Jack Henry & Associates, Inc. (JKHY) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Jack Henry & Associates Fourth Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Kevin Williams. Thank you. Please, go ahead, sir.

Thank you, Gigi. Good morning. Thank you for joining us for the Jack Henry & Associates fourth quarter and fiscal year-end 2020 earnings call. I'm Kevin Williams, CFO and Treasurer. And on the call with me today is David Foss, our President and CEO. In just a minute, I'll turn the call over to Dave, so he can provide some of his thoughts about the state of our business, the performance for the quarter and fiscal year, as well as some comments relating to the impacts of COVID-19 and some other key initiatives that we have in place. And then after that, I will provide some additional thoughts and comments regarding the press release we put out yesterday after market close and provide comments regarding our guidance for our fiscal year 2021 provided in the release and then open the lines for Q&A. First, I need to remind you that this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results. Like any statement about the future, these are subject to a number of factors that could cause actual results or events to differ materially from those which we anticipate due to a number of risks and uncertainties. The company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our Form 10-K entitled Risk Factors and Forward-Looking Statements. On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for historical non-GAAP financial measures can be found in yesterday's press release. With that, I will now turn the call over to Dave.

Thank you, Kevin, and good morning, everyone. We're pleased to report another strong quarter of revenue and operating income growth. As always, I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for our fourth quarter and for the entire fiscal year, particularly in light of the challenges posed by conducting business in the midst of a global pandemic. Before we get into the discussion of our results for the quarter and the full year, I think, it's appropriate to review some of the ongoing impacts we're seeing as a result of the pandemic. We remain extremely thankful for the fact that very few of our almost 7,000 employees or their family members have been directly affected by the COVID-19 virus. Our HR and benefits teams are working closely with all the groups around our company to be sure anyone who is affected is receiving the care and accommodations they require. We continue to operate with well over 90% of our employees working full-time remote and have recently extended our return-to-office state to January 4 of next year. We extended that date for a couple of key reasons. First, we have a strong commitment at Jack Henry to put our associates first as we make key decisions about how we run the company. With all the concerns expressed by our teams about returning to an office environment and with so many members of the Jack Henry team struggling to make plans for their school-aged children in the fall, we decided to remove the worry for our employees by extending the date. And second, we have had great success in all areas of our business adapting to a work-from-home status and we see no reason why that can't and won't continue, so the decision was easier than you might otherwise think. Speaking of our success working from home, we are now several months into working with a modified set of processes for many of our groups. We are routinely doing sales presentations and executing contracts with no on-site presence at the customer location. We have completed many 100% remote implementations with great success, including several full core conversions. And our customer service teams continue to deliver outstanding service through remote channels, while keeping our customer satisfaction ratings at an even higher level than they were before the pandemic. I continue to be amazed and impressed by the adaptability and commitment of our team members throughout our organization. They continue to execute in this new environment, with the success of the customer always foremost in their mind. As I mentioned on the last call, many of you have commented in the past about the unique culture at Jack Henry, a culture built on the do the right thing and do whatever it takes mantra. Never has that culture been on display in a more meaningful way than what we've witnessed during this pandemic. I'm extremely proud of our team and their ongoing commitment to our customers and our company. With that, let's shift our focus to a look at our performance for the quarter we completed in June. For the fourth quarter of fiscal 2020, total revenue increased 4% for the quarter and increased 4% on a non-GAAP basis. Deconversion fees were up just slightly over the prior year quarter, but down significantly as compared to our fiscal third quarter. Turning to the segments. We had a solid quarter in the core segment of our business. Revenue increased by 4% for the quarter and also increased by 4% on a non-GAAP basis. Our payments segment also performed well posting a 3% increase in revenue this quarter and a 3% increase on a non-GAAP basis. We had a very strong quarter in our complementary solutions businesses with a 9% increase in revenue this quarter and a 6% increase on a non-GAAP basis. As I highlighted in our press release, despite the obvious COVID-19-related challenges for the sales team, June was the strongest sales month in the history of the company and the fourth quarter was our strongest sales quarter ever. All three sales groups exceeded their quota for the full year and for the quarter. This is remarkable to me because we made no adjustments to quotas for our sales teams as a result of any COVID-19 expected impacts. In the fourth fiscal quarter, we booked seven competitive core takeaways and nine deals to move existing in-house customers to our private cloud environment. Several of our complementary offerings saw very strong demand in the quarter with as you might guess, our digital suite leading the pack. We signed 53 new clients to our Banno Digital platform in the quarter and we signed 13 new clients to our new Card Processing Solution. For the full year then, we signed 43 competitive core takeaways with six of them greater than 1 billion in assets and six de novo banks. Additionally, we signed 45 contracts to move in-house core clients to our private cloud, 167 new Banno Digital customers, and 