Jack Henry & Associates (JKHY) 2 May 182018 Q3 Earnings call transcript

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Jack Henry & Associates' Third Quarter FY 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session; instructions will follow at that time.

As a reminder, this conference is being recorded. conference your the Mr. turn now over host, to I'll Kevin Williams.

You begin. may

(XX:XX) you closed. out Good expectations, opening expectations results that CEO. we (sic) us for to agenda Associates] statements and with XXXX I Treasurer, about need market release to (XX:XX). line or with Like constitute to Williams, the Lydia we concerning open call and comments the or after today responses any results up these some from morning about for risks events cause be by the about of am you And could Dave the factors, differ the trends revise actual And the a for call. will I'll put performance deal [Jack or the uncertainties. objectives, quarter for a and strategies, questions Q&A. and obligation I then, thoughts the remind over earnings morning. forward-looking then his & yesterday then, are future. anticipate, will events, remarks the to future, and Associates update of quarter. additional which statements. to no statement subject Thanks, President materially some due we to those CFO number & of which to future press to comments business provide or these number is undertakes company thoughts Thank provide joining the David me, of The Kevin our regarding fiscal Jack for turn state And Henry call this on the third me will the and I and Foss,

Risk press over please and turn and summary call these now the Factors our release entitled Forward-Looking to of XX-K to yesterday's Dave. For factors additional With Statements. I'll the sections in that, and a information, risk refer

earnings. record quarter Thank pleased We're to another report and you, Kevin, revenue and good with morning, everyone.

was very like quarter results We I'd associates hard X% past, the of revenue excluding in the thanking from of quarter. those As to X% the quarter. the in begin our and segment the X% solid for X% that quarter increased for Total deconversion Revenue our both increased had X% increased for if quarters. a increased for and fiscal exclude growth our the both fees by core all again from deconversion producing by the fees Organic impact work third you quarters. into for quarter the impact of also by today business. went revenue

Payments performed and in of excluding a extremely posting deconversion impact increase increase well, Our segment XX% revenue an quarter fees. the this XX%

we Ensenta to our contributor revenue increase traditional is growth. more offerings. we than if X% But saw Of a exclude through even course, this in Ensenta, a

an strong very increase our a XX% had also impact posting businesses, We increase complementary quarter the excluding fees. in quarter solutions XX% revenue this deconversion in a and of

sales Our quota. another of quarter, ahead finishing again combined had nice team

sales the Processing several the numbers quarter As sales release, to new and posting appears track I well-balanced was mentioned for Debit Solution solutions, new team Banno, of Treasury Credit exceed the that is This with also solid the in it press Processing, Management. quota our including for a year. on the teams

of Symitar signings a had also XX. number We record into out at

on now new card converted have first XX we offering, live PSU the new debit platform. our Regarding customers data and

we our recently in of to return to increase the that shareholders. begin planned, plans a high last we to of few a to a these to level provided of our quarterly XX%. will With any As happy including call, and encountered minor of at Cuts but ramp later plans this our point. that dividend slowly very Jobs And we've I'm portion review conversion Tax bumps, our regard an May. the enacted as all very are conversion, to announced volume referenceable with Shortly savings customers we say the after call, in Act,

We employees reward. TCJA this of offer option to use $X of significant which a also leave a voluntary our QX incentive provide large projected plan program. our subset portion a savings million of longer would company a the a discussed of intent the the with a to tenured as to around We result financial expense

reflected As industry you we felt our same provide are people We generally stability special workforce rate once of conservatively, because that tends to this in many to past, forecasted voluntary discussed the expected. had the had runs well with great incentive inclined behavior in average. the company, join this took we many our turnover have program they This program people our stay. of than in advantage we in of results the we though saw even fewer below

