. At this time all participant lines are in a listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone please be advised.
Today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Kevin Williams. Thank you. Please go ahead Sir.
Thanks.
Good morning, Thank you for joining us rejected associates fourth quarter in fiscal year in 2020 earnings call.
Kevin Williams, CFO and treasurer and on the call with me today as David Foster President CEO and dismantle turn the call over to Dave. So he can provide some just thoughts about the state of our business the performance for the quarter in fiscal year as well some comments relating to the impacts of cobot 19, and some other key initiatives that we have in place and then after that I will tell.
It'll thoughts and comments regarding the press release, we put out yesterday after market close and provide comments regarding our guidance for fiscal year 21 provided in the release and then open the lines for today.
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 or results like any statement about future. These are subject to a number of factors that could cause actual results or events to differ materially from those were.
We anticipate due to a number of risks and uncertainties. The company undertakes no obligation to update or revise these statements or a summary of these risk factors and additional information. Please refer to yesterday's press release and the sections in our form 10-K entitled risk factors and forward looking statements.
On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income the reconciliations for historical non-GAAP financial measures can be found in yesterday's press release.
With that I'll now turn the call over to Dave.
Thank you, Kevin and good morning, everyone.
We're pleased to report another strong quarter of revenue and operating income growth as always I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for our fourth quarter and for the entire fiscal year, particularly in light of the challenges posed by conducting business in the midst of a global endemic.
Before we get into the discussion of our results for the quarter and the full year I think it's appropriate to review some of the ongoing impacts were seeing as result of the endemic.
We remain extremely thankful for the fact that very few of our almost 7000 employees or their family members have been directly affected by the cope with 19 virus, our HR and benefits teams are working closely with all the groups around our company to be sure anyone who is affected is receiving the care and accommodations they require.
We continue to operate with well over 90% of our employees working full time remote and have recently extended our return to office date to January 4th of next year.
We extended that date for a couple of key reasons first we have a strong commitment at Jack Henry to put our associates first as we make key decisions about how we run the company.
With all the concerns expressed by our teams about returning to an office environment and with so many members of the Jack Henry team struggling to make plans for their school age children in the fall, we decided to remove the worry for our employees by extending the dates.
Second we have had great success in all areas of our business adapting to a work from home status and we see no reason why that can and will continue so the decision was easier than you might otherwise thing.
Speaking of our success working from home. We're now several months into working with a modified set of processes for many of our groups. We are routinely doing sales presentations and executing contracts with no onsite presence at the customer location.
We have completed many 100% remote implementations with great success, including several full core conversions.
And our customer service teams continued to deliver outstanding service the remote channels, while keeping our customer satisfaction ratings at an even higher level than they were before the pandemic.
I continued to be amazed and impressed by the adaptability and commitment of our team members throughout our organization.
They continued to execute in this new environment with the success of the customer always foremost in their mind.
As I mentioned on the last call. Many of you commented in the past about the unique culture at Jack Henry a culture built on the do the right thing and do whatever it takes bonterra.
Never has that culture been on display in a more meaningful way than what we've witnessed during this spending I.
Im extremely proud of our team and their ongoing commitment to our customers and our company.
With that let's shift our focus to a look at our performance for the quarter, we completed in June.
For the fourth quarter fiscal 2020, total revenue increased 4% for the quarter and increased 4% on a non-GAAP basis.
Deconversion fees were up just slightly over the prior year quarter, but down significantly as compared to our fiscal third quarter.
Turning to the segments, we had a solid quarter in the core segment of our business revenue increased by 4% for the quarter and also increased by 4% on a non-GAAP basis.
Our payments segment also performed well posting a 3% increase in revenue this quarter and a 3% increase on a non-GAAP basis.
We had a very strong quarter in our complementary solutions businesses with a 9% increase in revenue this quarter and a 6% increase on a non-GAAP basis.
As I highlighted in our press release, despite the obvious cobot 19 related challenges for the sales team June was the strongest sales month in the history of the company in the fourth quarter was our strongest sales quarter ever.
All three sales groups exceeded their quota for the for the full year and for the quarter.
This is remarkable to me because we made no adjustments to quotas for our sales teams as a result of any cobot 19 expected impacts.
In the fourth fiscal quarter, we booked seven competitive core takeaways and nine deals to move existing in house customers to our private cloud environment.
Several of our complementary offerings saw very strong demand in the quarter with as you might guess, our digital suite, leading the pack.
We signed 53, new clients to our Banno digital platform in the quarter, and we signed 13, new clients to our new card processing solution.