81 new clients for our Card Processing Solution. Of course, we signed a myriad of other contracts for many of our other solutions as well, but it's important to note that almost all of these contracts represent long-term recurring revenue commitments to Jack Henry for a wide variety of our solutions. Speaking of our new card processing platform, on the last call I pointed out that prior to the onset of COVID-19, we were poised to wrap the migration of our core clients by June 30 and had all 136 of those clients scheduled to convert in April, May, and June. In early April, however, several of the clients on those lists asked us to delay the schedule because they had minimized their employee presence in their offices and didn't want to introduce any new payment solutions while their employees and customers were working remote. As disappointed as we were to introduce a delay in a project that has been moving along so well, we determined it was definitely the right thing to do. In July, however, we resumed the migration process and now expect to have all of our core customers migrated by the end of the current quarter, and all of our noncore clients completed by the end of our third fiscal quarter. We are prepared and anxious to wrap these migrations and expect no further delays from our customers. One topic I haven't discussed previously on these calls is all the work we've been doing in the area of diversity and inclusion for the past several years. In the spirit of doing the right thing and attempting to always put our associates first, we formally launched our D&I program more than two years ago with a variety of training initiatives followed by the launch of our first business innovation group. We added a full-time diversity leader to our team more than a year ago and we now support five very active and successful business innovation groups within the company. Our D&I team provides ongoing training, they facilitate panel discussions and work with the Jack Henry leadership team to ensure that our work environment provides a safe space for our employees to thrive. Given all the social unrest in our country today, I am particularly grateful to our team for the outstanding progress and long list of successes we've seen with this program so far. As you have undoubtedly noted from the press release, we have decided that we will stick with past practice and provide guidance for the new fiscal year at the conclusion of today's call. As we've discussed in the past, although our business model is not impervious to impacts from the current economic environment, it is resistant to significant swings caused by economic disruption. After much discussion and despite the obvious challenges in trying to predict the future in the midst of a global pandemic, we believe we have enough information to provide reasonable insights and assumptions and sharing that information with you today is the right thing to do. As I reflect back on fiscal 2020, even with the extraordinary challenges in the environment at the close of our fiscal year, I view it as a very good year for our company. We have made great strides with our diversity and inclusion initiatives and our employee engagement scores remain very high. Our levels of customer engagement and customer satisfaction scores are also very high. Our sales teams are performing extremely well and have positioned us for another successful year of selling and overall demand for Jack Henry technology solutions remains high in all segments of our business. As we move forward, we will continue to implement minor changes to our delivery and service models and we have every expectation that we will end next calendar year with a greater percentage of full-time work from home employees than we had before the pandemic. We have a commitment to doing the right thing for our constituents that we believe will serve us well as we adjust to the new normal. We will continue with our disciplined approach to running the company and expect that approach to help provide stability for our employees, customers and shareholders. 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. Appreciate it. The service and support line of revenue, which is made up of two product groups, which are outsourcing and cloud and product delivery and services increased 3% compared to the prior year quarter. Outsourcing cloud services within our private cloud were again the big driver in this line of revenue with an increase of 13% compared to the same quarter a year ago, and an increase of 14% for the entire fiscal year. The headwind on this line of revenue in the quarter were decreases within the product delivery and services license, hardware implementation services and pass-through costs, primarily related to billing for our implementation teams' travel decreased a total of $7.4 million compared to the prior year quarter. This was partially offset by a small increase in deconversion fees as Dave pointed out, which is included in this line during the quarter of $845,000. The processing line of revenue, which is our remittance in card, and our transaction in digital lines of revenue grew 7% to the prior year quarter and increased 9% for the fiscal year. Within this line though remittance and card processing only grew a little over 2% in the quarter compared to last year, due to the impacts of COVID-19 in Q4 of this fiscal year, which for comparison remittance and card was growing 9% through the first three quarters of the year compared to the prior year compared to only 2% for Q4. However, this headwind was mostly offset by continued strong growth in our transaction and digital revenue during the quarter, which was impacted positive by the CARES Act and related legislative changes and grew 16% for the fiscal year. Total revenue was up 4% for the quarter compared to last year on both a GAAP and non-GAAP basis. Our cost of revenue was up 6%, compared to last year's fourth quarter, but on a sequential basis compared to Q3 cost of revenue was actually down, due primarily to lower cost of hardware and travel-related expenses compared to the previous year quarter. Research and development was up 20% compared to the prior year quarter, primarily due to increased personnel costs. And sequentially, R&D was up a little more than 3% again primarily due to personnel costs in Q4. SG&A was essentially flat compared to the prior year fourth quarter, and down a little over 3% sequentially, again, primarily due to travel-related expenses. Total