Q4 2019 Earnings Call
At this time all participants are in a listen only mode. Following management's prepared remarks, we will host a question answer session and our instructions will be given at that time. If during your conference that you require operator assistance Press Star then zero.
Happy to assist you as a reminder, this conference call is being recorded for replay purposes.
It is now my pleasure hand, the conference over Mr., Kelly Chief Financial Officer, Sir you may begin.
Thanks, Brian Good morning, Thank you for joining us for the Jack Ehren Associates fourth quarter and fiscal year end 2019 earnings call I'm, Kevin Williams, CFO and Treasurer and on the call with me today is David Foss, President and CEO , Jack Henry just a minute I'll turn the call over to Dave to provide some his thoughts about the state of our business the performance for the quarter and then I'll provide some additional thoughts and comments regarding the first <unk> put out yesterday after market close I'll provide guidance for <unk> and then we'll open the lines up for Q and a.
First I need to remind you the remarks or responses to questions concerning future expectations events objectives strategies trends results constitute forward looking statements or deal with expectations about future like any statement about the future. These are subject to a number of factors, which could cause actual results or events to differ materially from those which we anticipate due to a number of risks and uncertainties and the company undertakes no obligation to update or revise these statements.
For some of these risk factors additional information please refer to yesterday's press release and the section in our Form 10-K entitled risk factors and forward looking statements with that I'll now turn the call over to Dave.
Thank you Kevin and good morning, everyone were once again 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 went into producing those results for our fourth quarter and for the entire fiscal year.
As we've discussed throughout the fiscal year the changes associated with the U.S.C. six so six introduced some lumpiness in the financials for the year, but if you look at our annualized numbers, we posted a very solid financial performance.
For fiscal year 2019 revenue was up 6% and was up right in line with our guidance at 7%. If you account for the significant decline in deconversion fees and have won 19 as compared to the prior year.
The core segment of our business saw revenue increase of 5% for the year as compared to fiscal year 2018, and an increase of 6%. If you exclude the impact of deconversion fees from both years, our payments segment performed well posting an 8% increase in revenue for the year and a 9% increase excluding the impact of deconversion fees from both years.
Our complimentary solutions businesses posted a 6% increase in revenue in fiscal year, 19, and a 7% increase excluding the impact of deconversion fees from both years.
As I mentioned in the press release, our sales teams again had an extremely solid quarter in Q4, we booked 15, new core wins in the quarter with all of them as competitive core takeaways, bringing us to 57, new core clients signed in the fiscal year.
Additionally, we booked 25 in house to outsourcing deals in the quarter, and we signed 17, new customers to our new debit processing solution.
It was all of that success, though the traction were getting with our Banno digital suite is possibly most notable we signed 41 clients to the full suite in the quarter, bringing our total to 122 for the full year.
The combined sales organization exceeded quota again this quarter and continues to manage a solid pipeline as we head into fiscal year 2000.
Jack Henry is full suite of modern cloud enabled solutions continue to position us well to win share in the markets.
Regarding our new debit and credit processing solution. We now have 509 customers live on the platform, including 44 debit customers installed as new rather than migrated. We also have nine new credit customers live on the platform. We have now migrated more than half of our existing core customers and we're still on track to complete our core customer migrations by the end of fiscal 2020.
As we discussed on the last call. We expect our non core clients will extend our migration date until November of 2020, because of the extra programming and testing effort required those noncore customers.
On July 1st we announced the acquisition of GCL, a best of breed personal financial management and analytics company based just outside of Boston.
The deal happened just after the close of our fiscal year. So it has no impact on net lending team, but it is a terrific strategic acquisition for us to start the new year.
As you May have read we've known the Geo team for many years and had recently partnered with them. So we understand their technology well.
They have already done a good portion of the integration work required with our bandwidth digital suites, we have hit the ground running on this deal. This technology continues to move us forward toward our goal of offering the most robust digital banking suite in the industry, including PFM personal financial management and deep analytics for the consumers, who bank with our financial institutions.
Overall this was a very good year for our company, our employee engagement and customer satisfaction scores remain 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 very high in all segments of our business.
As we begin the new fiscal year I continue to be very optimistic about our future.
With that I'll turn it over to Kevin for some detail on the numbers.
Thanks, Dave.
Service support line of revenue increased 2% compared to the prior year's restated quarter member are your numbers are restated for AMC six so six the new Rev Rec, new revenue recognition rules.
Our license hardware, an invitation revenues were down 5.2 million in the quarter compared to last year as we continue to have headwinds from decreased license and on Prem implementation revenue because in fact, almost all of our new core installs election year, reflecting our private cloud model, which is good for us long term, our outsourcing and car services were up nicely to offset the decrease in license hardware and invitation revenues and our deconversion fees were up slightly compared to a year ago.
The processing line of revenue, which is which is all of our transaction remittance corporate and digital grew 7% compared to the prior year.