recognized well other that regularly this, to and than charge win retain million of our $X.X overall be number of seven Awards have Our XX Work Best we company. we'll opinion the topic we we but FY with with most of XXXX, as the Sticking talent and our continue attracting notified Large employees number move Obviously, a and QX bonus Employers best publications. list we companies. as the another therefore in originally companies the Place Last several and offering among we're than aware number technology programs Top benefit we Large including improved offer various extremely higher intend year, X to Jack other up XX Magazine afternoon, designed in us talent. changes closer will Google the country scoring results of to industry, improved Best the be happy the our help like have structure an intended million. retaining to in the won We of much such company and to as strong only again moved list on announcing and were thankful XXX and fact a of you This and these program we as with year $X have around to Henry. the that XXX(k) to Employer positive that attract through on technology the are XX year, don't Forbes projected employees, this number review. the Yesterday were annual

be numbers. Analyst As Strategic for aware, for Conference forward I'm seeing clients. Atlanta week we'll the Conference in Initiatives Banking our in With many sure Atlanta. largest in turn banking you're Annual that, core to to it next next of Henry on the some hosting over all week We I'll detail look conjunction Kevin with Jack you our

revenue the bundled acquisitions increased services line in-house or quarters. license, deconversion if X% to X% the (XX:XX) maintenance, and services, level support from prior imitation you Thanks, of of compared includes our both high fees outsourcing Dave. service and This the revenue, from hardware, quarter exclude and which

fees deconversion Our for $X.X line up Obviously, the of this have fees going talked quarter. little in we of before, to are when were deconversion we've higher compared year-ago million those about to quarter were were XX% like control than which anticipated. happen. no revenue fees The a all and deconversion fees we deposit the up We card But during or several quarter. larger and the pay, did get to and of have a the remote line did couple quarter. that compared processing remittance with prior digital online was revenue, bill includes acquired of capture along transaction processing of deconverted customers

as deconversion all said, total reported or Dave both revenue, is the from of you and acquisitions revenues X% X% up Our quarters. if exclude fees as from

Our at were this reported compared flat quarter margins last consolidated operating XX% year. to

the XX%. table from flat by in quarters, and at acquisitions However, press release operating fees total essentially our divestitures and deconversion as both margins the excluding the impacts yesterday showed, from were

our to during All quarter. segments or ahead the quarter, of performed maintaining operating of margins well slightly last equal

without flat and Complementary Payments the up and without essentially flat was deconversion XX% XX% deconversion went core XX% at without from at reported slightly Our actually to stayed deconversion fees. or fees. at as flat XX% same XX% fees. XX% was

obviously impacted sheet Our the the effective Cuts due the the deferred rates and old from balance Act our rate to Jobs by liabilities additional Tax to new. tax the on tax adjustment to again was

we adjustment we As I to of rate slightly were half an have second said, quarter, the that over continue end year. we year to fiscal down but our make in bring December because the had fiscal

during of to which less rate has XX.X% by for other a a increased quarter adjustments for year, last on the negative slight little our XX.X% than the quarter. actually quarter, from effective the TCJA the and tax Excluding tax EPS reserve effects $X.XX the impact

new and have the half rules. half reminder, in Tax tax XX%. the Cuts tax continue the a QX year will rules these under effective As Jobs project we sweeping due Therefore, under even to we fiscal end, rate a approximately year we changes to our this year and blended rate of Act, be incorporate will though old the the year our tax with

the $XX.X flow which total the in in included the fiscal from of amortization was in acquisitions, $XX.X intangibles in million cash year-to-date flow, which to cash is the to slightly release year. disclosed million compared last For year amortization press review increased

cash cash free stock year. in will extremely annual free flow, less back assets, strong deployed million down which sale have year-to-date Year-to-date,we June. last $XX.X out or flows $XXX.X million our $XXX.X through also developing our our the first QX was by million cash year $XX of which free million sending returned and that dividends. to as capitalized buybacks and from year CapEx fiscal be Obviously, compares have part a typically QX expenditures, investing net capital an into this XX% is And million is through our we and is operating increase. flow but maintenance year-to-date for of our we which each Our billings and both of remember to earnings, operating XXXX flow defined $XXX.X capital FY cash company proceeds We've still products, from and shareholders ago. software year, behind

