Jack Henry & Associates (JKHY) 1 May 192019 Q3 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Jack Henry & Associates’ Third Quarter FY 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today’s conference, Kevin Williams, Chief Financial Officer. begin. may you Sir,

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

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

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

begin hard into by fiscal our was revenue be for we the third to expectation always, last the our today down thanking that that expected for went like fact our On de-conversion the we all quarter, call, associates to As quarterly quarter. fiscal I'd highlighted and producing realized. significantly those third in results work that

a are As and we've customers to have, place. in is discussed stays their a although that contribution fewer this term in we indicates because good previously, revenue de-converting, impact, revenue long respects, many short it experienced problem far term

revenue this be to forecast. expect best is and proper when largely our continue significant. you set expectation to difficult outside topic, know, de-conversion very As to the revenue we our control now But on we'll to do variances

of and the of the an revenue, X%, of segment you Year the is excluding year up increased from of revenue increase impact the exclude quarter X% quarters. increased for but the both date, de-conversion if was our de-conversion most For X% of and saw core the you increase quarter fees total revenue decline both X% X%, to by up impact exclude The impacted is to from heavily third for quarter, piece. of revenue de-conversion fees de-conversion quarters. X% and impact date, the the business of if

impact Our a of and X% segment increase, fees. this a X% payments well, quarter, performed revenue in increase posting de-conversion the excluding

a increase the quarter businesses revenue increase, in Our fees. and of X% impact this X% a complementary posted solutions excluding de-conversion

competitive novo with in very one mentioned solid takeaways teams again I booked third quarter had core unbelievable bank. press core new our and in a XX the in release, the XX de an alone, We QX. almost sales wins as As quarter

organization continues deals to between exceeded our full XX quota continue to in- The Henry’s enabled Additionally, us this suite sales and to house pipeline again modern, to and solution win and processing we customers outsourcing solutions well debit quarter signed XX of manage remainder to solid cloud Jack booked Symitar. new banking market. the position year. for the share of a in the

new now have platform, the customers than credit we XXX rather and as as migration. debit processing our customers Regarding solution, on a debit new installed XX live including

We six also on new have live customers credit the platform.

customer been on our and well. on to these the We're new all our still migrations progress XXXX. As of highlighted and we've of calls, end fiscal continues complete successful, to previous migrations program installations core track by have

We until union likely extra non-core credit for these clients that have, of customers. the testing programming so will the non-core however, because or is the it highly learned XXXX, and effort XX extend November platform recently our on that migrations of for required

this with on move work to continue will them of group and customers possible. the closely schedule We as up

I American We as by are referenced last were America's one recognized as of in by also row. one in this ability press As release, employers happy been month work to for we like very have at of publications the Banker have these influence for to surveying recently the the results. year third as result fintech we Magazine Forbes directly Recognition a XX space. companies to recognized of large best top in these employees the throughout no the a And companies comes country.

of Kevin our over best at probably detail in forward to not you commitment to this that, helps customers. turn and employees many in can our this numbers. retention, for week. on seeing and the continued Denver I of tremendously company recognition our some with Analyst in low look Day only thank I next And continue also aids the our it their to to for I'll us recruit employee you imagine, want all very to time brightest unemployment. As it of type

service X% Dave. compared Remember, prior XXX. The quarter. ASC support to of decreased restated for and revenue prior restated numbers your line year the Thanks, the we

last was to license year. Our revenue flat compared

the reported last of X%, X% up adjusting was year for year. quarter than processing a little on offset the in and which the is with under last of the higher significant decrease help must due were those, de-conversion to year this We revenue. fees. of to that the outsourced impact almost in compared on discussed last for of revenues. all were impacts our XX.X impact the line were increase this operating implementation these for revenue In-house previous operating ASC due the deferred as de-conversion almost year the spread quarter’s last in private had fees or line compared decreased from the down margins XX% we've of highlighted XX% and due the revenue XXX, Reported to year, on have two the revenue consolidated implementation going was year call this through headwinds Without from to this down million, to the margins record no to revenue to one decreased compared a grew offset to continue to the contract implementation electing to revenue fees support from non-GAAP de-conversion and operating reasons from services as Total de-conversion installations on significant be the model to prior decrease nicely fees. primarily we down The as decrease cloud cloud over margins and up they're calls. headwind X% and significantly prior up in XX% year. year, be Outsourcing term XX%