expense was up 6%, compared to a year ago quarter but compared to Q3 sequentially it was actually down a little over 1%, again, primarily due to lower cost of hardware sold and lower travel-related expenses as our employees were mostly working from home. Our reported consolidated operating margins decreased from 20.2% last year to 18.7%, which this decrease is primarily due to the various revenue headwinds already discussed and the increased cost. On a non-GAAP basis our operating margins decreased from 18.9% last year to 17.8% this year, again, primarily due to items already mentioned. Our payments segment continues to be impacted by the additional cost related to our card processing platform migration as Dave discussed in his opening comments. Our core segment operating margins improved slightly during the quarter, compared to last year while complementary segment margins were down just slightly. The effective tax rate for the quarter decreased to 20% this year compared to 23% last year. The quarter-over-quarter difference is primarily related to changes in our effective and deferred state tax rate as we re-measure our state estimated rate when we file our state tax returns in Q4 and perform a return to provision true-up. Last year, we had an unfavorable impact in Q4 of about 1.5% and due to some effective tax planning by our tax department over the year, we had a favorable impact this year of approximately 1.5% to give you the 3% difference compared to last year. Net income was $61.3 million for the fourth quarter compared to $61.0 million last year and earnings per share was $0.80 this year compared to $0.79 last year. Some comments on cash flow. Our total amortization increased 5% for the year compared to last year due to capitalized projects being placed into service. Included in the total amortization of intangibles is related to acquisitions which decreased to $20.3 million year-to-date this fiscal year compared to $20.8 million last year. Depreciation was up a little over 10% for the fiscal year, primarily due to CapEx increases in the previous year and those assets being placed into service and receiving a full year depreciation this year, while this year's total CapEx spend was basically flat with last fiscal year's total spend. Our operating cash flow was $510.5 million for the fiscal year, which was up nicely from $431.1 million or 18% compared to last fiscal year. During the year, we invested $177.5 million back into our company through capital expenditures and capitalized software from developing additional products and enhancements, which the total amount capitalized is up 4% from $170.8 million spent a year ago. Our free cash flow which is operating cash flow less CapEx and cap software and then adding back net proceeds from sale of assets was $344.2 million which compared to net income means that we had a conversion of free cash flow to net income for the year of 116%. A couple of comments on our balance sheet as of June 30th. We were in a cash position of $213.3 million up from $93 million a year ago. And remember in February, we increased the max in borrowings on our $700 million line of credit. And as of June 30th, there was nothing drawn on that line and we had no other long-term debt on our balance sheet other than leases which obviously increased this year significantly due to the adoption of ASC 842 last July 1st, which means we had to put the operating leases on our balance sheet. Some comments about the guidance we provided in the press release yesterday. As you noticed, we did provide both GAAP and non-GAAP revenue guidance in the press release. Just to be clear this guidance is based on the assumption that the country continues to open up, the economy continues to improve. And obviously, if the country is forced to be shut down again due to COVID-19 and the economy stalls or actually reverses then obviously this guidance will require to be revised. You will also note that our GAAP guidance that we're forecasting revenue from deconversions to be down $33 million from what we saw in FY '20, which during FY '20, we had $53.9 million of deconversion revenue. Currently, we see no to little M&A activity that would drive deconversion revenue at this point, which in the short-term, this will hurt our revenue growth, but in the long-term as Dave and I have always said, we don't really like deconversion revenue as we would much rather keep the customer and the revenue for the future. This means based on the GAAP revenue guidance provided in the press release impacted by the decreased deconversion fees, we're looking at GAAP revenue growth of 3% to slightly above 4%. Since our single acquisition last year, which was Geezeo anniversaried on July 1st, the only adjustment between GAAP and non-GAAP revenue guidance is the decrease in deconversion fees. Obviously, if we see changes during the year and anticipate deconversion revenue, we will update you on future earnings calls. Obviously, we were impacted by COVID-19 just like everybody else especially in Q4 of FY '20 as highlighted in our comments about card growth and product delivery and we expect to continue to have some headwinds on revenue, especially in the first half of the year for several reasons. Some ongoing delayed implementations at customers' request, the continued shift of our customers to our private cloud will continue to put additional headwinds on our license, hardware and on-prem implementation. And our annual education conferences will now be virtual events this year, which will also impact revenue in the first half of the year. Not much impact on operating income, but it will have an impact on revenue. Therefore for your models for non-GAAP, again non-GAAP revenue growth, I would suggest using 3% to 5% revenue growth in the first half of the year and somewhere in the 6% to 8% range growth in the second half to get you to our guidance of 5.5% to 6.5% growth for the entire fiscal year non-GAAP revenue. We anticipate GAAP operating margins for all of FY '21 to be down slightly to 20% to 21% for all of the reasons previously discussed. However, as we complete the migrations in the new payment platform during the fiscal year, we will see margin improvement in fiscal Q4 as we have guided previously. Our effective tax rate for FY '21 should be in line with FY '20 and be somewhere between 22% and 22.5%. That concludes our opening comments. We are now ready to take questions. Gigi will you please open the call lines up for questions?