For the full year, then we signed 43 competitive core takeaways with six of them greater than 1 billion and assets and six denovo banks.
Additionally, we signed 45 contracts to move in house core clients to our private cloud 167, new Ano digital customers and 81, new clients for our card processing solution.
Of course, we signed a myriad of other contracts for many of our other solutions as well, but it's important to note that almost all of these contracts represent long term recurring revenue commitments to Jack Henry for a wide variety of our solutions.
Speaking of our new card processing platform on the last call I put it out the prior to the onset of Golden 19, we were poised to wrap the migration of our core clients by June Thirtyth 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 didnt want to introduce any new payment solutions, while their employees and customers were working remote.
As disappointed as we work introduce of delay in a project that has been moving along so well we determined it was definitely the right thing to do.
In July however, we resumed the migration process and now expect to have all of our core customers migrated by the end of the current quarter and all of our non core clients completed by the end of our third fiscal quarter.
We are prepared and anxious to wrap these migrations and expect no further delays from our customers.
One topic I haven't discussed previously on these calls is all the work we've been doing in the area of diversity and inclusion for the past several years.
In the spirit of doing the right thing and attempting to always put our associates first we formally launched our DNA program more than two years ago with a variety of training initiatives followed by the launch of our first business innovation group.
We added a full time diversity leader to our team more than a year ago, and we now support five very active and successful business innovation groups within the company.
Our DIY team provides ongoing training they facilitate panel discussions and worked with the Jack Henry leadership team to ensure that our work environment provides a safe space for our employees to thrive.
Given all the social unrest in our country today, I am, particularly grateful to our team for the outstanding progress and long list of success as we've seen with this program so far.
As you have undoubtedly noted from the press release, we have decided that we will stick with past practice and provide guidance for the new fiscal year at the conclusion of today's call.
As we've discussed in the past, although our business model is not impervious to impacts from the current economic economic environment. It is resistant to significant swings caused by economic disruption.
After much discussion and despite the obvious challenges in trying to predict the future in the midst of a global pandemic.
We believe we have enough information to provide reasonable insights and assumptions and sharing that information with you today is the right thing to do.
As I reflect back on fiscal 2020, even with the extraordinary challenges in the environment at the close of our fiscal year I view it as a very good year for our company. We have made great strides with our diversity and inclusion initiatives and our employee engagement scores remained very high.
Our levels of customer engagement and customer satisfaction scores are also very high.
Our sales teams are performing extremely well and have positioned us for another successful year of selling and overall demand for Jack Henry Technology solutions remains high in all segments of our business.
As we move forward, we will continue to implement minor changes to our delivery and service models and we have every expectation that we will end next calendar year with a greater percentage of fulltime work from home employees than we had before the pandemic.
We have a commitment to doing the right thing for our constituents. The we believe will serve us well as we adjusted the new normal.
We will continue with our disciplined approach to running running the company and expect that approach to help provide stability for our employees customers and shareholders.
As we began the new fiscal year I continued to be very optimistic about our future.
With that I'll turn it over to Kevin for some detail on the numbers. Thanks, Dave Appreciate service and support line of revenue, which is made up of two product groups, which are outsourcing and cloud and product delivering services increased 3% compared to prior year quarter.
Outsourcing crowd services within our private cloud were again, the big driver in this line of revenue with an increase of 13% compared to the same quarter year ago, and an increase of 14% for the entire fiscal year.
The headwind on this line of revenue in the quarter were decreases within the product delivery in services license hardware imitation services and pass through costs, primarily related to billing for invitation teams travel decrease the total $7.4 million compared to the prior year quarter.
This was partially offset by a small increase in deconversion fees as Dave pointed out which is included in this line during the quarter of 845000.
The processing line of revenue, which is our remittance in card and our transaction digital lines of revenue grew 7% to the prior year quarter, an increased 9% for this fiscal year.
Within this line, though remittance and card processing only grew a little over 2% in the quarter compared to last year due to the impacts of cobot 19 in Q4 of this fiscal year.
Which for comparison remittance and card was growing 9% through the first three quarters of the year compared to the prior year compared to only 2% for Q4.
However, this has this headwind was mostly offset by continued strong growth in our transaction on digital revenue during the quarter, which was impacted positive by the cares Act and related legislative changes and grew 16% for the fiscal year.
Total revenue was up 4% for the quarter compared to last year on both a GAAP and non-GAAP basis.
Our cost of revenue was up 6% compared to last year's fourth quarter, but on a sequential basis compared to Q3 cost of revenues actually down due primarily to lower cost of hardware and travel related expenses compared with previous year quarter Research development was up 20% compared to prior year quarter, primarily due to increased.