reduced until Cuts new additional portion The of migrated card customers Tax the Job processing the and last opening pay with the that funded all as employee his savings them to we income federal in then Dave Remember year from for year. transactions our debit platform the been, benefit a cost for was this performance of plans comments. compared of second that get we cost tax have are the the being Act. first, to had And is the mentioning additional

margins year But XX%. flat dropped to operating remained the Our for non-GAAP, for at XX% XX%. from

segment with effective operating to quarter year. segment’s forward last platform. continue margin very will the going solid be rate but continue fluctuations, The migrate continue double see this XX.X% tax headwind compared we Our for to as costs XX.X% small increased year new to increase was customers to payments to margins as of the the

effective year, our total wind will the to of increase rate balance the effective yearly tax is For expected up our XX%. tax rate projected and at

to was beta, according which slightly in the amortization increased million the into to we of the and for compared was gets cash amortization, to XX.X the review For Depreciation capitalizing of which due when being begin acquisitions, fiscal products was to year-to-date million XX.X is more from down quarter, over last up developed stopped cash but accounting our is estimated press product intangibles -- amortizing expense the flow in in a included projected life. production. release year disclosed rules flow, the year. to Remember, total this amortization put internally

year-to-date in in that X months, first The million Our flat was operating to flow last increase cash was was QX the discussed cash expenditures with calls. primarily significant out paid year. for the previous due on XXX.X which essentially we capital

cash about the seasonality due products, and We billings. to datacenter due higher we XXX.X will our much to of significantly back the QX in Our and increases with a into XX developing which collection flows the in-house the QX is as maintenance have talked our billing historically invested company of CapEx from annual million year and same upgrades through with up QX. million ago,

update now on guidance. give our some So FYXX I’ll

of is customers in other thing QX, to as grew in XXX, de-conversion to going down in will that first the it half beginning when half some second X.X% lumpiness differently, challenges going which the compared is get to we've guidance actually was fees losing does through impact half. in as is software out that new But XX.X last in the create in not at appears It due prior year-over-year down our why also headwind the previously, As alone for show revenue comparisons, as so growth the and means back to due we discussed to many a items ASC being financials year. we is And them is year the significant term obviously a the estimated to to rules A or subscriptions second operations. take be long fees QX not recognition out revenue the good QX shown compared non-GAAP we're M&A. million year. year, that the recognized de-conversion fast provided revenue of the our year the of of it being which

be year, de-conversion to For now fees million year. previous the to entire compared roughly $XX the we're down projecting

the But roughly which implementation of the to means this headwind revenue As to migration million in-house outsource the impact our alone of in and this but new QX related year of the wins Also license deferral all to with to Dave core $X all successful continues our over very additional ago. amortizing implementation cloud million compared contract private of go $X revenue being life in up impacting QX new core in-house and new revenue, With continued should a elected year, revenue, last one different to the create has be we're from year out mentioned, to to lower a the with these will QX. customers compared XX wins. and total X% add of headwinds. revenue items it outsourcing

with in pay year to for to headwinds we year's entire fiscal from down will range the or year, even platform originally be right However, the very in all beginning payments second combined million of at year, project at cost And additional be performance that revenue X%. Due place of income headwinds these of last we QX. new our beginning operating approximately the the growth the X put half been the and XX% with fees revenue, migration revenue wouldn’t our above plan headwinds will excluding compared the the year. GAAP have de-conversion still non-GAAP guided X% the these at for

growth our operating However, year X% right the headwind with for rate, income of previous fiscal non-GAAP compared to all the last the guidance should for we income QX operating early provided of adjusting at on from budget by in non-GAAP with for with in also operating rate and this needs of consensus for on expenses X% in growth end year. effective to X% full basis, process original summary, a our August. the compared from which this fiscal year fees approximately our original the Due basis, effective $X.XX portion the put for adjusting these we to should year that the de-conversion $X.XX the decrease both is to increase bonus QX, end X% plan will estimates for year of in year The XX.X% an consensus new tax $X.XX pretty XX.X% for a the current line in With line Therefore, and last final be for ‘XX. XX% savings the increase revenue point. to very estimate. place a will much We're year. QX, revenue to items impacting in with to guidance FYXX QX to the tax the TCJA,

will that we we the X% to for similar it appears to to continue FYXX, revenue However, grow X% very FYXX. did in what range at

rate questions. fiscal to on the XX.X% in revenues entire concludes comments. take year-end end FYXX for opening That XX% report our ready Further provided on our to for effective now tax year Our will guidance be should earnings. and we call year. margins be earnings August when approximately We're