[Operator Instructions] Our first question comes from the line of Peter Heckmann from D.A. Davidson. Your line is now open.

Hey good morning everyone. Thanks for taking my questions. Dave, could you maybe try and quantify if you could year-over-year bookings growth? And then maybe talk about the current backlog and compare it to prior years in terms of the -- had the implementation delays resulted in a larger-than-normal backlog?

Yes. So thanks Pete. We of course don't discuss the details of the backlog but just to kind of give you some high-level expectation. So there have been some delays, but it's not hugely significant. It's just people moving things around. And so normally if we have a customer who says, we want to delay this implementation we go find another customer who wants to move up in the schedule. So it's created lumpiness in the schedule for the implementation operations groups, but it's not as though there's major push to move things out. It's more the inconvenience and the inefficiency and moving things around a little bit is the way I would characterize the delays as far as install are concerned. To the first part of your question on sales, so you'll note we've been running at a pace of one new competitive core takeaway per week for two and a half to three years and that part has slowed down a little bit. So our sales aren't as -- weren't as dependent on new core takeaway -- competitive core takeaways as they have been in the past. But what was really fascinating to me, I guess, was that the other product groups not only filled in that gap but exceeded any other sales month and any other sales quarter that we've ever had. And so what were those things? Well I highlighted a few of them. We've continued to have really good success with the new payments platform. We've sold a whole bunch of the Banno Digital platform which as I highlighted in my opening comments probably is not a shocker to anybody, but really great traction there. We've been -- we've seen a number of in out -- in-house to outsource conversions that have been signed in the quarter. So -- and then a whole bunch of other things online lending and just a wide variety of products. So the thing I would highlight is the fact that even though the new core sales slowed and it's just the industry that slowed because people were not making as many of those decisions, so even though that slowed the sales teams filled in with all kinds of other sales of all kinds of other products. And so now those backlogs are robust. I'm not worried about them. It's not that we can't handle the installs, but those have kind of filled in around where we would have signed more new core takeaways.

Got you got you. And then that leads to my second question. I think last quarter you had said you had signed 5 core takeaways in April and so that would indicate just 2 in May and June and that just might be situational. But in terms of how the relative profitability and outlook for financial institutions has changed because of the pandemic and lower rates, how do you see that affecting overall IT spending amongst banks and credit unions over the next year?

Yes. So the good news for us first off the pipeline is after a record month and record quarter, we just did a sales -- a review with the sales leadership team on Monday of this week, and the pipeline is filling back up again which -- that's always a concern, when you have a blowout month and a blowout quarter, and then you've got to go fill the pipe again with new opportunities. So the pipeline is filling again had a big month in July as far as new opportunities that are going back into the pipeline. I'll add to that that the American Banker published a survey about a month ago probably, but it was a post-COVID survey of CEOs talking about technology spending, and there is no slowdown in their minds regarding their plans for technology spending. They may have shifted a little bit to thinking about things that we can do without everybody in the office and how do I live in a world where not all of my customers are coming to the branch, as often as they used to. Those types of things are top of their list more than they were before probably. But no slowdown in spending as compared to the pre-COVID numbers which is what we were looking for was compare what our bankers are saying and credit union executives are saying post-COVID as compared to what they were saying back in December and there was absolutely no slowdown in their expectation of spending. And we're seeing that now. So, now that everything is kind of settled back in, we saw a big influx of RFPs. For example, in July particularly in the banking group people kind of settled in they've kind of put the brakes on a little bit, but how they've settled in and decided, okay, we've got to get back to reviewing technology now that we understand how dependent we're going to be on technology going forward, and so big influx in RFPs and we're excited about that for new core competitive takeaways. A reminder on the core deals is those are very long sales cycles, right? So all these RFPs that came in in July, we won't report any of those wins probably for 9 months to 12 months because they're long sales cycles, but it's really heartening to see the industry getting back to focusing on evaluating technology and making those decisions even the major decisions like core replacement.