Total revenue was up 4% for the quarter and up 6% for the year compared to last year and on a non-GAAP basis revenue was up 4%.
For the quarter and 7% for the year.
Our reported consolidated operating margins were down from 23% last year to 20%. This year, primarily due to three headwind impacts first the significant decrease in our license revenue this quarter compared to a year ago as license revenue is our highest margin revenue second is additional cost of processing, our debit card customer customer transactions until we get them all migrated to the new platform and then third is the additional cost for employee pay for performance plans that are being funded with a portion of the savings from the tax cuts job. After the TC Jay that we talked about the game the fiscal year.
Our operating margins for the year were down from 24% last year to 22%. This year for all the reasons just listed plus the fact that our deconversion fees were down 15.9 million for the year compared to last year. So all in all with all these headwinds we feel very good about the operating margin we turned in for the year our segments operating margins continue to be very solid with small fluctuations. However, our payments segment will continue to have increased margin headwind going forward as the additional cost continues to increase as we migrate our existing customers to the new platform new payments platform.
Our effective tax rate for the year was 23% this year compared to 19.6 last year.
Remember last year was low due to timing of tax benefits to do to CJ.
For cash flow included in the total amortization, which is disclosed in the press release is amortized amortization of intangibles related to acquisitions, which increased to 20.8 million year to date this fiscal year compared to 18 million last year.
Depreciation was up slightly for the quarter hurt him serve is down slightly for the quarter and non acquisition amortization was up due to more of our internally developed products being put into production.
Our operating cash flows were 431.1 million for the year, which was up 5% compared to last year.
And we invested $176.8 million back into our company through Capex and development products, which is up from 149.9 million a year ago with much of the increase in capex related to datacenter upgrades back in Q1, So we've talked about on previous calls.
Our free cash flow was $260.5 million or 96% conversion of net income for F y 19.
For for 20 guidance as Dave mentioned, we're being very success with new core wins, but out of the 57, new core wins. This year all before have elected to go with our private cloud delivery model and with continued migration of our existing in house customers through our private cloud means continued decrease in license revenue and enhanced segmentation revenue.
In fact, we believe this could be a revenue headwind of roughly $15 million next year compared to the year just completed.
Currently we are projecting deconversion fee revenue to be flat to slightly up net par 20, however revenue from all of our processing customers will continue to be grow very nicely. Therefore total revenue is projected to grow between six and a half and 7% for after March warning.
What's projected decrease license revenue and additional cost headwinds for our payments platform migrations. We project operating income will grow approximately 5% on a GAAP basis and closer to 6% on a non-GAAP basis for Fr 20.
We will continue to experience revenue and operating income fluctuations between our first quarter or fiscal quarters due to license implantation payment platform migrations and software subscription usage, which again is recognized in the first quarter of the year.
Operating income and margins will be higher than Q1 due to the software subscription revenue and then we'll drop off for the next three quarters very similar to Fynineteen due to see six so six we anticipate operating margins for F Y 20 to be mostly in in line with Fynineteen at approximately 22% for the year.
Our effective tax rate for F. R 20 will be 23% to 23.5%, which is up from our actual effective tax rate of 21.7 for F. Y 19, due to some state tax benefits and other benefits that we got this year from stock option restricted stock that we do not anticipate getting enough for 20.
Having said all that are projected fr 20, EPS is in the range of $3.60 to $3.64 and remember due to software subscription revenue recognition is little front end loaded so EPS for Q1 F. R 20 should be in the range of one dollar two to one dollar five.
Therefore in summary on a non-GAAP .
Yes on the last call, we will not be finished with migration to the new payment plan process platform by the end of June 20.
As Dave mentioned, we are still on plan to have all of our core customers that we process there David payments to be migrated mid June 20, and all non core customers to be moved by November 2020. However, these non core customers are currently being processed on both platforms and therefore, we will not be able to shut either platform down completely to recognize the significant reduction costs until the first half of 2021, we conservatively calculate a reduction of direct cost of revenue of over $16 million. Once we get the migration is complete.
With approximately 30% of that savings that will be recognized by Q1 of our 21 and the balance of that savings. We were recognized by Q3 of Fr 21.
We also anticipate cap software to be up a little and acquired 20 compared to Fynineteen. However, we expect capex to be down significantly from 419, which means our total cap spend will be down to allow more leverage of net income to free cash flow in fytwenty comparative fynineteen.
This concludes our opening comments, we are now ready to take questions. Brian will you. Please open the lines for questions. Yes, Sir Thank you ladies and gentlemen at this time, if you would like to ask a question over the phone. Please press Star then one on your telephone keypad. If your questions have been answered the question yourself Q simply past of Kevin.
And our first question will come from the line about Superville with KBW. Your line is now open.
Hi, Thanks for taking my question I guess, just first on the deconversion fees are sort of calling them out to be flat next year to the extent that deconversion fees, our sort of seem to be declining to flat trend does that I mean, I'm, assuming that means lower attrition in the business does that start to help elevate the overall growth rate at some point versus the historical 6% to 7%.
