Jack Henry & Associates, Inc. (JKHY) Q1 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Jack Henry & Associates First Quarter FY 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's call is being recorded. I would now like to hand the conference over to your speaker today, Kevin Williams. Sir, you may begin. Kevin D. Williams - Jack Henry & Associates, Inc.: Good morning. Thank you for joining us for the Jack Henry & Associates first quarter of fiscal 2021 earnings call. I'm Kevin Williams, CFO and Treasurer; and on the call with me this morning is David Foss, President and CEO. In a minute, I'll turn the call over to Dave to provide some of his thoughts about the state of our business, the performance for the quarter and some comments relating to the impacts of COVID-19 and other key initiatives that we have in place. Then after that, I will provide some additional thoughts and comments regarding the press release we put out yesterday after market close and also provide some comments regarding our guidance for our fiscal year 2021 provided in the release, and then we will 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 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 these historical non-GAAP financial measures can be found in yesterday's press release. With that, I'll now turn the call over to Dave. David B. Foss - Jack Henry & Associates, Inc.: 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 first fiscal quarter particularly in light of the challenges posed by conducting business in the midst of a global pandemic. Now that we are all many months into life with 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 team is 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 with a current returned to office date of January 4. Because of the success we've had with our remote work initiatives and because of the ongoing concerns about the pandemic, I fully expect we will extend our return to office date further into 2021, but that decision hasn't yet been made. Most of our customers now have at least a few members of their staff working in their offices full time. As we moved into the fall, several of them have requested that we come on site to work with them on sales engagements and system implementations, and we are normally able to accommodate those requests with no trouble. With that said, our sales teams are now routinely doing sales presentations and executing contracts with no onsite presence at the customer location. We have also 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 very high. Our teams continue to execute in this new environment with the success of the customer always foremost in their mind. With that, let's shift our focus to a look at our performance for the quarter we completed in September. For the first quarter of fiscal 2021, total revenue increased 3% for the quarter and increased 5% on a non-GAAP basis. Deconversion fees were down more than $9 million over the prior year quarter, which impacts the current quarter negatively but is very good news if you take a long-term view. Turning to the segments, we had another solid quarter in the core segment of our business. Revenue increased by 2% for the quarter and increased by 5% on a non-GAAP basis. Our payment segment again performed well, posting a 5% increase in revenue this quarter and a 7% increase on a non-GAAP basis. We also had another strong quarter in our complementary solutions businesses with a 6% increase in revenue this quarter and a 7% increase on a non-GAAP basis. Traditionally, our first quarter has been our lightest sales bookings quarter because our fourth quarter tends to be extremely strong and the sales pipeline is depleted as a result. This year was no exception to that trend. With that said, however, the sales teams had several notable successes in Q1. In the quarter, we again booked seven competitive core takeaways with two of them in the multi-billion dollar asset space. We also booked three deals to move existing in-house customers to our private cloud environment. We continued to see good success with our new card processing solution, signing six new debit processing clients this quarter and three new credit clients. All of the deals I just mentioned represent new customers and new revenue to our company. We also continue to see great success signing clients to our Banno Digital suite with 29 new contracts in Q1. Speaking of our digital suite, we have now settled into a comfortable pace of implementing more than 30 new financial institution clients every month on the Banno Platform. We recently surpassed 3 million active monthly users but that number continues to grow rapidly. At the same time, our Banno Platform has been recognized by FI Navigator as having the highest consumer rating in the App Store with 4.79 out of 5 stars. Our Banno Digital suite is well on its way to becoming an industry-leading digital banking solution. The extraordinary success we've seen with sales and adoption of our digital suite is consistent with the expectations coming out of the Bank Director Technology Survey published in August. As they do every year, Bank Director surveyed hundreds of their subscribers during June and July regarding a variety of technology prioritization and spending topics. Almost 60% of the responses they received were from bank CEOs and/or board members, with a large majority of the respondent banks greater than $500 million in assets. The survey showed that as a result of the pandemic, most banks had moved two items to the top of their priority list, the first being an improved customer experience and the other being an improved set of digital offerings. The survey also indicated that 64% of the respondents had increased their technology spending expectations