Personnel costs and sequentially R&D was up a little more than 3% again, primarily due to personnel costs in Q4.
SGN, a was essentially flat compared to the prior year fourth quarter and down a little over 3% sequentially again, primarily due to travel related expenses.
Total expense was up 6% compared to year ago quarter, but compared to Q3, so sequentially was actually down a little over 1% again, primarily due to lower cost of hardware sold and lower travel related expenses. Other employees were mostly working from home.
Our reported consolidated operating margins decreased from 20.2% last year to 18.7%, which this decrease is primarily due to the various revenue headwinds already discussed and the increased costs on a non-GAAP basis, our operating margins decreased from 18.9% last year to 17.
8% this year again, primarily due to items already mentioned.
Our payment segment continues to be impacted by the additional cost related to our card processing platform migration. This Dave discussed in his opening comments, our core segment operating margins improved slightly during the quarter compared to last year, while count memory segment margins were down just slightly.
The effective tax rate for the quarter decreased to 20% this year compared to 23% last year.
The quarter over quarter differences, primarily related to changes in our effective and deferred state tax rate as were Remeasure. Our state estimated rate when we file our state tax charge in Q4 and perform a return to provision true up last year, we had an unfavorable impact in Q4 of about 1.5% and due to some effective tax planning.
Our tax department over the year, we had a favorable impact this year of approximately 1.5% to give it to 3% difference compared to last year.
Net income was 61.3 million for the fourth quarter compared to 61.0 million last year and earnings per share was 80 cents. This year compared to 79 cents last year.
Some comments on cash flow, our total amortization increased 5% to the year compared to last year due to capitalize projects being placed into service.
Included in the total amortization of intangibles related to acquisitions, which decreased to 20.3 million year to date this fiscal year compared to 20.8 million last year.
Depreciation was up little were 10% for the fiscal year, primarily due to capex increased in the previous year and those assets being placed into service and receiving a full year depreciation this year. While this year's Coke total capex spend was basically flat with last fiscal year's total spend.
Our operating cash flow was $510.5 million for the fiscal year, which was up nicely from 431.1 million or 18% compared to last fiscal year.
During the year, we invested 177.5 million back into our company through capital capital expenditures and capitalized software from developing additional products and enhancements, which the total amount capitalize is up 4% from 170.8 million spent a year ago.
Our free cash flow, which is operating cash flow less capex and cap software and then adding Mac net proceeds from sale of assets was 344.2 million, which compared to net income means that we had a conversion of free cash flow net income for the year of 116%.
A couple of comments on our balance sheet as of June Thirtyth, we were in a cash position of 213.3 million up from 93 million a year ago.
And remember in February we increase the maximum borrowings on our 700 million dollar line of credit and as of June 30, there was nothing drawn on that line and we had no other long term debt on our balance sheet other than leases, which obviously increase this year significant due to the adoption of assay 842 last July onest.
This means we had to put the operating leases on our balance sheet.
Some comments is about the guidance we provided in the press release yesterday.
Do you notice we did provide both GAAP and non-GAAP revenue guidance in the press release just to be clear. This guidance is based on the assumption that the country continues to open up the economy continues to improve and obviously if the country is forced to be shut down again due to covert 19, and the economy stalls or asher versus than ours.
So this guidance will require to be revised.
You'll also note that our GAAP guidance that we are forecasting revenue from deconversions to be down $33 million from what we saw in F. R 20, which during the fourth 20, we had 53.9 million of Deconversion revenue currently we see no two little M&A activity that would drive deconversion revenue at this point.
Which in the short term this will hurt our revenue growth, but in the long term as David I have always said, we don't really liked deconversion revenue as we would much rather keep the customer and the revenue for the future.
This means based on a GAAP revenue guidance provided in the press release impacted by the decrease deconversion fees were looking at GAAP revenue growth of 3% to slightly above 4%.
Since our single acquisition last year, which will go anniversary during July 1st the only adjustment between GAAP and non-GAAP revenue guidance is the decrease in deconversion fees.
If obviously, if we see changes during the year in anticipate deconversion revenue, we will update update you on future earnings calls.
Obviously, we were impacted my co with 19, just like everybody else, especially in Q4 of Fr 20 as highlighted in our comments of our car growth and product delivery and we expect to continue to have some headwinds on revenue, especially in the first half the year for several reasons some ongoing delayed invitations at customers.