have the our March Our we million actually $XXX on was equity the the to related At late XX% Ensenta for We the the our you in we which close had unlevered end to months or XX still facility of on or annual capacity sheet, of revolver significant drawn impacts on June. XX% revolver TCJA. paid exclude have acquisition December. trailing essentially billings, return Through the an if XX, down our maintenance basically and down flexibility. revolver provides by paid balance significant should

and mentioned, then departure to growth guidance as the for X% with other of $X.XX in X% EPS QX, on and lower full-year As per FY last the share to of that for year, we estimate to unexpected Dave rate offset quarter's $X.XX. expect of be QX, higher-than-expected last in range range effective in as in But voluntary $X.XX make we be the of today. deconversion remainder the for the to XX% XXXX revenue additional changes discussed as call, expense compared the changes expect the reported Obviously, that from call. GAAP anticipated $X.X to effective to I $X.XX or by mentioned still million is plan, due early as changes the the would the be of of QX, tax to there we taxes opening fees, for range in earnings the which could

anticipate continue two we X, for tax to tax becomes For XX% FY laws, at us range the ASC our July full which FY Rec we new in restatement time, XXXX, anticipate total the this on the a Rules of effective for as under doing reporting XXXX. effective XXX, the for XXXX. Rev previous new years incorporating We retro be of rate

open to should similar able fiscal provide growth seen have XXXX recast revenue in now, guidance years that lines firmer Dave, law of incorporated are current tax previous by our mid-August of as previously take to ready the employee (XX:XX), changes continue up questions? FY after it This for year. ASC in XXX, after program implementation opening all appears year-end under changes and the mentioned we have call growth range of questions. concludes much you and additional been please will we the in our we'll Lydia Obviously, the the we've completed under we be call comments TCJA. now on have after As the

Stephens. coming line with Brett question of Our the Huff from first

open. is line Your

Good morning, guys.

Good Brett. morning,

morning. Good

the your you touched questions. talked about wondered acceleration six one, Number Dave, are of how about just it, little demand, but difference here demand with And talk in sales two last matched bit over days you all more – of on particularly the a couple what you meaningful can peers the little have couple been bit a enthusiastically Two a last environment? if that have there's seeing last months? of quarters.

thing. No, we're the seeing same

if call, last was it's company. out the on pointed think our the I history I been remember pipeline ever than right, larger of I in that the

And so say the I seeing same would we're things.

Conference next to on that. going would But a I guys at the have that I'm from a that I out very of study week echo charts fact, came show In couple Analyst you topic. that recent

every sales has The far strong. I'm exceeded as is solid. which team this as The is sales concerned. so demand quota year, far pipeline is remarkable think I quarter

good are on things So, the sales front.

and relative down some of said faster thought? bigger are volume one? economics the us then number margin other a issuing give kind other are it and developing. Is the questions you two Two sort we're XX processing And expected? still impact pretty thought what coming I out And you that. the you that sense, two, helpful. intrigued you of product a kind start the is, focused number on you playing moderation of by a before live. to about new margin switches, the That's Can than some then how the year-and-a-half are out banks as is think than – you getting we One, question guys close moderate on we of card

Yeah.

so, think XX live. I

have, We next the that be think, we will get XX time Monday. I more by live together

So, at the it's another you a can but I Analyst give on mix. update Conference broad Monday,

any good But after so far like good largest our with customers. mix it's probably there's I think as for to because I cards. but We other no consumer, to It's few a been wood than really reason And on get the cardholders. four, consumer, really the far as wouldn't it, don't ones. say new you that that project as with have volume, number should big we as a impact start far, So logical a the conversions, will start conversion these smaller But of more mix progress on quickly give consumer. in have is this, as knock flawlessly updates so we and to when would on a and see volumes can thought we first that, progress as a the as it's for They timeline seamless gone at far, ramp I issue with farther little We'll a they information very we future and fewer optimistic end doing we successful that you the we it's that do your thought, start about the can of We'll still down well. continue. it's every question, guidance as give so project. continue will we it's goes extremely you than to we as road. so But and how time than been ballpark. we'll the to up beginning ramp, up the I'm of month, progressing more right more now, by well on again the extremely

I guess – one sorry.

ahead, Sorry. Go Kevin.