Good. Good. That’s good to hear. Thanks for the update.

You bet.

Thank you. Our next question comes from the line of Kartik Mehta from Northcoast Research. Your line is now open.

Hey. Good morning. Dave, you know, one of the concerns around banks is that all of a sudden you're going to have a lot of loan losses and that could just put pressure on the P&L statement. And I'm wondering if your customers have shown any concern related to that and if that's impacting any budgets. I know you said they're continuing to spend and it sounds like they're spending even more next -- in 2021 versus 2020, but I'm just wondering any level of concern on loan losses?

Well, you'd have to be living in a cave to not have any concern probably, but it's not an overriding theme with our customers. They're not pulling in saying, oh, my gosh. I've got some real balance sheet risk here that I've got a -- that I've got to hunker down and can't do anything. So it's the opposite. We are seeing a tremendous amount of interest on the sales side. And I will tell you in two weeks, I think, it is I'll be hosting a whole bunch of credit union CEOs exclusive event for credit union CEOs and that will be one of the topics. And then about a month after that we'll do an -- and it'll be a virtual event. A month after that I'll do the same thing with banking CEOs so the only CEOs and that will be a topic. So I'll have a lot of group input on that topic. But anecdotally no – no major shifts and no major expression of concern. But like I said you'd have to be living in a cave not to have some level of concern about what's going on. But we don't see any slowdown right now from our customers.

Kartik, so I've talked to a few bankers and I will add this one thing that the ones I talked to really beefed up their loan loss reserve at the end of the March quarter in anticipation of this. So I think a lot -- majority of the P&L impact is already flushed through the P&L.

That's a great point. I've highlighted before the whole CECL thing all these bankers were so frustrated with CECL. Well CECL did them a great service. Now they -- them really getting focused on projecting credit losses has really done them as service in these difficult times. So as much as they were irritated with CECL a couple of years ago I think they're thankful that they went through all that stuff as Kevin has highlighted.

That makes sense. Dave, I think, you and Kevin both mentioned interest in your private cloud and I'm wondering is there are your banks showing an interest for them wanting to go to the Amazon Web Services to outsource to that type of platform?

It comes up rarely, but it's not most banks and credit unions still traditional banks and credit unions I'm not talking about the online-only banks the neo banks, but traditional banks and credit unions are still pretty wary of putting everything out in a public cloud environment. So we have some of our solutions today in a public cloud environment but not the core kind of the crown jewels piece. That's still -- not a lot of demand for that. We talk about it with our customers and we're very active in that space with other products. And we have a lot of things in the works as far as core is concerned, but not demand today for that.

And Kevin just one last question. You talked about deconversion fees of about $33 million. Any thoughts on maybe just how it would go each quarter just so that -- I don't know if there's any lumpiness or you think just straight lining is good enough right now?

Yes. So Kartik, I mean, last year and again, deconversion fees is something that we -- it's very hard to predict. I mean, typically by this time on an earnings call in mid-August we have an idea of what's going to happen at least in this quarter and we typically have an idea of next quarter. And I mean, right now, I mean, the pipeline is just pretty empty. And as a reminder last year, we had four large customers that got acquired which those four customers were about equal to the decrease in the deconversion fees we're predicting this year. So if you take the adjusted $21 million deconversion revenue that -- and again, we had no idea where that's coming from, but we have to put something in the forecast, because we know there will be some. I would say, probably just put that in pretty much straight line and you're not going to miss it by much Kartik.

All right. Well, thank you very much. Appreciate it.

You bet.

Thank you. Our next question comes from the line of John Davis from Raymond James. Your line is now open.

Hey, thanks. Good morning guys. Kevin just one quick clarification on the EPS guidance. So assuming flat year-over-year term fees, you would have guided to something in the $403 million to $408 million range. I just want to make sure I'm not missing anything there.

That's absolutely correct John.

Okay. And then as I think about the COVID impact, I appreciate your commentary on the first half of the year call it, 3% to 5% back out 6% to 8%. So if I run that out, is it fair to say that COVID based on what you know today is one point to 1.5 points impact to non-GAAP revenue growth in 2021.

Yeah. Yeah. That's probably pretty close to right.