Oh, well and this is Dave.
I would say I don't know that it's going to accelerate significantly and we have no control over deconversion fees, we've talked about it on prior calls so that's all a function of when one of our customers as acquired by somebody else and other financial institutions that generally when they end up paying a deconversion fee knows their in house.
Then they may may have no fees associated with that but if theyre a hosted cloud hosted customer that's when the deconversion fees kick in so in theory, if there were no deconversion fees in the future and at the same time, we're layering in new customers.
And your point would be would be well made but I don't know that thats a reasonable expectation because there is there continues to be churn in the in the space. There continue to be mergers happening and again, we have no way to predict accurately what might happen because it's just a function of when one of our customers decides they are going to sell their other institution. So I wouldn't I wouldn't be comfortable making that assumption because I think one of the only the underlying conditions there would be that that the M&A would come to a stop and that that this is not going to happen I think we've seen a pace of about 4% per year for the last 30 years and I believe that's going to continue going forward. However, if deconversion fees are flat that means we're not losing any more customers than we lost this year and based on our revenue models, which is based on the asset size or number of accounts process than that should help to grow our business and not create a headwind right.
That's helpful. And then just I guess another quick one the second half seems to have been considerably stronger in terms of core signings that you've announced anything you would attribute the strength do I mean are you seeing an uptick in the overall demand in the market as banks catch up with the latest technology or do you think you may also be benefiting from perhaps your competitors being distracted with integration.
I think it's too early to tell anything to our competitors being distracted, although I certainly hope that they will be distracted going forward.
I think it really is a reflection of the recognition Jack Henry is getting and this isn't isn't new I'd say over the past two years or three years now I think the new technology solutions, we've rolled out.
And the significant enhancements, we've made to our core solutions within all of these other complimentary solutions that we rolled out including Treasury management in the new digital platform and all that when you combine all of that Jack Henry is getting a lot of recognition in our space for having leading technology I think that's what's driving that.
Of course signings they kind of are a little they tend to be a little bit a little bit lumpy I've said on many calls in the past. If you can do 10, new core signings in a quarter that is very significant.
We're on a pace here with this past quarter, we did 15 the quarter before that we did 18, I mean, I don't see that slowing down but again, the the kind of the hurdle you should keep in mind is can is significant for a quarter or so.
I definitely see that continuing.
Thank you very much effect could squeeze in a quick one for Kevin Kevin for 2020 guidance, you said, 6.5% to 7% revenue growth.
But then you said operating income growth would be lower at five and a half to six but margins would be flat.
I just wanted to understand if margins are flat.
Operating income is not growing in line with the revenue.
Well Mark margins and that's that's on a.
non-GAAP basis on a GAAP basis margins will be down slightly.
And that's that's where I said that our operating income will grow roughly 5%.
Got it thank you very much.
Thank you.
Thank you. Our next question will come from David Togut with Evercore ISI. Your line is now open.
Thank you and good morning were there any major themes in the 15, new core wins in the quarter in terms of size of financial institution, you called out strength in Treasury management any other major takeaways from the wins in the quarter.
No I don't know that there were any themes.
In the in the quarter I mean, there were some nice size wins. We featured one we featured Bucy for example in a in a press release large multibillion dollar institution.
So I don't know that there are any themes. The one thing that I would emphasize again, though is this this recognition we're getting for offering a very complete solution, particularly with the digital offering on the front end I think a lot of core customers that were talking to today are really recognizing the Jack Henry Banno solution is an industry, leading digital solution and so that is helping to influence some of these core decisions without any doubt.
Understood and then on the guidance, Kevin you indicated 6.5% to 7% of revenue growth for our flight 20 could you give us an indication of how that breaks down by each of your three segments.
The three segments I mean, obviously, all all three of them.
Should grow nicely I mean core it will be probably the biggest one David I mean, it's probably going to grow in the in the 8% because of all the outsourcing actually we have going on.
Payments should continue to grow nicely in the 6% to 7% range and complimentary should be right. There the 5% to 6% range, it's kind of blend together.
Thanks for that and just a quick final question.
Hi, you've you've indicated Dave that you have no need to really participate in industry consolidation at least at the level that we've been seeing it this year any updated thoughts in that regard and then.
Are there any impacts lets say on sales cycles closing rates, obviously, it was a good quarter, but just maybe the tenor of conversations in the market.
As two of your major competitors have have completed large acquisitions.
So no update as far as any plans the Jack Henry has to do a quote unquote transformational acquisition nothing nothing changing there and again, we don't have our head in the sand here, we're very aware of what's going on around this and very very conscious of the decisions that are being made there, but we don't see a need to do something.
Again, I use the word transformational a pretty regularly.
The topic, certainly us coming up with with prospects and customers out there generally I would say the enter is.