Request, but continued shift of our customers to our private cloud will continue to put additional headwinds on our license hardware and on premise limitation.
And our annual education conferences, we'll now be virtual events. This year, which will also impact revenue in the first half the year not much impact on operating income, but it will have an impact on revenue.
Therefore for your models for non-GAAP again, non-GAAP revenue growth I would suggest using 3% to 5% revenue growth in the first half the year in somewhere in the 6% to 8% range growth in the second half to get you to our guidance of 5.5% to 6.5% growth for the entire fiscal year non-GAAP revenue.
We anticipate GAAP operating margins for all of our 21 to be down slightly to 20%, 21% for all the reasons previously discussed however, as we complete the migrations in the new payment platform. During the fiscal year, we will see margin improvement in fiscal Q4 as we've guided previously.
Our effective tax rate for F. R 21 should be in line with FBR 20, and be somewhere between 20% to 22.5%.
That concludes our opening comments, we're now ready to say questions. Gigi. We please open the call lines up for questions.
As a reminder to ask a question you wanted to press Star one on your telephone withdraw your question from the powerful please standby will we compile the Q1 a roster.
Our first question comes on the line of Peter Heckmann from A. Davidson. Your line is now open.
Hi, Good morning, everyone. Thanks for taking my question, Dave could you maybe try and quantify.
If you could year over year bookings growth and then maybe talk about the current backlog and compare it to prior years in terms of the.
And the implementation delays resulted in a larger than normal backlog.
And so.
Thanks feed wheat and of course don't discuss the details of the backlog, but just to kind of give you some high level expectation. So there have been some delays, but it's not it's not.
Hugely significant.
It's just people moving things around into normally if we have a customers as we want to delay. This implementation. We go find another customer wants to move up in the schedule. So it's it's created lumpiness in the scheduled for the implementation operations groups, but it's not as though there is no major.
Push to move things out it's more the inconvenience and the inefficiency and moving things around a little bit is where I would characterize the.
The delays as far as installer concern to the first part of your question on sales.
So you'll note we've been running at a pace of one one new competitive core takeaway per week for two and a half three years.
And that part has slowed down little bit so our sales aren't as worth us dependent on new core takeaway competitive core takeaways as they have been in the past, but what was really.
Fascinating to me I guess was that the other product groups not only filled in that gap, but exceeded.
Any other sales month than any other sales quarter that we've ever had and so what were those things as well I highlighted a few of them. We've continued to have really good success with the new payments platform. We've sold a whole bunch of the ban on digital platform, which as I highlighted in my opening comments, probably is not a shocker to anybody but really great traction there we.
Been we've seen a number of into out in house to out.
Source.
Conversions that have been.
Signed in the quarter, So and then a whole bunch of other things online lending and just a wide variety of products. So the thing I would highlight is the fact that even though the new core sales slowed and that it's just the industry that slowed because people were not making as many of those decisions. So even though that slowed the sales team filled in with.
All kinds of other sales of all kinds of other products and so now those backlogs are robust im not worried about them. It's not that we can handle the installs, but but those have pena filled in around where we would have signed more new core takeaways.
Gotcha Gotcha, and then that leads into my second question I think last quarter. You said you had signed five core takeaways in April and so that would indicate just two in may and June and that just might be situation all but.
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In terms of how the relative.
Profitability outlook for financial institutions. This change because of the pandemic at lower rates, how do you see that affecting overall.
Spending amongst banks and credit unions over the next year.
Yes, so the Google the good news so for US first off the pipeline is after a record month and record quarter.
We just did a sales a review of sales leadership team on Monday of this week in the pipeline is filling back up again, which that's that's always a concern when you have a blow out month in a blowout quarter. Then you got to go filled the pipe again with new opportunities. So the pipeline is filling again had a big month in July as far as.
New opportunities that are going back into the pipeline.
Ill add to that that the American banker published this survey, but a month ago, probably but it was a post cobot survey of Ceos talking about technology spending and there is no slowdown in their mind regarding their plans for technology spending they may have shifted a little bit to thinking about things that we can do without everybody in the office and how do I.
Well, how do I live in a world where not all of my customers are coming of the branch.
As often as they used to those types of things are top of their list more than they were before probably but.
No slowdown in spending as compared to the pre cobot numbers, which what we were looking for it was compare what our bankers, saying and credit Union executive, saying postcode, but as compared to what they were saying back in December and there was absolutely no slowdown in their expectation of of spending and we're seeing that now so now that everything's kind of settled back in we saw a bit.