All right. And then on -- I want to talk a little bit about the impact on the financials of the shift to cloud. I know it's 2.5 times more profitable over life of the contract. Were there any near-term revenue headwinds from kind of that shift to the cloud? I know there's been an uptick in demand for outsourcing, and then just curious if it's a near-term revenue headwind from lower license sales or how that kind of flows through the P&L.

Well, it's license hardware on-prem. So if you think about John, so license and hardware this year created a $4.5 million headwind not even counting the pass-throughs and different things, so that was for the year. Obviously, the biggest chunk of that was in Q4, but that was a headwind and that's very similar to the headwind we saw in the past three years as we continue to shift 45 to 50 existing in-house customers to our private cloud each year. We will continue to sell less and less add-on license products and hardware upgrades as they make that move. So we're continuing to add recurring revenue. And you're right, it's literally two times the revenue we're getting from it or more, but you don't get that the big bump in license revenues when you sell a nice complementary product in a license environment. So we're going to continue to have the $4 million to $6 million headwind again next year on our product delivery line.

Okay. That's helpful. And then lastly I just wanted to hit on the margin. I think last quarter you guys commented you expect that the adjusted operating margin to kind of be flat to slightly up. It looks like guidance implies it's going to be down call it 25 to 30 basis points. First, is that correct? And what's driving the change? And maybe is there an added layer of conservatism given the macro backdrop? That's it for me.

That is correct, John. And it's primarily all going to be in the first half of the year. Again, we still got the additional cost from the additional payment platform until we get through the first quarter. So we set up those additional costs. Plus the delayed license implementations and some hardware deliveries that we anticipate going to be in the first quarter and some in the second quarter, that's all going to have some negative margin impact in the first half of the year. But I -- but we anticipate margin improvement in the second half of the year. Best case scenario, I think, we could wind up flat for the year, but we're trying to be a little conservative and guide down just slightly.

Okay. Thanks guys.

Thanks, John.

Thank you. Our next question comes from the line of Vasu Govil from KBW. Your line is now open.

Thank you. Thanks for taking my question, and nice to talk to you guys. I guess just first Kevin, thank you for the color on the quarterly cadence on revenue growth. Could you also tell us what's embedded in the guide in terms of segment-wise expectation in terms of core payments and complementary segments where you're expecting most of the impact from COVID to show through?

So most of it will probably be in the complementary line if I was guessing. Well, actually core and complementary, because it's going to delay some implementations, especially the few in-house implementations we have out there. Payments -- and Dave commented, payments is kind of back to where we were pre-COVID. So, unless there's another flare from COVID-19 and they start shutting the economy back down, I don't think you're going to see the impact on the payments line. I guess it's going to be another two segments.

Got it. Thanks. That's helpful. And then, Dave, you sort of made some comments on what success you guys have had working remotely, and some of these practices could continue longer term. Do you think there's potential for some cost saves down the line as a result of this?

For sure, yes. So, a few things to keep in mind there. And my expectation is not that we will do every install for every product as a remote install going forward. That's not what our customers want. That's not the most efficient way in some regards to do implementation. So, it'll end up being a mix. I think the things that work really well, remote we will continue to do really well. The things that are a little awkward doing remote, we'll go back to having people on-site for those things. But that introduces efficiency. And when you have efficiency, then in theory, you probably don't need as many people. We won't have to add as many people as we look forward into the future for some of those things, because we'll have more efficient process. There is travel. So there's not only the dollar expense involved in travel, but the wear and tear on people that are traveling to do those implementations. And so -- and there's the facility cost. If we can do some of these things and if we have employees who want to continue working from home, as opposed to working remote in and off, meaning doing an implementation for a customer, but doing it from the office. If we continue to do that from home, there is a potential that we will need less office space. And we're examining that. I alluded to it in my opening comments. We're examining, what will the future look like for Jack Henry as far as office space requirements. We currently have 42 locations around the country. We need all those. So, there are a lot of those things that are in-flight for us that are kind of rolled up into that question. I can't tell you exactly what those will be today, but there absolutely will be savings in that in the long run.

Great, thank you very much.

Sure.

Thank you. Our next question comes from the line of David Togut from Evercore ISI. Your line is now open.

Hello. This is Josh Siegler on behalf of David Togut. Good morning. Can you please discuss your top areas of investment in FY 2021? You mentioned digital platforms in your press release. Can you discuss what investments need to be done in digital?