Yeah.

to the On the of before timing we cost one of obviously not significant when off talked happen at happens, is can thing be amount margin I've the side, the the because get that's that platforms customers about and we'll that a other same all able take time. when out to going the of

the both time. same not we're all to at the So, off customers going get platforms

nice take that's quarter of significant then one to be to that a we're because going able other out to nice all going going get of bump the is margin. going we margins for customers to cost and a the you're one the to in there one, be bump see in very when So, amount get of off a

lot because pretty the you, I Dave is side timing the payments our said, migrations. margins as will help same. additional these costs a still labor We've doing in the of on the maintaining we've at to been good for with taken So, about tell

we've And kind offset of so managed those to far, margins.

that the can never faster sold start next that on when new not start over offset that coming you but revenue but credit any we of that will deprivation quite seen guidance can more again, before, that's seeing down so getting move because getting the help as margins giving comes or timing cost new the so. we on. we those to months which I'm we the also some and new card platform And we've I of got forward XX that, it haven't customers there, We the thought,

rolling And focused with enterprise you you or while them, a question corporation think, that other I we're on one other that out have bunch guys, you, have I the product I the product guess is more SAS. the but have one interesting the of fraud

I in and conversations are anything are there larger how medium- that. surprising wondering targeted up think seeing if terms I'm those of going, that's and banks the are at live anything smaller-sized banks you also perking – and on

Yeah. It's because a right. you're good exactly question

handful a live. we So, have

exactly interest might the of banks larger the from right but in have our be appealing We it's either live of smaller, we side banks union some and credit midsized three you're be really originally think this base. a there and our I credit thought now, and around unions, interest banks in that. been to two credit was or going among or Knew largest There a core only is right. the demand no lot but house, number different of very unions. to

that going originally a we turn maybe thought. than into broader what success I to think So one is

So, we've so signed XX already far.

we're lives We or opportunity have two and in three future. optimistic the about pretty that

I Great. appreciate it. all had, That's

Thanks, Brett.

you. Thank

question Our coming from line of the with Fitzgerald. Joseph next Foresi Cantor

Your line open. is

and color Hi. slowdown? What's other the the deceleration color talk XQ? in Can XQ? you termination on And guess about any I on some fees causing

of line to guidance be cautious slight be Well, X% comparable X% QX in probably to over into QX pretty The much in on solid. year. QX. we to FY and pretty in is is total fees growth flat feel Joe. we try revenue deceleration with We expect just and last term in right XXXX, our we'll kind to That

XQ, flows cash for in cash about net just and some And side? maybe on XXXX, I on know DSO the versus FY think I talk year next we flows as about also talk expectations Okay. and income XQ could the color but then your gave you

far as we Well, be ago, if have in flows, year. a cash – cap we're bit down year. software going last It's our a that be could down saw year as this little came to – bit peaked a track, we we little on

down don't huge probably have little going on. internal I more We think bit it's developments a to next year. come software going

increased So, flow rates lower straight obviously, free those then, well. the is the are to going going impact to tax flow. cash cash to free as drop contribute to of And

back cash of in our think XXXX, a in again, I there's income. should still flow lot get but So, I free our FY above parts, FY net think tentatively, XXXX moving up

it. Got

for demand. whether Where you then mentioned both, see in? most where insourcing me, would wondering And we be some standard in last it upside, the that to was be Okay. the Would there to outsourcing Thanks. the digital thought move? be through or likely if pickup that? area you products, to products one likely able your just you're would most area an that I'm see come which

you Yeah, good lot. board. we've digital, a across is for a so, that it that's tell I really sure, And question. will and talked the about

outstanding offering the are an really that have digital We strategy customers zoning in and on. the

We've on reason and solutions certainly card of comments seen as was an We So, offering a of been my the that but why uptick in-house in have in opening highlighted like much demand treasury in-to-out side to and these for talked years moving side – performer these new That's in the past. customers many opportunities, new from products then steady union a out. some outsourcing. the digital the years, those like for banking and an wasn't there that opportunity. focused many several we've There do rolled we is demand there. well. us areas management we credit about the on I for it

across say far demand. as the ongoing I'd So it's board as

you. Thank Great.