Big influx of our fees for example in July, particularly in the banking group. It will kind of settled then they can put the brakes on a little bit but now they have settled in and decide okay. We got to get back to reviewing technology now that we understand how dependent we're going to be on technology going forward and so big influx in RFP use and we're excited about that for Nucor.
Competitive takeaways reminder, on the corn yields is those are very long sales cycles right. It's all these RFP is the came in in July we won't report any of those wins probably for nine to 12 months, because they're long sales cycles, but it's really kind of heartening to see the industry getting back to focusing on.
Evaluating technology, and making those decisions even the major decisions like core.
Replacement.
Good good thats good to hear thanks for the update.
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Yes.
Thank you. Our next question comes from the lineup Kartik Mehta from Northcoast Research. Your line is now open.
Hey, good morning.
Dave one of the concerns around banks is that all this then you're going to have a lot of loan losses in that could.
It's put pressure on in L. statement.
I'm wondering if you are customers have shown any concern is related to that and thats impacting any budgets. I know you said, they're continuing to spend in sounds like theres spend even more next in 2021 versus 2020, but I'm just going.
Wondering any level of concern on loan losses.
Yes, it has to be living in the cave to not have any concern probably but it's not a it's not an overriding theme with our customers, they're not they're not pulling in sand all my gosh I've got some real balance sheet risk here that I've got to that I've got to hunker down and can't do anything. So it's the opposite we are seeing a tremendous.
Lot of interest on the sales on the sales side and I will tell you in two weeks I think is I'll be hosting a whole bunch of credit Union Ceos.
Exclusive event for credit Union, Ceos, and that'll be one of the topics and then about a month after that we'll do in the virtual events and month after that will do the same thing with a making CEO. So the only Ceos and that'll be a topic. So I'll have a lot of group input on that topic, but anecdotally no no major shifts.
No major expression of concern, but like I said you'd have to be living in a came not to have some level of concern about what's going on but but we don't see any slowdown right now from our customers.
Yeah. So.
So a few bankers and I will add this one thing that.
The ones I've talked to really beefed up their loan loss reserve at the end of March quarter in anticipation of this so I think a lot of majority of the PNM impact is already flush through the fiennes, specifically appoint new I've highlighted before the whole Cecil things. All these bankers were so frustrated with Cecil well pleased.
I will give them a great.
Service now you know they love them really getting focused on projecting credit losses has really done them a service in this.
Buckled times, so as much as they were irritated with Cecil a couple of years ago, I think there thankful that they went through all that stuff as Kevin as highlighted.
Makes sense, if I think you and Kevin both mentioned interest in your private cloud and I'm wondering as there as it are you paying showing an interest for them wanting to go to the Amazon Web services to outsource Ted that type of platform.
It comes up rarely, but it's not most banks and credit Union still.
Traditional banks and credit unions I'm not talking about to know the of the online only.
Thanks, Neil banks, but traditional banks and credit unions are still pretty wary of putting everything out in a public cloud environments. So we have some of our solutions today on public cloud environments, but not the core.
Kind of the Crown jewels of these that's still.
Not a lot of demand for that we talk about it with our customers and we're very active in that space with other products and we have a lot of things in the works as far as core is concerned but not demand today for that.
And Kevin just one last question you talked about deconversion fees of about 33 million.
Any thoughts on maybe just how it would go in each quarter just so that.
Yes, I didn't know if theres any lumpiness or you think just straight lining it is good enough flow right now.
So kartik I mean last year, and again deconversion fees and some that we is very hard to predict I mean typically by this time on an earnings call in mid August we have an idea of what's going to happen at least in this quarter and we typically have an idea of next quarter and I mean, right now I mean, the pipeline just just.
Pretty empty and as a reminder, last year, we had we had four.
Large customers that got acquired which those four customers were about equal to the decrease in the deconversion fees were predicting this year. So if you take if you take the adjusted $21 million Deconversion revenue that I'm and again, we have no idea, where that's coming from but we have but something the forecast because we know there'll be some.
I would say probably just put that in pretty much straight line and you youre not going to miss by much Kartik.
Thank you very much appreciate it.
Thank you. Our next question comes from the line of John Davis from Raymond James Your line is now open.
Hey, Thanks morning, guys, Kevin just just one quick clarification on the EPS guidance, so assuming flat year over year term fees, you would have guided to something for three to correlate range I want to make shown on this anything there.
That's absolutely correct John.
Okay, and then as I think about the Kogan impacts I. Appreciate your commentary on first half of the year call it 3% to 5% back half six to eight so if I run that out is it fair to say that Cove. It based on what you know today as a point to point perhaps.