Sure. It's a big topic. Digital it's not that we're lacking anything. Our Banno Digital Platform is leading the industry as far as feature function is concerned, but we're continuing to build that out. So, expanding as far as business functionality on that platform is a key area of focus for us this year, and just continuing to broaden the offering. We're integrating in the Geezeo personal financial management platform. We are doing online account opening through that platform. There's lots of things that we're just continuing to integrate, and make sure that the consumer -- so the bank's customer, our credit union customer, make sure the consumer has a consistent user experience across all those different functions through the single digital channel. So that is definitely a big area of focus for us. But then beyond that, we're constantly investing in our core solutions where our two flagship cores emphasis on the credit union side and Silver Lake on the banking side. We continue to do a lot of investment in both of those products as our flagships. We also invest in our other legacy cores, but those are areas of focus. Our treasury management solution, we've talked about a lot on this call. Lots of demand for that solution, a lot of growth in that area, but we have to continue to enhance that solution as you get more sophisticated customers taking that platform. We're not done with the migration to the new card processing platform, so that's included in that number. And then online lending, so we've talked a lot on this call about our Commercial Lending Center suite competes, wins regularly by the way against nCino. And you've all seen the nCino, IPO that happened recently. Our Commercial Lending Center suite wins regularly in those deals, but we have to continue to invest in that platform to stay ahead of the game there. So, a number of things. And the other -- the last area I would highlight is fraud, so a lot of demand among our customers. We have our Yellow Hammer fraud solution that we're really focused on this year making that -- ensuring that that's a best-of-breed fraud solution. So, those are relatively short list of a very long list of things that we're continuing to invest in.

Great. Thank you. Appreciate the color. Can you please help quantify the revenue and earnings benefit from the Paycheck Protection Program from your lending solutions in 4Q?

So you're talking about a P&L benefit to Jack Henry? Or you're talking about for our customers.

Sorry, for Jack Henry.

It was relatively minor dollar amount. We didn't sell license fees. We -- what we did was we stood up a platform to provide that solution to our customers. By the way we were live before the SBA was ready to fund any loans we're pretty proud of that because most platforms were not live before the SBA. But we were up and running and live before the SBA was ready to fund loans. And so what we did was we charged customers on a consumption basis but it wasn't a huge needle mover for Jack Henry. I don't know what the number was. But it was a consumption model where if you decided to do one loan, you will only pay the little fee for that one loan. And if you did 2,000 loans you paid something for every one of those 2,000 loans just a quick charge for each loan that you funded through the platform. There is no ongoing charge for our customers. There is no maintenance. It's not something they're obligated to pay us for ongoing. It was just us trying to do the right thing to help them serve their customers in that moment of need.

Like I said in my opening comments, it did help our transaction in digital during the quarter and helped to offset some of the card. But our transaction in digital was already growing at around 13% through the first three quarters, ended up growing just under 16%. So I mean the total impact was probably a couple of pennies maybe during the quarter that helped to offset the decreased growth in card.

Perfect. Thank you very much.

Thank you. Our next question goes from the line of Dave Koning from Baird. Your line is now open.

Yeah. Hey guys. Thank you. I guess, my first question when you think about the debit processing platform, it sounds like Q1 still higher expenses year-over-year. There still will be those costs. But maybe how do we think of the full year this year, maybe what's baked in? It seems like you might get kind of a weighted average half year benefit this year. And then maybe the last half year benefit next year. What are the dollar savings from that?

So as we've historically said Dave, I mean the savings that we're going to see are essentially the same. It's staggered a little bit differently. But as Dave mentioned in his opening comments, we are on course to have all the core customers off the platform by the end of the Q1. All noncore customers are on schedule to be off the other platform by Q3. So we've indicated in the past that there's a minimum of $16 million in cost savings that will come in -- some of that will come in Q2. The rest of it will come in, in Q4. So with the impact of COVID and some of the things we've talked about in Q1 and Q2, so you're going to see some benefit in Q2 but because of the impact of COVID it's not going to be quite what we had talked about in the past, which obviously COVID is hard to foresee. But we will see the margin improvement in Q4 that we've always indicated we'll see.

Okay. That's helpful. And then, I guess, when I think about incremental margins this year, it seems like you're guiding ex term fees for revenue to grow what $80 million, $90 million, $100 million something in that range of core revenue growth. And then EBIT growth, if you take out term fees again, the decline in term fees is probably up $10 million, $15 million something like that and that includes the cost benefits of the platform conversion. So it just doesn't seem like there's that much profit growth coming from the revenue. Is that conservatism? Or are there some other costs that are happening right now that are just different than normal?