between 5% and 15% as compared to their pre-pandemic budgets. All of this bodes well for the future of our digital suite as well as the other solutions offered by Jack Henry which help facilitate an improved customer experience and an opportunity to enhance efficiency in the financial institution. Regarding our new card processing platform, as of the end of September, we have successfully completed the migration of our approximately 800 core clients in accordance with the plan we have highlighted on these calls for the past three years. We still have the small group of approximately 80 non-core clients left to migrate, but we fully expect to hit our fiscal Q3 target with that group as previously announced. I am very proud of our team and thankful to our partners and clients for working with us to achieve such a successful outcome. Although it didn't impact our Q1 numbers in any way, you undoubtedly saw the announcement of our recent divestiture of our CruiseNet business. The Cruise core solution was used by approximately 140 very small credit unions to perform core processing functions. Jack Henry acquired the business about 20 years ago, but we haven't actively marketed the solution for many years. We had committed to the client base that we would keep the solution compliant but not that we would add features or actively sell the solution. The acquirer is active in the very small financial institution market, so the sale was a good fit for them and the Cruise clients seem very happy with the outcome. The acquirer has rebranded Cruise as Aurora Advantage, and we have partnered with them to allow us to continue to sell and support several of our ProfitStars solutions into their customer base going forward. More information on this transaction will be provided with our Q2 disclosures, but the overall impact is relatively immaterial. As many of you know, we normally conduct our two largest client conferences in the fall each year. Although we chose not to hold in-person conferences this year, we conducted a virtual Symitar conference at the end of August and our banking and ProfitStars conference in October, as previously scheduled. As you might expect, attendance was much larger than our in-person conferences because nobody had to incur any travel expense, and we were able to interact virtually with many of our existing clients and prospects. In a couple of weeks, we will be hosting our annual shareholder meeting and, as we disclosed in our proxy, we have decided to conduct it as a virtual meeting as well. Despite the uncertainty caused by the ongoing pandemic, the key fundamentals of our business remain consistent with the profile I outlined on this call six months ago. We carry almost no debt and operate with a solid cash position, our revenue is more than 85% recurring in nature, and our workforce is highly engaged as evidenced by our engagement survey scores and regular announcements of best places to work awards. As we move forward, we will continue with our disciplined approach to running the company and we expect that approach to continue to provide stability and solid performance for our employees, customers and shareholders. With that, I'll turn it over to Kevin for some detail on the numbers. Kevin D. Williams - Jack Henry & Associates, Inc.: Thanks, Dave. Our service and support revenue increased 1% in the first quarter of fiscal 2021 compared to the same quarter a year ago. Adjusting service and support revenues for the deconversion fee revenue for each period, which was $5.8 million in the current fiscal year compared to $14.9 million in the prior fiscal year, or a little over $9 million decrease, this revenue line would have grown 4% for the quarter compared to the previous year. Our service support revenue growth was primarily driven by our data processing and hosting fees in our private cloud, and also software usage fees, which reflects our customers' preference for our term license model, partially offset by a decrease to product delivery and services revenue due to decreased license, hardware and implementation, pass-through and other revenue, but particularly the deconversion fee revenue quarter-over-quarter. Our processing line of revenue increased 7% in the first quarter of fiscal 2021 compared to the same quarter last fiscal year. The increase was primarily driven by higher card volumes from new customers installed last year and increased debit card usage from existing customers. And the Jack Henry Digital revenue experienced the highest percentage growth of all revenue lines due also to new customers installed last year and the increased volumes from existing customers Q1 of this year compared to the same quarter last year. Our total revenue was up 3% for the quarter compared to last year on a GAAP basis, and up a little over 5% on a non-GAAP basis, excluding the impact of the deconversion fees. Our cost of revenue was up 7% compared to last year's first quarter. The increase was primarily due to higher costs associated with our card processing platform and higher personnel costs related to increased head count at September 30, 2020 compared to a year ago due to primarily organic growth within our product lines. The increase in costs was partially offset by travel expense savings as a result of COVID-19 travel limitations. Research and development expense increased 6% for the first quarter of fiscal 2021 over the prior fiscal year first quarter, which this increase was also primarily due to higher personnel costs related to increased head count compared to a year ago. Our SG&A expense decreased 9% in the first quarter of fiscal 2021 over the same quarter in the prior fiscal year and this decrease was mainly due to travel expense savings as a result of COVID-19 travel