The impact to non-GAAP revenue growth and 21.
Yes, that's probably a pretty close to right.
Hi.
And then on.
I want to talk a little bit about the impact on the financials that shifts to cloud I know its two and half times more profitable over like the contract was there any near term revenue headwinds.
From kind of that shifts to the cloud in the there isnt an uptick in demand for outsourcing and just curious if it's a near term revenue headwind from lower license sales or how that kind of close to the piano well. It's if license hardware on Prem. So so if you think about John So license and hardware this year.
Created a four and a half million dollar headwind.
Not even count in the passers and different things so that was for the year. Obviously the biggest chunk of that was in Q4.
But that was a headwind and that's very similar to the headwind we saw in past three years that we as we continue to shift.
45 to 50 existing in house customers, who are private cloud each year, we will continue to sell less and less add on licensed products and hardware upgrades as they make that move so.
We're can we're continuing to add recurring revenue and you're right. It's.
Literally two times revenue were getting them or more.
Did you don't get that the big bump in license revenues when you sell.
Nice comp mentor product in license environment. So we're in continue to have the.
Four to 6 million dollar headwind again next year.
On our product delivery line.
Okay.
And then lastly, just wanted to hit on on the margin I think last quarter. You guys comment you expect to be after the adjusted operating margin to be flat to slightly up looks like guidance implies to me down 25 to 30 basis points first it was that correct in what's driving the change and maybe is there an outlier conservatism getting the macro backdrop.
That's it for me.
That is correct, John and its as primary all going to be in the first half the year.
Again, we still got the the additional costs from the from the additional payment platform until we get through the first quarter. So we serve those additional cost plus the delayed license implementations and some hard were.
Deliveries that we anticipate going to be in the first quarter and some in the second quarter. That's all going to have some negative margin impact in the first half the year, but we anticipate margin improvement in the second half year.
No best case scenario I think we could wind up flat for the year, but we're trying to be a little conservative and guide guide down just slightly.
All right. Thanks, guys.
Thanks, John.
Thank you Sir our next question comes from the line of pull goal on global dental waterline will now.
Thank you. Thanks for taking my question, then nice Bucking guide.
I guess first Alan Thank you for the color on a quarterly gains on revenue growth could you also done that's what's embedded in the guide in terms of segment by the expectation.
The core payment and got them into segments, where you're expecting whats the being back from Goldman Sachs.
So too.
So most of the co will probably be on the comp Mary line. If I was if I guess and actually coring comp manner, because it's going to delay some implementations, especially at the few in house and pastry about their payments.
Made current growing payments is kind of back to where we were pre covert.
So so unless theres another flavorful code 19, and they start shutting the contract down I don't think you're going to see the impact on the payments line.
I guess going to be another two segments.
Got it. Thanks, that's helpful. And then they have you made some comments on likely success you guys have had working remotely in some of these practices that can be a longer term do you think there's potential for some proppant down the line items as I'll discuss.
For sure. Yes, so is that a few things to keep in mind, there and my expectation is not that we will do every install for every product as a remote install going forward. That's that's not what our customers want that's not the most efficient way and some in some regards to do implementation. So it'll end up being a mix I think the things that work.
Really well.
Remote we will continue to do really well the things that are little awkward doing remote we'll go back to having people on site for those for those things, but that that introduces the efficiency and when you have efficiency than in theory, you probably don't need as many people and we won't have to add as many people as we look forward into the future for some of those things because we'll have more efficient process.
There is travel so there's the not only the dollar expense involved in travel, but the wear and tear on people that are traveling to do those implementations and so.
There is the facility cost if we can do some of these things and as we have employees, who want to continue working from home as opposed to working remote in an off at meeting doing an implementation for a customer but doing it from the office. If we continue to do that from home. There is a potential that we will need less office space and we're examining that I alluded to.
But in my opening comments, we're examining what will the future look like for Jack Henry as far as office space requirements. We currently have 42 locations around the country. We need all those so there are a lot of those things that are in place for us.
That are kind of rolled up into that that question I can't tell you exactly what those will be today, but they are absolutely will be savings in that in London.
Great. Thank you for payments sure.
Thank you. Our next question comes from the line of David Gober from Evercore ISI. Your line is now open.
Hello. This is Josh siegler on behalf of David Togut Good morning.
Can you. Please discuss your top areas of investment and fight for anyone you mentioned digital platforms. In your press release can you discuss what investments need to be done in digital.