The Jack Henry is favored the fact that we're very focused on being a provider to banks and credit unions in the United States and in offering best of breed technology solutions to those customers. So I would say and again its early days as much as I answered previously and I can't say, there's distraction going on with our competitors or anything like that but.
In early days I would say the tone tends to be more favorable toward Jack Henry because we are so focused in our strategy as opposed to any hand wringing about concerns about our strategy and the other thing thats or others is obviously, we have our annual education conferences in the fall.
And our Scimitars conferences next month, and we've already got right record attendance signed up for and also record prospects that are signed up to come to that it's a little early to state what's going to happen at the banking and profits first conference, but I think that is extremely good indication.
Of all the activity that we have coming to our education conference.
Understood I appreciate all the insights.
You bet.
Thank you and our next question will come from Peter Heckmann with D.A. Davidson. Your line is now open.
Good morning, gentlemen, thanks for taking the question can you talk about.
First we just go over for 2021, Kevin your comments on the savings from eliminating the duplicate platforms and that the number you provided as well as how you see that being realized over the first three quarters of the year.
So what I said was we were going to have right now weve identified a little over $16 million of direct costs that will come out of the business, 30% of that will be recognized by Q1 of fr 21, and the balance of that the other 70% will be recognized by Q3 of that year. So.
Yes, it's pretty easy to do the math and you are going to take out for 4 million or so.
Going into Q1, and you are going to take out the the other 12 million or so going into Q3. So we'll see the whole savings by Q3 of the 421.
Got it. Thank you and then can you talk about you just really good activity on the new business side can you talk about your capacity.
For implementations and how the backlog for converting new business looks to Dekoning extended at all.
Yes, no. The so the good news is were pretty flexible in our ability to absorb additional deals we've been running at a pace of pretty significant sales pace here for quite some time and it's been kind of slowly but surely escalating. So we've been able to staff appropriately we've seen what I think our sales teams do an excellent job of forecasting for the operation side of the business. So we've been able to staff appropriately as we as we add these deals. So are there a couple of areas, where there is maybe a little bit of a backlog pressure sure, but that's one of those things that you manage all the time and a business like this trying to make sure that you don't Overstaff and figure out is that they're going to be continuing or is that just a blip, but I would say today, our ability to manage the backlog is.
Everything's in hand, and we.
No no major concerns there the other thing I'll point out when it does come to us increasing staffing we've emphasized many times in the past. The fact, the Jack Henry is constantly winning these best place to work awards around the country and the glass door ratings. The Jack Henry maintains really gives us a leg up when it comes to recruiting people in this essentially full employment environment that we live in today.
We're having no challenges in recruiting because of that recognition. So I'm very comfortable that we're in a position where we can maintain the backlog at an appropriate rate and deliver a successfully for our customers.
Great Great and just one more maintenance item, Kevin just in implicit in your revenue guidance for the year.
Should we assume that.
Geo is going to contribute maybe five to 10 million of revenue.
Yes, Joe is going to contribute somewhere around 9 million Pete and have virtually no impact on our operating income in F y 20.
Obviously, there is theres a lot of integration efforts to get that in line. So there's there's not going to be a whole bunch of new revenue. However, I will say that having that and having that in our in our plan will help drive additional banno cells.
Got it thank you.
Yep.
Thank you and our next question will come from line of Kartik Mehta with Northcoast Research. Your line is now open.
Hey, good morning, Kevin and Dave Kevin I wanted to go back to the platforms savings you talked about is 16 million. The total amount of savings you anticipate or is that just the first part and you're anticipating a lot more.
Hi savings coming from platform and that platform consolidation.
Well part of that is that $16 million is what we've identified at this point do we think there's some additional leverage and additional opportunities absolutely, but that's what we've identified and that's what I'm willing to state right now that that will have an impact yes.
I mean, if having said that I mean, if I was able to take $16 million out right now.
Then I'd be projecting net operating income growth of 10% next year instead of 5% roughly so.
It sounds like a small number but it's pretty significant.
No yeah, I just wanted to make sure.
Obviously, it sounds like Theres other opportunities, but this is what you're willing to commit to at this point in time is that fair.
Yes, that's fair.
Hey, Dave just as you talk to your customers and the banks, considering what's happened to the yield curve and maybe some of the net interest margin squeeze that they might are already seeing or anticipating is that changing their behavior are you seeing any difference in conversations with them about spending on technology.
It's a good question Kartik and it's a logical question because you would expect that would be happening, but it's it's actually the opposite there is so much enthusiasm out there right now as we talk to customers.
About.
About first off what Jack Henry is doing enabling them with technology, but secondly, about the opportunities for them to grow their institutions and yesterday in American banker. There was an article published about a banker optimism and they quoted a survey. They have just recently completed anchor optimism at the end of Q2 was higher than it's been in more than two years and they said it was up significantly in the quarter as compared to the prior quarter and so im not.