limitations, but there was also a decrease in revenue tied to the savings expense due to our user group being in a virtual nature this year. Our reported consolidated operating margins decreased from 27% last year to 26%, which is primarily due to the various revenue headwinds already discussed and the increased costs. On a non-GAAP basis, however, our operating margins increased from 24.7% last year to 25.2% this year, primarily due to the items already mentioned. Our payments segment continues to be impacted by the additional costs related to our card processing platform migration, as Dave discussed in his comments, and our core segment operating margin decreased slightly during the quarter compared to last year, just primarily due to revenue mix, while complementary segment margins actually improved compared to last year quarter, heavily driven by our digital sales. The effective tax rate for the quarter decreased to 22.4% this year compared to 24.6% last year. The decrease in effective tax rate compared with prior fiscal year quarter was primarily due to the difference in the impact of share-based compensation under the long-term incentive plan that vested during each of the periods, which created a larger permanent tax deduction this year compared to the prior year quarter. Net income, $91.2 million for the first quarter compared to $89.4 million last year with earnings per share of $1.19 compared to $1.16. For cash flow, total amortization increased 3% year-to-date compared to last year due to capitalized projects being placed into service. Included in the total amortization is the amortization of intangibles related to acquisitions, which decreased to $4.4 million year-to-date this fiscal year compared to $5.5 million last year. Depreciation expenses up 5% for the year primarily due to CapEx in the previous year and those assets being placed into service. We also purchased 400,000 shares for the treasury in the quarter for $65.9 million. Our operating cash flow was $114.5 million for the first quarter which was down from $123.1 million or 7% compared to last fiscal year. We invested $37.3 million back into our company through CapEx and cap software for developing our products which as a total amount capitalized is down 15% from $44 million compared to year-ago quarter. Our free cash flow, which is operating cash flow less CapEx and cap software and then adding back net proceeds from pending sale of assets, was $83.3 million for the quarter. Couple highlights on our balance sheet. Cash position of $195.3 million, down slightly from $213.3 million at June 30. There is nothing drawn on our revolver, which, again, has a maximum capacity of $700 million. And we had no other long-term debt on our balance sheet other than leases, which is primarily due to the new lease accounting rules adopted in the previous year. Some updates on guidance. As you noticed, we updated both GAAP and non-GAAP revenue guidance in the press release yesterday. Just to be clear, this guidance continues to be based on the assumption that the country continues to open up and the economy continues to improve. Obviously, if the country is forced to shut down again due to the pandemic and the economy stalls or actually reverses, then this guidance will be revised. We'll also note that our GAAP guidance that we continue to forecast revenue from deconversions to be down $33 million from what we saw in FY 2020, which we saw $53.9 million in total deconversion fees in that year. We saw a $9 million decrease in Q1. We expect to see another decrease in deconversion fees in Q2 but probably about half the decrease we saw in Q1. The largest anticipated decrease in deconversion fees will be in Q3 compared to last year, as if you recall, Q3 last year was the largest deconversion fee quarter due to a couple of large deals. We see little to no current M&A activity that would drive deconversion revenue higher at this point, which in the short term will hurt revenue growth. But in the long term, as Dave mentioned, is good for us as we'd much rather keep our customers and the revenue for the long term. This means on a GAAP revenue guidance provided in the press release, impact by the decreased deconversion fees, we're looking at GAAP revenue growth of 3% to 4-plus percent. The only adjustment between GAAP and non-GAAP revenue guidance is the decrease in deconversion fees. If we see changes during the year in anticipated deconversion revenue, we obviously will update you on future quarterly earnings calls. We expect to continue to have some headwinds on revenue in the first half of the year for several reasons. Some ongoing delayed implementations at customer requests, the continued shift of our customers to our private cloud will continue to put additional headwinds on our licensed hardware and on-prem implementation, and our annual education conferences were virtual events this year which also impacts revenue in the first half of the year. Therefore, for your models, for non-GAAP revenue, I would suggest using a 4.5% to 5% revenue growth in the first half of the year and a 7% to 8% revenue growth in the second half to get you to our guidance of 6% to 6.5% revenue growth for the entire fiscal year, again on a non-GAAP revenue basis. We anticipate GAAP operating margins for all of FY 2021 to be down slightly to the 20% to 21% range for all the reasons previously mentioned, and non-GAAP margins to essentially be in line to slightly up from last year for the entire fiscal year. Our effective tax rate for FY 2021 should still be in line with FY 2020 and for the entire fiscal year be between 22% and 23%. This concludes our opening comments. We are now ready to take questions. Operator, will you please open the call lines up for questions?