Sure, it's a big topic digital and it's not that were lacking anything our Mandalay digital platform is leading the industry as far as feature function is concerned, but we're continuing to build that out. So you know expanding as far as business functionality on that platform is a key area of focus for us this year and just continuing to to broaden.
The the offering we're integrating in the Geo personal financial management platform. We are doing online account opening through that platform and theres lots of things that we're just continuing to integrate and and.
Make sure that the consumer so the banks customer opinions customer make sure the consumer as a consistent user experience across all those different functions through the single digital channel. So that is definitely a big area of focus for us, but then beyond that we're constantly investing in our core solutions, where our two flagship cores emphasis on the credit unions.
Right and silverlake on the banking side, we continue to do a lot of investment in both of those.
Products as our flagships, we also invest in our other legacy cores, but.
Those are areas of focus our treasury management solution, we've talked about a lot on this call lots of demand for that solution lot of growth in that area, but you have to continue to enhance that solution as you get more sophisticated customers taking that that platform.
We were not none with the migration to the new card processing platform. So thats included in that number.
And then the online lending so we've talked a lot on this call about our commercial lending centers suite.
Pete's wins regularly by the way against Encino, and you've all seen the Encino IPO that happened recently, our commercial lending centers sweet wins regularly in those deals, but we have to continue to invest in that platform to stay ahead of the.
A game there so a number of things and the other the last area I would highlight is fraud.
So a lot of demand among our customers we have our yellow hammer fraud solution that we are.
Really focused on this year, making that ensuring that that's the best of breed sought font solution.
So those are relatively short list of a very long list of things that we're continuing to invest in.
Great. Thank you appreciate the color.
Can you. Please help quantify the revenue and earnings benefit from a paycheck protection program from your lending solutions in Fourq you.
Yes.
About a BNL benefit the deck Henry.
Are you talking about for our customers.
Hey, Jack Henry.
It was that was relatively minor dollar amount.
We didn't sell license fees, we but we did was we stood up a platform to provide that solution to our customers by the way we were live before the SBA was ready to fund any loans, we're pretty proud of that because most platforms were not lied before the FDA, we were up and running in light of before the SPD was ready to fund loan and so what we did was we charge customers.
On a.
On a consumption basis, but it wasn't it wasn't a huge needle mover for Jack Henry I don't know what the number was but.
It was a consumption model, where if you decided to do one loan you only paid low fee for that one loan and if you did 2000 loans you paid something for everyone of those 2000 loans.
Just a quick charge reach loan that you have funded through the platform. There is no ongoing charge for our customers. There is no maintenance that's not a it's not something they are obligated to pay us for ongoing it was just us trying to do the right thing to help them serve their customers in that moment of need.
So in my opening comments it did help our transaction on digital during the quarter and helped to offset some of the card, but our transaction digital was already growing it around 13% through the first three quarters ended up growing just under 16%. So I mean is the total impact was probably a couple of pennies may be during the quarter that helped to offset the the decrease.
This growth in card.
Perfect. Thank you very much.
Thank you Sir our next question comes from the line of both Cohen from Baird. Your line is now open.
Hey, guys. Thank you.
And I guess my first question when you think about the debit processing platform. It sounds like Q1 still higher expenses year over year Theyre still be those costs, but maybe how do we think of the full year. This year, maybe what's what's baked in it seems like you might get out of our weighted average half year benefit this year and then maybe the last.
First half year half year benefit next year, what kind of what are the dollar savings from that.
So as we move historically said, Dave I mean, the savings that we're going to see are essentially the same it's bagger to little bit differently.
But as Dave mentioned his opening comments, we're on course to have all the core customers off the platform by the end of the Q1.
All noncore customers are on schedule will be off the other platform by Q3.
So we've indicated in the past that theres, a minimum of $16 million in cost savings that will come in some of some of that will come in in Q2. The rest will come in in Q4, so with the impact of co bid in some of things we've talked about in Q1 in Q2.
So you're going to see some benefit in Q2, but because they impact Cosan army quite what what we had talked about in the past, which obviously co those kind of hard to foresee.
But we will see the margin improved in Q4 that we've always kind of indicated we'll see.
Okay Thats helpful and then I.
I guess, one I think about incremental margins. This year. It it seems like you're guiding X term fees for revenue to grow what 80, 90 100 million something something in that range of core revenue growth.
And then EBIT growth if you take out term fees again, the decline term fees, probably up 10 15 million something like that and that includes the cost benefits of the platform conversion. So it just doesn't seem like there's that much profit growth coming from the revenue is is that conservatism or there's some other costs that are happening right now theyre just.
Different than normal.