Justin, the will you please open lines for questions? call

Joseph from comes question Instructions] [Operator first Foresi Fitzgerald. Cantor from Our

my first is just Hi, question the competitive landscape. around

seen large acquirers. change some core you, processing there. perspective? processing by competitors change maybe you your I'm does the a in of us know from an give some update, business two FTC for have had we've And if any you can any now fairly there's wondering, So merchant I

It’s Dave.

as the So competitive landscape, as had a ever signed new off, on strong XX one very mid-teens, XX customers, We've novo. core and the in quarter recall mentioned signed comments. takeaways first the de far business, quarters mid-XX I opening I side don't brand as the my quarter. that We no in of several changes core is many. we where a competitive

be quarter obviously no as customers concerned on in So, are we experiencing as current the August. no will what of customer customer concern some no, great had is We've sentiment. prospect currently And core side. customers and lots sales there's or announcing we've negatives, far that the as out conversations. No, no as there far in already signed or prospects negatives,

So business. very side our core my expectation to continues positive, be of regarding the

to far be relationship. relationship with very solid it as Data, continues the As First a

a continues before, certainly solid. rate for mentioned a XX of if really customers with terrific not, migrating Data at at foreseeable I almost of month conversations future converting a XX no virtually We're I've almost you of in to call, any First that is now. with customers the working think issues and continuing significance. with I that our on And or some the relationship rate be of see

excellent continuing it really, the really happened. before announcements was as any So relationship and of forward

implying competitors signings? anything there's you seeing Are Okay, is an some at and then new FIS just did to new demand? that these on distracted. signings uptick least seem demand, you into in your be read Are side the been -- and because happening, to competitors are getting your that flip where you're

and little So from? color on where coming demand a are maybe more those signings

pipeline know, of because from I so we've always to uptick would at for be to the it's been as the demand, pipeline reported a same that June, again, signings, record articulate in they're has last strong. were the demand quarter, June an record be coming are such the we It organization. And at all these kind that on for hard continued the the them. place last signings the with of the we've in continues strong coming even had past, Yeah, really I me end June, since call seen sales

So hard that at me I because healthy some time. great it running be quite for for say would here big we've see some pace been uptick a to really coming,

all and see, our of that are being through. competitors early decision go these making long processes distracted, that as I it's days far think As to customers

come. But any over And and been a that obviously, say changes right don't out that may that change we've distraction long we're same in there, for time, all so, I time. major now. in the competitive see there's if happening may I'd environment

is term question Kevin, the and last on me seeing updates currently what the for margins, And Got outlook it. that And long the might just be? of out noise any numbers? margin some on of when short get we're the we

this to than of Yeah, mean, margins continued line go guidance quarter invitation Joe, license they still next little install the QX, revenue, even we're is fees, the are kind to year, and in obviously decrease more trying I margins those tough the comp a of because going were for de-conversion out. for down,

I'm XXX, So, give I guidance. by next I'm on try which going with to is again is and a will and be to down include quarter, I can mean, that give doing year, guidance to in you end, little little And just which to bit margin break planning on what guidance for you when margins. that full tough, in revenue down year but QX, a next mid-August all my commitment is year's is give our

Heckmann next Peter our from And comes you. Thank from Davidson. question

and more more and lack well the be signings, five growth talk I signings either implementation implementation growth we line deferral from X% you seems the bit over XXX impacting it core top of growth strong the XXX complimentary of point kind is wanted quarters about is to and quarters. revenue towards adjusted as fees fees, a mean, little or adjusted basis should much as quantify impacts like X% change and acknowledging the to in with that a getting deferrals, of range talk fees implementation through the like the I X% that us how next impact? to four it. that of Can

to just margins. think just year, I in-house and comp on in to Well, drops in-house significant pretty about, is to quick, the pretty Pete, which tough compared a has line license mean, QX, X revenue implementation last bottom million. the X I million that That just mean, impact

it's as us provide revenue or give and customers spread of layer going just revenue up implementation our the revenue, the get implementation -- nice doesn't license on the so on, of we growth. because those over immediate more these the ramp and any new slowly So outsourcing contract, life to that

a -- bad year, I we're that with I bit. mean, a I’d little saying de-conversion tried to layer keep growth obviously or we've be to for One, next things but it in revenue, going don't the high comfortable up which Pete, means to that budgets that to pick the exactly But level continuing I up revenue. X% we're your this fees, always we conservative. this say. And, year, thing we're to hit decrease said, like original And of X% very as the to is range. on get additional we're two So continue the revenue yours. should know going ahead

us just of new And then you've just bit things rolling give and of success can you on opening, maybe digital marketplace? new more a that the update been the the account some some products, an in update on of out an recently