I don't exactly understand whats happening there, but I believe it because that's what we experienced in the conversations that we're having with prospects and customers. They are really still maintaining this optimistic view about the future and their ability to grow their institution and certainly our sales pipelines have been slowed down even though we had a huge sales quarter in Q4.
The pipeline continues to be very robust and so there is still this optimism out there that seems a little counterintuitive, but it's definitely there.
And then Kevin could you would you be willing to put some dollars around your Capex you said it will be down significantly.
Nf why 20 compare now fynineteen, if I heard that right if so what what's significant.
Yes, I don't have that number right in front of me Kartik, what I said was our total cash balance of cap software internal software development and Capex will all be down.
Nicely next year compared to this year.
Okay. Thanks, Kevin I appreciate it.
Yep.
Thank you and our next question will come from the line of John Davis with Raymond James Your line is now open.
Hey, Good morning, guys, Kevin you mentioned that the in house to outsourcing trend is definitely beneficial long term.
Do you have an idea or can help us contextualize when that can slip from kind of being a revenue headwind to revenue tailwind understanding that obviously given up the on upfront implementation and license revenue and return for revenue down the road when you get a backlog it sounds like when we go to 21 is it possible that becomes a tailwind instead of a headwind or is that some multi year headwind.
It's it's very possible it could have been 21, John because obviously, we are as I said in my opening comments, we anticipate license and on Prem invitation to be down $15 million next year.
So in that that's going to get down to a pretty loaded words should not be much of a headwind anymore and the fact that we have to defer the implementation revenues for all the outsourcing customers under the new Rev. Rec rules means that will that will grow just like the outsourcing revenue grows and we will get to get that implementation revenue growing as well, so I'm not going to I'm not going to stand here and say, it's going to be a huge driver, but it will stop being a headwind and could actually help growth instead of go against it.
Okay, and then I assume that would also help margins at the same time right. So it would be it's a revenue headwind. That's also a margin headwind. So thats can be something else that would drive margins higher in 21 apps that are outside of the payments platform winding down yes, absolutely John because because obviously our license revenue is essentially 100% margin. So if we can get license revenue stopped declining and just stay flat then that in and of itself will be a benefit to our operating margins.
Okay, and then Dave just wanted to touch on you've been calling out for a few quarters now how well Banno has been doing maybe just talk a little bit about why it's happening in the market what people love so much about it and.
I guess why they're picking Jack Henry in that in that product, specifically that'd be helpful. Sure.
So the thing I think Ben it was getting recognized for.
Most significantly is the first off these are experienced the design of the platform. The design of the user experience because again. This is not only being used by people in the bank, but primarily being used by their consumers. So the design the user experience intuitive design and those types of things now everybody says they have an intuitive design, but we are getting a lot of recognition from experts in the space people, who work at these banks and credit unions, who have been hired as the digital Chief Digital officer.
They are the people that are recognizing nano in particular as being a best of breed solution. Then I think more significant thing often times is the fact that weve tried to design the solution to enable our customers and remember our customers community banks and credit unions. Their primary competitors are the tier one banks the JP Morgan Chase's MBS ways of the world and so we've designed this system so to enable them to deliver the same level of service. They are used to delivering when they're right across the teller line, but they can do it in a digital world So as opposed to pushing all the consumers away from ever interacting with a human.
The Banno solution is designed so that there's there's tools that the consumer can do things on their own if they want to but if they want to engage with the human tools through that digital channel are designed to make it really easy for the consumer and really easy for the banker to assist their customer that human touch that all credit unions and banks are known for community banks are known for the human touch, but do it in the digital channel, that's where we're getting I think great recognition is the fact that weve married the value of the community banks and credit unions have always tried to bring to the market. We married that value with a industry, leading digital experience for their consumers and we're the only ones out there doing that.
Okay, that's great and last one for me just want to touch on capital allocation, a little bit more specifically M&A, obviously, there's been a lot of chatter about around b to b.
Payments and the ability for you to potentially buy something and push that through your banks is that something that's that's on your radar that you're looking at is there anything else from an M&A perspective hearing your comments, there's nothing transformative.
Being contemplated currently but some smaller deals anywhere that you think would make sense for some small tuck in deals or comments on b to B and then finally, just kind of how you guys think about buybacks here. Thanks.
Sure. So nothing no so need to be as a great big topic, so as far as merchant acquiring are we planning to do a large acquisition and the merchant acquiring space. The answer would be no. That's not a part of the strategic plan right. Now are we involved in that space. Yes are we involved in the b to B space, Yes, we have through our Rvps platform, we have over a half million small businesses that we serve through our enterprise payment solutions platform today.
And we're continuing to add to the solution offering that we have there we just don't feel that the merchant acquiring.
Offering is key to our success there. So yes, we are continuing to add functionality.
We're always looking at acquisitions, not just tuck in acquisitions, although we've had great success with a lot of those particularly smaller strategic deals like the Geo deal that we just did but we're always looking at potential acquisitions that would be additive to our suite additive to the story for our customers things that would help our our customers and obviously our shareholders. So we continue to be very active in the.