Well, there's theres two things one we anticipate another probably 6 million or so headwind and decrease license fees and hard work this year.
It's going to happen, which we've been since the last few years. So obviously when you take license revenue down which is 100% margin that's going to have an impact overall on your overall margins until you can offset that with with recurring revenue, which is really good margins, but it's obviously not close to 100% like license revenue. So we're just I think at this point with Covance and everything else Dave.
We're just trying to be a little conservative our guidance for the year, I mean, hopefully things turned out better than that.
But we thought it was important for us to provide guidance and where we think we're going to be in this in this new unchanged world, but we're in.
That if that makes sense and I guess that the corollary to that it seems like the long term. The next five years 10 years, whatever the margin progression could be for you and really the industry better than normal because the shift to digital outsourcing those types of things that are higher margin than average is that kind of the fair way to think about it as Jeff.
Fairway think about it and as Dave pointed out in his opening comments.
We've been signing a number of new card customers, which none of those are on the platform yet I mean, those those are all sit in backlog to be converted over there and those are all competitive takeaways. So that's that's going to be new revenue and we've really been a little hesitant on really going aggressively from new sales until we get this migration.
And then so once we get the migration I think our sales team has got an even more aggressive gets up and at that point NIM starts on a through profitstars.
Gotcha, well great job guys. Thank you.
Thanks, Dave.
Thank you as a reminder to ask a question you wanted to press star one on your telephone to withdraw your question press the powerful.
Our next question comes from the line of Brett Huff from Stephens, Inc. Your line is now open.
Good morning, David Kevin Hope you guys are both well.
Good morning Wonderbra.
Two questions number one Kevin thanks for the breakdown of the revenue kind of tenor through the next year that's very helpful.
Coming out I think the guidance was 6% to 8% pro forma growth as we think about even beyond that if we look to fiscal 2002, which I know as a long way from a crystal ball point of view you guys have kind of grown mean, probably 7% ish pretty consistently over the long haul is that a good jumping off point for thinking about.
Fiscal 22, and beyond or are there other ups or downs that we should think about starting around that say midpoint of 7%.
So Brett obviously, the unknown is what co but it is going to be in what the lingering effect of that is going to be marring that then I think 7% has a very good place to look at for F. R 22.
And once we get to the migration depending on the output of some of the RFP that Dave mentioned, which those would be impacting F. R 22, not up our 21.
And all the card activity, we aren't going on I think 7% would be a conservative number for F. R 22.
Okay, Thats really helpful. And then bigger picture question you all have a great balance sheet kind of a hallmark of your company.
I know at one point kind of.
Many years ago, you had sort of a speed of sort of smaller deals that you did take advantage of some price dislocations in the market are you seeing assets out there that are interesting to you may be bolt ons, maybe technology that gets you faster to where you want to be.
Consolidating anything like that any sort of thoughts on on pricing of deals and or interest increasing because of some of things going on thank you.
Thank you Brett it's a good question, we actually many weeks ago, Kevin and I said does that okay. As we saw this all starting to unfold in the industry. We said down is that okay. We got to be ready here, because something is going to pop we're going to find the deal that is going to be a really good deal for Jack Henry So let's be ready we've made sure we were prepared as far as.
Cash on the balance sheet and.
Lines of credit than lets go get aggressive and try and find something and so now were by been eight weeks as we had the conversation and there is almost nothing it's frustrating for us because you know us well we've done a lot of acquisitions in our history I feel strongly were a solid acquirer, we know how to choose companies, we know how to integrate them in successfully.
We don't go looking for Crazy expense synergies on the front end of the deal where we're disciplined acquirer as I've said many times and so we were very ready to define some deals and integrate them. We've had a few come along.
Pricing has been a little out a line on the ones that we have been interested in but we're continuing to looks on still hopeful that will find something that fits our profile and that will be a good addition.
Jack Henry but so far it's been a little bit more frustrating than expected.
Great Thanks to the color.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Kevin Williams for closing remarks.
Thanks you.
Considering the challenge that we've had in the second half of fiscal 20, we're very pleased with the overall reserves from our ongoing operations and I, especially want to thank all of our associates for the way. They have handled these challenges by taking care of themselves and our customers and continue to improve our company on many fronts for the upcoming fiscal year in the future beyond that our executives managers.
And all of our associates continue to focus on what is best for our customers and you're shareholders.
With that I want to thank again for Doris day, and Judy we please provide the replay number.
Ladies and gentlemen, a replay is available for this call. Please dial one 800 585, Athree six seven or 4045, 37, 30, 406, whether replay ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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