Our first question comes from the line of Dave Koning from Baird. Sir, your line is open. Please ask your question. David John Koning - Robert W. Baird & Co., Inc.: Yeah. Hey, guys. Nice job. And I guess my first question, when I looked at this, the support and service line this year that the last couple of years there was kind of this seasonal pattern where you grew, I think, 11% in Q1, then higher single digits Q2, Q3, and then kind of low to mid-single digits in Q4. This year you're starting Q1 at plus 4%. So, it seems like this year is going to shape up differently. Maybe you can talk about the progression through the year and why this Q1 wasn't like closer to that double-digit type range. Kevin D. Williams - Jack Henry & Associates, Inc.: Yeah, Dave. So, there are a couple of things. One, even though we had a nice increase in software subscriptions this quarter compared to year-ago quarter, it wasn't near as large a percent and part of that was due to some delayed implementations in the second half of last fiscal year which, as you remember, under ASC 606, you recognize 100% of the revenue. So, any of implementations in software subscription that would've been installed in the second half, that would have basically been a few months last year but we would've gotten a full 12 months on the renewal this year. So, that was part of it. The other part, Dave, is the continued headwind of license and hardware and implementation revenue, which is due both to the ongoing move of our in-house customer to outsourcing, but also due to some delays due to COVID because our installers couldn't go out and do some of these due to the banks and credit unions not wanting them on site. So, again, and I'll highlight this, so there were some headwinds on revenue and everybody – I saw some notes out there. Everybody kind of highlighted our decreased travel expenses, I mean, those two kind of offset. I mean, so there was headwinds on revenue, and there was a decrease in travel expenses, but those two somewhat offset for the impact. So, that's kind of how we get to the 4% growth this quarter. I think for the rest of year it's going to kind of line out. And obviously, as I guided, I think first half is going to be a little lighter on growth. In the second half, I think we're going to see a really nice step up in top line revenue growth, which will be also in both lines of revenue. David John Koning - Robert W. Baird & Co., Inc.: Got you. Okay. No, that's helpful. I guess the follow-up to that is the back – obviously the full year is going to be good but the back half being better. Q2 though, it sounds like just a touch of deceleration. If you're saying 4.5% to 5% growth in the first half and Q1 was like almost 5.5%, Q2 might be the lightest quarter. Why is that happening? Kevin D. Williams - Jack Henry & Associates, Inc.: Well, part of that is because – and you can look at the last two years since we adopted ASC 606, David, there was a slowdown in Q2 from Q1 because you have all the software subscription revenue in Q1. So, that's just part of ASC 606, and there's no way to avoid that. So, there's going to be a little slowdown in Q2 compared to Q1 as far as growth. But then in Q3 if you look at a GAAP basis is going to be even a little slower because of the huge decrease in deconversion fees that we are predicting in Q3. And then you're going to see some really nice growth in Q4. David John Koning - Robert W. Baird & Co., Inc.: Got you. That's helpful. And one just really quick one. This is kind of immaterial. Nobody's ever asked the question on a call about your corporate line before, I don't think but it was down a lot. I mean, it's only 3% of revs. Is there something in that line that just this quarter was kind of one-off? Kevin D. Williams - Jack Henry & Associates, Inc.: No, there's nothing really there to highlight, Dave. David John Koning - Robert W. Baird & Co., Inc.: It's just small. Okay. Thank you, guys. Kevin D. Williams - Jack Henry & Associates, Inc.: Yes. Thanks, Dave.