Acquisition space as far as looking at potential deals, but we don't feel the need to go do some.
Very large acquisition to become a merchant acquiring.
And I would assume absent M&A deals being available or sizeable you guys would just continue to buy back stock given kind of where the balance sheet is today.
Yes, that's we've discussed many times. The fact that we always have acquisition at the top of the list I think we have a very solid acquisition team, we know how to do acquisitions, well. So thats always top of the list. But then we are opportunistic when it comes to share buyback as well and we're committed to our dividend policy of course, okay. All right. Thanks guys.
Okay.
Thank you and our next question will come from the line of Brett Huff with Stephens. Your line is now open.
Good morning, guys. Thanks for taking my questions.
Sure.
One of the question.
A question was asked earlier about bank enthusiasm, Dave you answered a question about bank enthusiasm and I'm wondering if you're still seeing the same mix of is that revenue driven or cost driven or is it. Thanks, realizing that they have a tech deficit and catch up with maybe that's in Texas are you seeing first of all what are the drivers of that enthusiasm and then had to change much recently.
Yes, it's a good question I wouldn't say that it has changed significantly recently, but it it has been interesting a lot of it is around.
Finding tools that will help a delivery efficiency within the institution so.
Years ago that was not was almost never on the list and today. It's always one of the key topics is how do we improve our efficiency ratio within the institution what are those tools that can help us when it comes to efficiency the second.
Driver is definitely around the topic of digital and it's not just digital banking as far as mobile banking online banking, it's things like online loan origination how do we get to commercial customers with an online experience those types of things. So that's that's been going on for a year or so so I wouldn't say that's a recent change but it certainly is a driver that we have in place today that.
Five years ago, it wasn't even a topic today, it's very much about enabling the digital experience for the customer whether it's a commercial customer or consumer and then introducing efficiencies into the operation and then you mentioned the tech deficit. So certainly a lot of institutions feel like they have been in that space for a while now so they're trying to figure out how to improve their overall technology infrastructure that helps us.
But I wouldn't say any of those are brand new in the quarter or even in the last six months, but certainly as compared to five years ago. There, it's a totally different environment.
That's helpful. And then second one from me is.
Kevin Thanks for the additional detail on the cost takeouts around the processing or the new card processing system. It's helpful. I wondered if you have any are willing to share with us any.
Near or long term outlooks or expectations around the revenue lift that you might get from that I know probably not from debit card that you're sort of getting like for like.
But what about the credit side is there have you guys started sketching out what that might look like and what you want to give us any insight or is it too early.
Well Brad this is I think its still little early there me as Dave said, we're being very successful in signing new debit customers and new credit customers.
So we're going to get some nice lift.
But the fact is the credit card is still so new that.
Would you say this that we've signed 17, new credit card customers in and not all of those are even implemented yet.
So I think it's a little premature to do that Brett I mean, probably probably by.
Our Q2 earnings call, we can probably give you a much better idea because we'll be way down the path migration and have better idea of new imitations of both debit and credit thing I will add to that the breadth. So we have nine of those customers live and on the credit side. The thing that we're looking forward to is when we get to the point, where we can start to sell both debit and credit outside our core base today, we're really focused inside the core base, because we need to get through these migrations and make sure we've got everything.
Everything set but then when we hand this off but as a profitstars offering to our probst, our sales team to sell outside the base. So that opens up a lot of new prospects for this team and that will come sometime in not in fiscal plenty that will probably happen in fiscal 21, and just just one more reminder, that I'd like to Dr., Brad If you remember I mean, when we started down this path basically two years ago.
When we went with the build buyer or partner methodology I mean.
We did this and the timing was because we were losing customers and so.
Yeah, we're going to have some nice uplift, but the fact that we're making this move actually stopped us from losing customers and got rid of the headwinds. So that's that's helping us right now.
A large part.
Great. That's helpful. Thanks, guys.
Thanks, Brett.
Thank you and just as a reminder to ask a question that is star then one.
Our next question will come from Tim Willi with Wells Fargo. Your line is now open.
Yes, Thanks, and good morning, a couple of questions first one is on the modeling side.
Kevin just thinking about the tax rate, which you called out as being a headwind for fiscal 2000 versus 19.
Is this a good way to think about the steady state tax rate as we sort of start to think into that 20, 122 timeframe or there are some variables out there around track tax planning strategy et cetera that.
You can't really say that the tax rate you're guiding Q right now is probably a reasonable one to use on an ongoing basis, no I'd say I'd say, Tim the long term, 23% to 24% is the tax rate as you should be using for long term modeling.
Okay, Perfect and then a couple of follow ups number one is sort of this transition from software license into that into the cloud et cetera.
If you look at your current installed base.
I guess is there a way to think about maybe how much of that you have.