Sure. And but at detail, week our the digital success of Day things I'll highlight continued great some Analyst some to see these in next with platform.

contracts new quarter. In the fact, XX customer in

We significant as in already demand So, We signed live now, I customers five platform, additional quarter. concerned. digital treasury XX payments. what's really that highlighted is our platform. in on on happening far recent management have as the most customers

lot focused entire the we're We call have offering well. to here past, talked recently now back So on that for Solutions on infrastructure we've our where but live the continues that XXX running haven't progress on office, Network the hosted platform. that the One about really is customer. in customers network a a including

see to success continuing there. good So

through fair say, a amount next like So of few highlights. those those are I platforms. some new just of a we'll detail on week, But go

David from question Koning from And you. our Thank Baird. next comes

my more been That's those like core to impressive. it I is, question lumpiness wins. there's first And revenue. with XXX, all guess congrats on seems

year, the or back of the we we should of You're kind that year, mid-single to I core year, Xs this seasonality creates like digits. see. after growth -- it either Is anniversary kind years last in think those six been new again, of few bunch the there X, that kind was the a kind X, just be whole more but years, it seems X% for half, of of X%, next of like averaging like organic five, this a a the row just used doing half first the still like you've

there Pete, year, may more be next think still little I lumpiness. a Well,

But in continue year to I will used day QX think year, recognized, unlike be still because be more level growth, we first all that there next gets software of and larger setter. of at as sell to the kind least be. to basically it the subscriptions, is going the more

carve, get all subscriptions and So quarter, in have throughout and recognized which the as all through our the basically provided for now estimates on reanalyze QX year, is those. to But, we tweak software go and services sell our on through year contract we then yet XXX. have under those total be you each to the of value

be ups downs. there's and going to So some

which had a there's it half will more and small little tweaking in have is impact first every that, some half. a impact the still quarter, this the So quarter, positive was that an that of in actually impact second than

be we're question. to for can answer do kind be guidance, going But a be to better I we better of what of that's I But August, short I And the that job able hopefully, a think in to guidance So, to of give think the base. I next through us. is when going quarterly going give is. go long what to year budget, predicting you as

helpful. point little is, the, better it term Okay, is usually that excel a you guess, you cadence fees, seasonality the low just of margins a again? so is for front. been often you it the has think, been term QX, margin can on, exclude other looks And, why the historically and historically, And kind then if natural I that on that's if has QX clear see like little question, fees, I the

QX there's of all things partially QX. load Well, our back But QX everything again. year costs kick over of every some of other I [indiscernible] that starts companies of lot a their that kick in in think, and because kind kick in fiscal for in taxes, just is in the fringe

Stephens. from [Operator Huff Brett comes Instructions] Our next from question

interested about you. solution. enterprise in we this talk of from fraud questions about point to you're much a always been probably I Dave, product as going talk is for that Two know view, don't but your too we've one

And that update doing sounds that? give the was based had, quick I we've conversation know think? on on least it's could than it I mean, on partnership. really nice maybe like some you or a better So – a win at us it's

I Well, the course of largest provider risk to Brett just solutions early alluding United targeted SAS, on, to so that enterprise as SAS partnership the sell disclosed so was to in bank union, known the yes, something expect we not you're as with didn't That, our this at is or to every banks credit larger was States. the of the in this world, customers.

have customers So live, in the we today XX we booked another new quarter. customer

it's this XXXX like But we're at not anything specifically and commercial So significantly solutions had fraud real that had in well. need This we progressing broad particularly that credit again, markets, customers, sell a -- would to and and largest for or unions, banks solution is analytics very serving who advanced a I emphasize, expect customers targeted our to that. was area.

we is there's banks kind still some products. it are on where choices? they market? maybe mean, that still, depending are Second or to who innovation like difficult dynamic? that headway. treasury newer, How are with are their question some they you know, banks. sell, those that on is like on management, you yours, are and big talk making deals there's products curve options I the decisions good on And Or some newer or pleased frustrated newer out legacy competitive market the there of that there's are that guys is dynamic sounds it are for to, I

I modern has goodness Yeah, feedback to new address created The somebody is, it’s solution pretty that and Jack consistent a that thank question. somebody Henry. get management, treasury ground that being a up, good brand