Your next question comes from the line of Brett Huff from Stephens Corp. Sir, your line is open.

Good morning, Dave and Kevin. How are you guys? Kevin D. Williams - Jack Henry & Associates, Inc.: Good. Thanks, Brett. David B. Foss - Jack Henry & Associates, Inc.: Doing well.

Good. Dave, you may have highlighted this and (23:51) could you talk a little bit about the digital sales that you guys are seeing, how Banno is progressing, and then both the cash management and the treasury management businesses, how those things are selling versus core and things like that? David B. Foss - Jack Henry & Associates, Inc.: Okay. So, you were cutting in and out just a little bit, Brett, but I think I got the question. And you're right; I did highlight it in the opening comments. So, Banno, the digital performance has been very strong. I highlighted in my comments that we signed 29 new customers in Q1. And I also highlighted that we're on a pace, now, to install about 30 customers a month that we're bringing live; so, 30 financial institutions live per month. I also highlighted that we recently surpassed 3 million active monthly users. So, that isn't 3 million subscribers. The subscriber number is a lot higher – I'm sorry? Oh, subscriber number is a lot higher. So, that's 3 million active monthly users, which means they're using – they're actively in the system every month. So, we've exceeded that number, now. I also highlighted that FI Navigator, who reports on how consumers feel about the various applications, they've now got us as the highest rated digital banking application, with a 4.79 out of 5 stars in the App Store. So, tremendous success with the digital suite at Jack Henry, and we only see that continuing and getting better. As far as the other components you asked about, the treasury management, continuing to sign new customers on treasury management in the quarter. I think we signed four or five. We have about 50 financial institutions live, now, on treasury management. And continuing to enhance that product and continuing to roll that out; so, good success all around when it comes to digital.

That's helpful. And then, Kevin, I just want to make sure that I get the revenue acceleration at the back half. I know some of it is ASC 606. Some of it, it sounds like it's just timing of delayed implementations that maybe happened the last year that maybe now will flow not into one half, but more into second half. Are those the two primary drivers or am I – I want to make sure I'm not missing anything on that rev acceleration. Kevin D. Williams - Jack Henry & Associates, Inc.: So, Brett there's a couple of things and you hit most of them. But the other thing is the continued growth in our card business because we are now – with all of our core customers now migrated over, we're having pretty good success in the sales. As Dave mentioned, we signed several new ones – customers in Q1. So, we can now focus more on bringing new customers on. So, you're going to continue to see nice growth there. Digital is just going to continue to grow very nicely. So, our processing line of revenue is going to continue to grow at this pace and actually accelerate in Q4, based on what we're seeing. And then, the support and service line, we're going to lap some things. So, Q4 should be a little easier comp there. So, those are the primary drivers for the accelerated growth. Primarily in Q4 is where we anticipate seeing that growth rate. Now, again, as I said in my opening comments, that's all subject to the economy continuing to percolate and get along and not having another shutdown.

Okay. That's helpful. And then, just in terms of how the decision-making is happening at banks just generally, I assume it's still digital-focused. How are the core conversations going? Are those being put on the back burner at all as people focus on digital? Any kind of change in that dialogue at all? David B. Foss - Jack Henry & Associates, Inc.: Yeah. It's interesting. So, another thing I highlighted was the fact that in the Bank Director survey here with 64% of the respondents in the survey – with most of them being over $500 million in assets, 64% of the respondents had set their technology spending budgets – or increased their technology spending budgets by 5% to 15% as compared to their pre-pandemic, and that's what we're seeing now. The flow of RFPs has picked up, recently, particularly on the core side. So, we have a bunch of RFPs we're working right now on the core side. Continuing to sign new customers, but the rate of interest is increasing. And I think what's happening – so not only having good, solid success on digital and, certainly, with our payments platform with customers we're signing there, but just overall I think people are kind of settling in now to be – to doing business in the COVID world and they're finding those deficiencies and what they have with the technology they're currently operating, and so RFPs are starting to really ramp up. So, we'll see. The decision pace, I would say, is moving along well. Getting contracts finished is a little more challenging than it used to be because the attorneys are working remote from their house in one city and the CEO is working remote from their house in a different place, and some of that coordination is a little more challenging than it used to be. But deals are getting signed and there is a lot of interest in Jack Henry technology as evidenced by the RFP flow.

Great. That's what I needed. I appreciate the help, guys. David B. Foss - Jack Henry & Associates, Inc.: Yeah. Thanks, Brett.

Your next question comes from the line of Mr. David Togut from Evercore. Sir, your line is open.

Thank you. Good morning. Dave, you called out a somewhat slower pace of closing core deals. Could you bracket for us what the sale cycles are like today in the COVID environment versus pre-COVID in terms of number of months, for example, for a core signing? David B. Foss - Jack Henry & Associates, Inc.: Yeah. It's a good point. It's taking longer to get a core deal done. So, we did seven this quarter. We did seven the prior quarter. And so, it's definitely taking a little longer to get deals done. Once the deal is done, the actual conversion process isn't taking any longer because we're doing so much remote now. But I'd say we've probably added another month or so to the actual signing process. But as I just mentioned in the conversation with Brett, the RFP pipeline is very solid. It's amazing the number of RFPs that are coming in on the core side. So that's – I'm not just talking about other products, I'm talking about interest in Jack Henry core solutions. So, they're a little slower right now than they have been in the past but we're still seeing deals and we're still getting deals done.