Yeah.

you. Thank

Baird. question line next from of David coming the with Our Koning

is now line open. Your

Yeah. Hey, again. Nice guys. job,

Dave. Thanks,

you ex-term payments you so, and the and on Hey, growth think I I side, mentioned over Yeah. and mentioned – ex-term Ensenta. X% XX% guess,

you're to I something was a and is Visa you or that feeling X% think too, nicely like there accelerated there last It maybe some doing a couple and comp the on Is you're tougher really year of X%. accelerated both last of really MasterCard well? specifically in on debit seemed quarters as were something environmental? It comp. tough so

is perform that it's the is know that ACH grow as Enterprise me, I've surprising talked continues about in to continues it that before so which XXXX, don't well. – as EPS business, to it I Payment Solutions, our and origination to our business business,

So, that's obviously, win. a

I in wouldn't particular Bill for and with might but that's probably I spike what think card to across associations, the have us, in in Pay business board. little perform to the expect been of the tie well. steady growth performer card debit continuing that's one a logical to was so it's is a anything area. so just no of there's any anything the with happening particular ahead

we we customers, the this, to would I throw talked an a calls that lot announced our in two a were stopped those Dave, out, thing the in about that and or lot larger one we mean, calls, this The three I of previous ago, PSCU-FDC arrangement when customers process. RFP

So the makes the comps just because losing for payments platform of fact I we line. forward new think stopped it going that the customers easier

you, yeah. Got

actually year-over-year? on like like inflection secondly up months you the talked fees point How guess fiscal I you've then, is of especially And that? the like kind costs which where flat system. start think with year-over-year, Great. Is should development about this onboarding pretty they up given well the debit and XXXX? out? again margins Is go When and processing we the new late like year six to double ex-term were margins, they've is it that of about some good Okay. know held

Well, there's things, a couple Dave. of

when our or be around lot for platforms, for count customers development down all, but are all so. also point will all migrations of the And the get move the or you've the rid lot a off and that a in the payments people new getting of the be of the staff. one displacing those we At to of migration we'll the platforms, months we head XX shut that of First going assist brought platform. next the got we've obviously to costs development, to with additional

really there. pop So, in a nice going see you're margins to

we're and to done the the having the for previous grow The kind these solution all that all we've or of years over all ERMS is three on those. development products in other the four thing services, treasury

So, now amortization to but going there, both we're getting bit, cost so the increase we're the going we've up rolling just customers offset and quite yet so have ratchet on and still those even to amortization the we the out depreciation that's and up are and in a got live – sales depreciation. to

we'll platforms, to move when that's the And over payments we significant grow get down then huge help happen when to right XX% give shut a that So, to on going of we total that's pop see increase again, to able our quarters you're increased now revenue going that margins. margins four to going to maintain over in the see in over where three because, be platform. the offset slowly you're margins or little the probably least payments a that's relief to or next a that. at are And that should margins costs the on for the

Okay.

final then just one. for you And EPS full-year What Great. did XXXX again? Okay. the fiscal say for

at For fiscal finish $X.XX XXXX, impacts in $X.XX will to quarter the $X.XX the us to with put to of which we're range. full year well, TJCA $X.XX, this going

GAAP around normalized or I but around it's $X.XX there a Okay, think? more basis, on somewhere

Yeah.

Yeah.