So, our management to was market, solutions. interface. you the this to functionality. know, business, cloud don't if a mobile have far as wires mobile native written newest And a I running up a good an solutions ground be it we out In that and is day mobile competitors expect to with solid solution treasury you're the good But have on approve of functionality. treasury couple able to the as have a there so easy age, legacy and be through lot of commercial solution

to was a with slick and it of and set user nice, functionality. ground up native, So, written cloud mobile be slick experience a

commercial point the as so a to put move to And attention. treasury core a decision. us a wouldn't because the that same wide in on it's close you new I shape, And to But are, your the impact group that's reaching of on it's a out, But customers. such don't category it way, management you has or platform. course, form. of in commercial your what's as customers big for a it bank customers disrupt getting any decision want

we I good And five a it's big pointed But as out, decision. in had so we've another success, signed customers quarter. the

that for a those have forward. effectively a our cap and bank a we a you're this go bank, run we you so going thing into provider continued was we tool remember institutions. expect reason all in say, forward. was a is real us ourselves institutions, your provider really like to And there solid multi-billion winner did going that if large And be going feather larger to be dollar larger suite for of need key as the having a I for And the to this to because we've when to position the

it one some bought this our situations And customers. union really Symitar where then at only said, from actually as had But to Strategic Initiatives, Dave thing, it for interesting we we we've in one credit to actually what's really developed is, interest some last customers sell largest customers. some we this our smaller and customer. sold and would unique customer week our But it

the I'm a payments hearing and one. and a obviously, thinking to last of lot spend that we're of money the is of do is want? in Do your on the or you little signature bank you to the have for it as and guys we lot businesses. just clients both industry for stay a we've that? us participants take And to theme money arsenal of of acquirers then technology world STI more quickly a sort lead wondered about going or partnerships as talking do about we with would like hearing money a to to this that buying bit in of like as bigger what's of innovation But and order scale that on some then you -- banks, underlying more that? merchant ahead pot the develop Or getting And kind where BB&T a matters, guys. we quickly? processors been core And blue do where question, Or I our in of money? is how particular, we more both on, sense kind more vendors M&A curve, other and sky. does of on are feel things kind enough and things But give the one lot

point your think valid. I there is Well, last

ground So Henry opportunity. chose couple that go partnerships where didn't In partnership has a as past, a the And as with it see us really that recently. that of allowed what management, Jack ground and SAS treasury with done The the was you very doing to a create have up we contrasted do not solution. to solution the to is we've from prompted up unique partnerships often.

maybe R&D as want question what of of the to yourself. prioritizing of question it partnership developing prioritizing, are against put deciding and investment a that dollars do and solves problem it's a It's what things your So you to size. regardless the opposed a

reason up past new number seen today the continues. our commitment a out a it's solutions us roll to pace reason we pace we're the R&D it's running of ago, we few years few you've that with So years and that ticked up the R&D, the in are

are ourselves, And prioritizing we it we everything So with to we have can have solid to the don't and a deciding is definitely one what things because ongoing of a partnering do partner. where do, the of to the committed solve good we're but have don't by to things a to R&D, are be what question things then really everybody. problem we

is our our about Yeah, R&D I XX% mean, of total total revenue. spend

how to not So sure significantly. we reinvesting need more much are do. I'm really we

I just compare think point. So that's, good a that's

remarks. Williams, would And I'm the Chief I any now to questions. like for Financial Officer call to not you. Thank further over further showing back Kevin turn

again Analysts that in next everyone Colorado. our we're remind to want I Justin. Day having Monday Thanks, afternoon Denver, Annual

officers our of final to be of Q&A. able if to attend to by with in the time efforts of some and each operations We will overall person, of in associates be and after able results customers. those of The of person, care will see not we're there evening presentations but you you of be and session you're will sessions. demoed entire our Again, the ongoing all manager the are sales, being will one our our our Q&A all webcast, related general there in hotter pleased mini if our tech our products executives, have that fair take the for

us for Our again joining customers with on executives, for you our provide best today our of you and associates thank shareholders. focus managers is what and our number? continue want all to will Justin, please and I to the that, replay

and Time. May conference today you, be Eastern Time gentlemen, through at Eastern will Ladies XX, sir. XX:XX available Thank this XX:XX Standard

by code, code time Thank for today's Access any XXX-XXXX. which concludes replay are is XXX-XXX-XXXX. you XXX-XXXX. participating in the This dial XXX-XXX-XXXX and dialing XXX-XXX-XXXX numbers Those is International system at and access entering access XXX-XXX-XXXX. today's the again may conference. participants You program.

may You disconnect. all