Understood. And just as a follow-up, Kevin, you called out $195 million in cash on the balance sheet. You've clearly got a lot of potential to allocate capital now, whether it be acquisitions, dividends, buybacks. How do you rank your capital allocation priorities given your current balance sheet? And when you look at, let's say, the valuation of acquisition opportunities in the pipeline versus your own stock, how do you weigh that decision? Kevin D. Williams - Jack Henry & Associates, Inc.: Yeah. So, David, I mean, obviously, you've known us quite a while and you know that our first use would be to find the right acquisition, to bring additional products just to cross-sell to our customers and get a higher return to our shareholders. But you're absolutely right, the valuations continue to be a little high out there for what we're seeing. There's not a lot of really good assets that we're seeing out there right now. But we do continue to look and we will continue to look for the right acquisition. Having said that, with nothing out there, obviously we have a shareholders' meeting here in a couple weeks and our quarterly board meetings and we'll be discussing at that the use of cash. I'm sure we'll continue the dividend program and we typically increase the dividend in the February time period. So I don't see why we would change that. But again, that's up to the board. And I'm sure that we will continue to buy back some stock going forward as we don't see any more acquisitions on the horizon getting any closer.

Thank you. Just a quick final question if I could. Dave, would appreciate your perspective on open APIs in the banking industry and how you're, let's say, making the core available through open APIs to the extent a best-in-breed provider wants to connect into a customer for a point solution. David B. Foss - Jack Henry & Associates, Inc.: Yes. I'm glad you asked that, David. We are big believers in that concept and have been since the founding of this company. Before the term API was a term, the concept of Jack Henry has always been to be open. We've always been committed to the idea of making our platforms available to others through easy connectivity. We don't set up artificial walls to keep people out. And a lot of people over the years have viewed that as being very counterintuitive. But I think the philosophy of Jack Henry has always been that we're here to make our customers successful. They're not here to make us successful. And so, if we're going to help make them successful, we should provide the tools that enable them to connect to whoever they want to connect to. I think the best example of this in something you can see is for people who go to our client conferences, and this has been true forever at Jack Henry, you go to a Jack Henry client conference, you go into the exhibit hall and you will see hundreds of exhibitors in there. And almost every one of them competes with Jack Henry. We don't allow core vendors in there, but other than that, pretty much anybody else is allowed in. And so, you've got digital vendors and you've got payments vendors and everybody under the sun in our space has a booth in the exhibit hall and they will all tell our customers that they love working with Jack Henry because we are the ones that have always been truly committed to the idea of open connectivity. So today, APIs are the preferred tool. But prior to that, we had point-to-point integration that we supported readily and made available to our customers.

Understood. Thanks very much. David B. Foss - Jack Henry & Associates, Inc.: You bet.

Your next question comes from the line Kartik Mehta from Northcoast Research. Your line is open.

Hey, good morning. Dave, I know you've been kind of asked this question in the past, but I'm wondering, I know in the short run there's a lot of talk about using digital technology. I'm wondering as you have conversations with your customers what they think might be a permanent shift in behavior or changes and how that maybe benefits Jack Henry or how Jack Henry might have to change to adapt to any changes that are going to occur as a result of the current pandemic. David B. Foss - Jack Henry & Associates, Inc.: Yeah. Well, it's a good question. The key thing, and I think it's evidenced in that survey that I cited from Bank Director, we have all these CEOs and board members of banks – and credit unions were not included in the survey, so I'll just talk banks for a moment. All these CEOs and directors who through that survey have indicated that they really are shifting their focus to digital because they know that their consumers aren't necessarily going to come into the branch for all the banking services going forward like they did in the past. And so, enabling a digital lending experience, which we have done, and I've talked about many times on this call our commercial lending center suite in the past, and enabling full consumer functionality and business functionality through the digital channel is a key part of their strategy and a key part of our strategy. Now, one of the things we talk about a lot and I've talked about it on this call a few times is, okay, if your consumer is going to start interacting with you, the bank digitally, how do you ensure – as a community bank or credit union, how do you ensure that your experience is differentiated from the majors. And so that's where we've really put a lot of focus and that's why I think we're having so much success with the Banno Platform is because we've created a differentiated experience for the consumer. The digital experience with Banno is not the same as with all the other vendors out there, because we've tried to create an experience that comes close to the same experience the consumer would have if they were in the branch, meaning direct personal service which is what community banks and credit unions have always used to differentiate themselves from their major competitors. We've created that similar experience through the digital channel. And so, it truly has differentiated us and our platform. And I think as customers really start to understand that, whether they're Jack Henry core customers or not, as they really start to understand that and that need to differentiate themselves in the digital environment, they will really look seriously at our platform.