Okay. guys. I Great. Well, it. thanks, appreciate

Dave. Thanks,

Heckmann the with of next question & Davidson line Peter coming from Company. And D.A. our

open. line Your is

a longer I'm On Banker little theoretical some, do feel Hey. about reading FinTech a a to couple looking disruptors, selling basis, maybe term. of bit questions. This a had well a Good morning, lot you as of some I out something how about American your in gentlemen. is target you a unions? negatively publications are offering core you of new and of market coming offering lightweight a as companies those theoretical out view basis, credit marketing other the capabilities. to maybe some impacts On or banks these that that regular little payment

It's good to Yeah. the we are be we committed fine That's going a discussion. We're to up that question, our set that ourselves traditional competitor to a with walk that line in idea customers. not a Pete.

where a enable a partner in with with are with opportunities we mind, traditional maybe those can to where customer So FinTech. that them

here. So, of we we open idea are of are some open the not partnerships. those I'll to negatives we're instead idea – working the to say, of two

very your the but We we have actually for the ongoing today, some those careful gathering core and of customers about by a point to nimble my with have – and of And are we're traditional offering compete customers. Henry. our not being we in about solution topic positioning that ourselves week of discussions the are with that's products lightweight way, online already to deposits, at type Jack to that will because be discussion next our solutions we that point

space we're what to with we compete have. in So, that well-positioned already

just helpful. solidified not Ensenta, of through through that's what a I've or capabilities. some other areas where and I clear on Ensenta I'm Okay, either examples then guess your Jack lead And and read of still on that a some us give followup I've read new completely via of does added capabilities the description some material additional Ensenta to it brought Henry you and maybe of

Sure. Yeah.

particularly commercial working Enterprise think very business. our of you strong on side deposits, our customers, with traditional we about if Payments So were in business, banking the commercial

had penetration and some and industry not on had because leader industry the we side most in for We we space. penetration weren't the installed some the Union Ensenta Credit in consumer we're solution reason but that leader So, were that widely was. we is space deposits, the

have industry essentially deposits, for consumer So, EPS put the platform, mobile the board. commercial you our Ensenta leading solution across with if we deposits, deposits, together

on Credit have Union by what to side looking huge Neither didn't to shared brought and we of ATM environment do of This of solution were in on part for their course the is a Ensenta working branching business, those ProfitStars that we're the environment us technology is but our a broadened payments. always the for the processing which way. suite it ProfitStars. the Additionally,

customers holes to to many ProfitStars business those for we're and of the on we ProfitStars try with who broaden always as non-core do customers. that So, Jack course of looking as and fill Henry offering are side many can them

have competitive to offering space. So, that we very in broad a best of have be breed to

us some risk also solution. They best brought of breed

we – we that offering, but had payments offering. around technology better management risk a had Yeah, they a Right. solid very Yes.

our that that piece story So, of as well. augmented

you. Got

See Okay, you that's helpful. Monday.

Pete. Thanks, Yeah.

Okay.

questions. closing At Mr. showing Kevin this time, Williams you. Thank further remarks. over to call turn no for like the I'm I back would to

(XX:XX). Lydia Thanks,

As will I our our all and we all next Payments; our do mentioned, as tech will six afternoon products We're Mark webcast. evening, the be then a Atlanta, at like will Annual doing shown of just the Q&A. I to hotter We're we Dave will And presentations want I Monday Greg all believe everyone of it Omni CTO. to and Forbis, Group where afternoon Adelson, National Day remind Manager, our There'll going Presidents: be there. which in in are past. we have be Sales that GM have and be Analyst our in our mini presentations of The have the open fair, there Dave well having

So, we still got slots. some open

email can go, If Vance you want you Sherard. or myself either

So wrap our ongoing for we're hard all the thank to of up, operations our and of our customers. associates to results the from care work. with their take pleased our associates efforts of I

again provide will And for focus managers, best the and want you shareholders. I number? all Our what us today. is on associates now Lydia (XX:XX), customers joining to you executives, please our replay and to continue thank for our

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