Well, there's two things. One, we anticipate another probably $6 million or so headwind in decreased license fees and hardware this year that's going to happen, which we've been seeing for the last few years. So, obviously, when you take license revenue down, which is 100% margin that's going to have an impact on your overall margins until you can offset that with recurring revenue, which is really good margins but it's obviously not close to 100% like license revenue. So we're just -- I think at this point with COVID and everything else Dave, we're just trying to be a little conservative on our guidance going into the year. I mean, hopefully things turn out better than that. But we thought it was important for us to provide guidance and where we think we're going to be in this new unchanged world that we're in.

Yeah, that makes sense. And I guess the corollary to that, it seems like the long-term, the next five years, 10 years whatever, the margin progression could be for you and really the industry better than normal because the shift to digital outsourcing those types of things that are higher margin than average. Is that a fair way to think about it?

It's definitely a fair way to think about it. And as Dave pointed out, in his opening comments, we've been signing a number of new card customers, which none of those are on the platform yet. I mean those are all sitting in backlog to be converted over. And those are all competitive takeaways. So that's going to be new revenue. And we've been a little hesitant on really going aggressively for new sales, until we get this migration done. So, once we get to migration done, I think our sales team is going to be even more aggressive to good stuff. And at that point, we'll be able to start some of them through ProfitStars.

Got you. Okay, great, chat guys thank you.

Thanks, Dave.

Thank you. [Operator Instructions] Our next question comes from the line of Brett Huff from Stephens, Inc. Your line is now open.

Good morning, David and Kevin. Hope you guys are both well.

Good morning.

Good morning, Brett.

Two questions, number one, Kevin thanks for the breakdown of the revenue kind of tenor through the next year. That's very helpful. Coming out I think, the guidance was 6% to 8% pro forma growth. As we think about even beyond that if we look to fiscal 2022, which I know is a long way from a crystal ball point of view, you guys have kind of grown I mean probably 7%-ish pretty consistently over the long haul. Is that a good jumping off point for thinking about fiscal 2022 and beyond? Or are there other ups or downs that we should think about starting, around that say midpoint of 7%?

So Brett obviously the unknown is what COVID is going to be. And what the lingering effect of that is going to be. But barring that, then I think 7% is a very good place to look at for FY 2022. And once we get to the migration, depending on the output of some of the RFPs that Dave mentioned which those would be impacting FY 2022, not FY 2021. And all the card activity we've got going on. I think 7% would be a conservative number for FY 2022.

Okay. That's really helpful. And then bigger picture question, you all have a great balance sheet kind of a hallmark of your company. I know at one point kind of many years ago you had sort of a spate of sort of smaller deals that you did took advantage of some price dislocations in the market. Are you seeing assets out there that are interesting to you maybe bolt-ons, maybe technology that gets you faster to where you want to be, consolidating anything like that? Any sort of thoughts on pricing of deals, and/or interest increasing because of some of the things going on? Thank you.

Thank you, Brett. It's a good question. We actually -- many weeks ago Kevin and I sat down and said okay -- as we kind of saw this all starting to unfold in the industry, we sat down and said "Okay. We've got to be ready here because something's going to pop. We're going to find a deal that is going to be a really good deal for Jack Henry. So let's be ready. We would make sure we we're prepared as far as cash on the balance sheet and lines of credit and let's go get aggressive and try and find something." And so now we're five and eight weeks, since we had that conversation and there are almost nothing. It's frustrating for us because you know us well. We've done a lot of acquisitions in our history. I feel strongly, we're a solid acquirer. We know how to choose companies. We know how to integrate them in successfully. We don't go looking for crazy, expense synergies on the front end of the deal. We're a disciplined acquirer, as I've said many times. And so we were very ready to find some deals and integrate them. We've had a few come along. Pricing has been a little out of line, on the ones that we have been interested in. But we're continuing to look. So I'm still hopeful that we'll find something that fits our profile and that will be a good addition for Jack Henry. But so far, it's been a little bit more frustrating, than I expected.

Great, thanks for the color.

Okay.

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

Thanks, Gigi. Considering the challenge that we've had in the second half of fiscal 2020, we are very pleased with the overall results from our ongoing operations. And I especially want to thank all of our associates for the way they have handled these challenges, by taking care of themselves and our customers. And continue to improve our company on many fronts, for the upcoming fiscal year and the future beyond that. Our executives, managers and all of our associates continue to focus on what is best for our customers and you our shareholders. With that I want to thank you again for joining us today. And Gigi, will you please provide the replay number?

Ladies and gentlemen, a replay is available for this call, please dial, 1-800-585-8367 or 404-537-3406 for the replay. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.