That that Youve addressed that is addressable and should be some banks that are going to continue to do it the way they have but just in terms of thinking about how this headwind plays out it pretty much play through it with your.
Installed base. These in house test sort of outsource your cloud transitions.
Oh, no we have years of that of that movement to go yet so we're today at around 60% or 68% of our core base is installed in our cloud offering and I've said many times before I don't see us getting to 100% you'll always have some thanks and coatings the want to remain in house, but we have years at the pace that we are going today, we have years yet of that type of movement in house customers moving to the moving to the cloud. So we are definitely not at the end of that road.
It is the headwind probably as large as you would expect it to be.
Given that there is still years to go on this transition we shouldnt expect that.
To be bigger than it is right now as you've discussed the revenue outlook for this year versus prior years, Yes, I don't think the headwinds going a better Tim it's like a smaller because as we continue to move more and more customers to outsourcing and we so us wise and so if our wise fees go down this year as much as we are projecting then.
I don't see them going down much more in 21 because.
Some number of our customers, especially some of our larger banks and credit card customers are continue to be.
In house during continued my license fees, which is why our in house maintenance, even though we've had this significant shift and how quickly our in house support and services. Our maintenance revenue continues to be very solid in fact, we saw growth in that line again this year that headwind is more a function of us.
Hers, who are not buying license some early theyre, they're signing is outsourced customers. The move from in House license somebody who is already a customer who is in house moving to outsource environment. So thats all good news for Jack Henry right, there because most of those customers aren't buying a lot of new license anyway right.
Okay. Thanks for the clarification. The last one I had was just around card taking my time bidding to bretts. Prior question, but just thinking about what you are signing with new customers and I guess, even existing customers that are migrating to the new platform is there any way to think about.
The wallet share how robust the product set or the functionality is that they are signing up works I know that was something you talked a lot about when you made this decision as the bells and whistles and all the feature functionality could bring to a card platform. So just curious you talked about a lot of wins and a lot of new customers are at the scope of the contract meeting or exceeding expectations.
Yes, definitely so when we talked about the.
Having more opportunity for greater wallet share it was around the fact that because of the new platform, we'd have the ability to send and sell and enhanced.
Rewards program for example, enhanced analytics reporting packages those types of things and I would say and so not only is that happening with new customers that were signing where they're signing up for most of those options, but the customers were migrating over from the existing platform are very often signing up for those new.
Pieces of functionality that they didnt have before so keep in mind, we said when we announced this deal that an existing customer would transition over to the new platform for sustained pricing for the same function, but our hope was our expectation was that they would add functions, which would add revenue and thats definitely what you're saying.
Great. That's all I had thanks very much.
Thank you. Our next question will come from Joseph Foresi with Cantor Fitzgerald. Your line is now open.
Hi.
Most of the questions that I had were answered, but I do have a couple kind of just building off of a lot of the conversation.
The first one is I know you said that you're not going to see 16 million until sort of F. Y 21, but what is the cadence of margins look like this year are they going to because capex is going to go down are they going to start to build towards the end of this year and and then really start to accelerate enough why 21.
Or.
Are they going to stay flat and then we don't start to see it and tough 121, I just want to get a sense of.
It's how you think about.
The margin cadence.
So Joe I mean, it's because of because what we're going through with the migrations, what you're going to see enough why 20 as far as margins on a quarterly basis is going to be very similar to 2019.
Margins are going to be very strong in Q1, because we're going to recognize all the annual software subscriptions revenues in fact weve recognize those July one.
Which obviously, that's that's almost 100% margins because the software vardeman deliver.
And then margins will trail down from there.
As we continue to migrate our customers and the additional cost comes in we will offset that some in the in the second half of 20 as we start.
Doing some of the cost reductions in the second half as I said, we will we will see at least 30% of that cost savings by Q1 of F. R. 21, So those savings will be coming out in the second half the timing that is not exactly nailed down, but we know we know thats when it is going to come out.
So the marginal trove down and then the Mart, therefore going that far 21, you're going to see the margins really go up again in Q1, because again, a software subscriptions and the reduction of the cost that we take out in the second half of 20.
The margins or go down a little bit in Q2, just like to have this year and next year, but then in Q3, you should see really nice pop in margins, maybe 100 nits or so.
Because of all the additional costs that come out in the second half of <unk>.
Slide 21.
Got it so it sounds like at the back half of that slide 21 will really be when you start to see the acceleration on the margin side do three of 21 is when you should really see a lift in margins got it and then just two others.
From a timing perspective.
What does.
What could derail.
The plan that you sort of laid out for us or not and congratulations on the plan because I know I've been asking about it for about three or four quarters, but.
What could derail that or or cause delays.
Even further than what you've laid out.
Well, we currently have more than half of our debit customers migrated over Joe. So mean everything is going according to plan in fact Monday of this week, we migrated I believe is 25 or 26.
More customers and and with zero issues by by the time, we got them all migrated so.