And then, Kevin, I know you've talked about this. Just I'm wondering on long-term margins, obviously this year you're being impacted by COVID-19, you're being impacted by the fact that you're transitioning your credit and debit platform. But as you finish that and we go into next fiscal year, I'm wondering what you think long-term margin prospects or medium-term margin prospects look like. Kevin D. Williams - Jack Henry & Associates, Inc.: Well, I mean, like I said, Kartik, we're going to see a lift in Q4 as we've been stating for the last two and a half, three years as we go through this payment migration. So, we'll get a lift in Q4. And then from that and just the increased sales and implementations of our card platforms, both debit and credit and digital, we should continue to see margin improvement, the continued shift of customers from our in-house to outsourcing which also drives margin improvement. So, I mean, I haven't sat down and just tried to put a fence around it to figure out exactly what that margin is going to look like in FY 2022, Kartik, but it's going to be up nicely from FY 2021, again, depending on the pandemic and COVID and all that. But if everything remaining equal, we'll see a nice margin uplift in 2022 compared to full year 2021.

Yeah. And then just one last question, Dave. Obviously, there's some conversation about Google partnering with banks to have its own branded checking account. And there's stories about maybe Amazon doing something similar. Any concerns from your customers as to how that might impact them or is there anything you can do to help them that could benefit Jack Henry? David B. Foss - Jack Henry & Associates, Inc.: Anything we could do to help our customers or help Google?

Help your customers, or even Google if you want to. David B. Foss - Jack Henry & Associates, Inc.: I just wanted to make sure you were – in terms of where you were trying to take this conversation. So, yes, we have spoken with some of our customers. Interestingly, in Google's solution, they're partnering with a couple of credit unions and they're trying this in several different ways. So, we've talked with some of our customers. No immediate threat that they perceive with what's happening there, as also I think they've seen with all the other neo-bank experiences that are available in the United States today. But we're keeping a close eye on that. We're trying to make sure that we're ahead of the game to help our customers if there are opportunities. It is – again, I'll go back to our complete online digital lending platform that we rolled out a couple, three years ago. We did that because we saw what was happening with OnDeck and Kabbage and the potential for those solutions to disintermediate the commercial borrower from our customers. So, we were very successful with that and helping those customers who needed to fend off those competitors. And we'll do similar things here as we see those opportunities.

Thank you very much. Appreciate it.