Plan is working exactly where it is we're having no and remember the reason we're doing the plan were doing is because we did not want to have any impact on the end users and we have been extremely successful bats, because there we've not had to reissue any new cards. There had been no new Penn set up by the by the end users and so the unusual even though they've gone through migration, so it's going extremely well.
So as far as the migration plan and getting all of our core customers off by the end of June I don't see hardly anything that could derail that obviously there is will will be honest can come out and tell you. What it is but I don't think the roads the non core customers. The only challenge. There is we are reporting we are relying on a third party to provide some of the programming and different things for us, but I don't see that being a problem and it shouldn't be rail it at all and maintenance if anything it could potentially cause a slight delay.
I don't see anything derailing it.
Got it and then just the last one from me on the topline we've been in sort of this I guess mid to upper single digit growth rate.
Area code, but if I heard everything correctly on the call. The pipeline is very strong theres less conversion.
Fees, which means that there are more people in house you are taking capex down in your.
And youve done a reasonable amount of the migration and your competition is.
Absorbing very large.
Acquisitions, plus you've said that theres been really no change in spending if anything an acceleration. So as we look at F. Y 20 heading into F. Y 21, I think you can guess my question what is could there be a revenue growth acceleration all the data points, we seem to be hearing would be.
Implying that that could take place.
But I wanted to of course put that question do you guys. Thanks.
So Joe let me. This is obviously you know I mean in this industry. When you start looking more than a year out the crystal ball gets pretty cloudy in a hurry, but as I said, so with the significant decline that we're projecting this year in license revenue.
If that does as my Crystal ball predicts kind of sets a baseline for us for license revenue going forward.
With the once we get the migration complete and we continue to add new cars and we gets where we can so as Dave mentioned earlier, so both debit and credit outside the base to non core customers.
I would say that you could see a lift in 2021 going out 20 in revenue is it going to is it going to be greater than 10% I don't think so but it could be higher than the 6.5% to 7% that we've been running pretty steady at now for the last three or four years and what Weve guided to do next year.
Got it thank you.
Thanks, Joe Thank you and our next question will come from the line of Dave Koning with Baird. Your line is now open.
Yeah, Hey takes guys.
I guess first of all the cadence of revenue growth last year I think it went 875 for kind of through the year.
And I know there was some six so six impacts and stuff is all that now kind of anniversaried all that kind of turbulence in this year the because of the way. It all worked last year. The comps now are pretty normal so that we get pretty similar growth rates for all quarters of this year.
Well you are still going to have a little more growth in Q1 because of all the software subscriptions that we sold in endpoint 19 that revenue will be recognized in Q1, so you're still going to have a little faster growth in Q1 than you do the rest years now having said that once once you get past Q1, the revenue growth in Q2 through Q4 should be somewhat flat. There is I mean this stable throughout the year. However, just on timing of invitations and timing of license revenue recognition and different things you're still going to have some lumpiness, but it should be pretty stable. Once you get past Q1.
It was the six and up to 7% growth was that like just GAAP revenue growth or was that.
Okay. Okay.
That's a GAAP okay.
On the margin side I looked back a couple of years I think you did in fiscal 18, you did about 22% adjusted margins, meaning adjusting out term fees and stuff and this year it looks like 21 or a little under 21.
But if you just fully add back this year, the $16 million of spending you'd get back to around what the level was an 18, but why wouldn't core margins be the op like why are they only flat is it literally just that that license revenue has continued to come down and your core margins. Okay. So thats. The on the Big reason, it's all driven by the shift in what what revenue you are really recognizing so when you take lives is down at 100% and even though your payments margins are nice margins, they're nowhere near 100% margins. So it's a trade off of the type of revenue that you're recognizing.
Okay, and then finally.
I know 2021, Doesnt get the full 16 minute million benefit, but if it did that's about 100 basis point annualized tailwind. So would it be fair to say 2021, if you got that full benefit you get 100 Bips from that and then is 50 basis points core margin expansion kind of normal so it'd be up 150 in like a kind of normalized type year.
As long as I am.
Im going to say, yes, but I'm going to qualify that by saying as long as we don't see another significant decrease in license revenue in 21 compared to what we think we're going to see in 2000.
Okay, Okay and.
It is 50 50, bips would be kind of a normal like I know theres all the moving parts. Some term fees the implementation, but should we think longer term 50 would be pretty normal yes.
Okay, great. Thanks, guys.
Thanks to.
Thank you and that concludes our question and answer session for today. So now it is my pleasure to hand, the conference back over Mr., Kevin Williams, Chief Financial Officer for any closing comments or remarks.
Thanks, Ryan again, we want to thank you all for joining us today for four year in fiscal Q4 earnings call. We're pleased with the results from our ongoing operations and the efforts of all of our employees associates.
To take care of our customers our executives managers and all of our associates continue to focus on what is best for our customers and our shareholders again. Thank you for joining us today and Brian will you. Please provide the replay number yes sir.
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