Your next question comes from the line of Dominick Gabriele from Oppenheimer. Your line is open. Dominick Gabriele - Oppenheimer & Co., Inc.: Great. Hey, guys. Thanks so much for taking my question. Have you talked to your bank or credit union partners about perhaps excess capital that they may have on their balance sheets if net charge-offs don't materialize in the same magnitude for which they've reserved and what they may do with this potentially large amount of excess capital? Have they talked about increased tech investments with a portion of that with you? Thanks. David B. Foss - Jack Henry & Associates, Inc.: So, I wouldn't say they've specifically said we expect to have excess capital and we're going to use that for technology. I think the discussion about increasing technology spending is more about their requirement, their need to remain relevant as customers are moving away from doing business in branch and moving more toward an online experience. So, I think it's pretty premature for most of our customers to be thinking about the idea that they may have excess capital. Most of them are ensuring that they're in a good capital position to fend off any losses that may happen as the pandemic continues to unfold. So, I view those conversations as kind of two separate conversations. There's the making sure you're well capitalized in case there are issues on the loan side, and then this need for increased spending separate and apart from that to ensure that you remain relevant to your consumer and that they want to continue to do business with you in a digital environment. Dominick Gabriele - Oppenheimer & Co., Inc.: Okay. Great. That makes a lot of sense. And if you just think about the implementation of the core products, and then your complementary products as well, and cross-sell after you've won a core partner, could you just go over, again, on what perhaps that time period is between implementation of your core and, then, the kind of tail of these extra API add-ons or cross-selling opportunities? And how long do those typically last, the add-ons after a win? Thanks so much. I really appreciate it. David B. Foss - Jack Henry & Associates, Inc.: Sure. Yeah. It's an interesting question. Normally, when somebody is choosing to do business with us on the core side – so they're coming to Jack Henry as a new core customer, normally they will wrap the core with a whole bunch of other solutions at the same time. So, it's rare for somebody to say I'm going to come and bring my core business to Jack Henry, but nothing else. Normally, they will, if they're going to do that major technology upgrade on the core, they look at a lot of other solutions they have and say we want to upgrade our technology on all these other things at the same time and go through that integration experience once. So, that would be my first point in answering your question is normally they're buying the core and maybe 20 or 30 other Jack Henry solutions at the same time. And then, once they are in place and start to experience working with our group, it may be a month after they go live, they've realized, oh, we really should have included this, and they add something else; or, it may be a year after they go live. But the good news is we have a very long history of continuing to cross-sell products. We have such a broad suite of products that, over the life of the relationship, we just continue to sell more and more and more to those customers. If we're doing our jobs correctly, we continue to sell more and more to those customers. So, I think that's the best way to think about those situations. Dominick Gabriele - Oppenheimer & Co., Inc.: Great. Thank you. David B. Foss - Jack Henry & Associates, Inc.: Sure.

Next question comes from the line of Mr. John Davis from Raymond James. Your line is open. John Davis - Raymond James & Associates, Inc.: Hey, guys. Good morning. So I really just wanted to start on Q1 results, specifically on the top line. I think last quarter, you guys guided for the full year; said first half adjusted net revenue would be 3% to 5%. It did actually just slightly north of 5%. So what went better in the quarter? Was it installations – or implementations rather? Just what kind of exceeded your expectations relative to your guide? Kevin D. Williams - Jack Henry & Associates, Inc.: Yeah. JD, it was primarily card and digital were the two that exceeded our expectations. So, it was primarily all in the processing line. And to be quite honest, the headwinds in the support service line were a little stronger than we thought they were going to be. So – but all the uplift was in the processing line of revenue. John Davis - Raymond James & Associates, Inc.: Okay. And then, other revenue was down 23% in the quarter. Just curious, is that kind of the new run rate? How should we think about that going forward, because that was a little bit surprising? Kevin D. Williams - Jack Henry & Associates, Inc.: So, JD, that's primarily in the corporate segment. And this is – to answer actually yours and David Koning's question from earlier, the big part of that is related to our education conference/user group was the biggest chunk of that. And then the other part of it is just pass-through costs from our travelers not being out for go out for billable travel to pass through. So, those are the two primary drivers of other being down. As our travelers pick back up, that will level out. Obviously, as Dave mentioned in his opening comments, our education conferences, Symitar is normally in the first quarter. JAC which is Banking and (45:21) ProfitStars sits in the second quarter. So, there'll be some revenue impact in the other line in Q2 just like there was in Q1, actually it'll be a little larger because JAC is typically larger than the SEC. And then Q3 and Q4 for other revenue should kind of level out with previous year. John Davis - Raymond James & Associates, Inc.: Okay. And then, the last one for me just on the M&A front. Just curious, obviously we're still in the middle of pandemic, but if you didn't notice any meaningful changes, whether it's valuation expectations, assets for sale, just anything from a private and market perspective. Are you more encouraged, less encouraged? What do you think the pipeline looks like from an M&A perspective as we go over the next, call it, three to six months? Kevin D. Williams - Jack Henry & Associates, Inc.: So, JD, just to be clear, you're talking about M&A from us acquiring not within the (46:13) industry, correct? John Davis - Raymond James & Associates, Inc.: Correct, yes. Correct. Your acquisitions, yes. David B. Foss - Jack Henry & Associates, Inc.: Yeah, I'd say valuation expectations, have they changed? Yes. It's been interesting with a few of the FinTech and InsurTech IPOs that have happened recently, I think there's a lot of companies out there with stars in their eyes thinking that they're going to get those same valuations. So, we're seeing that, companies that are potential – that maybe in the past wouldn't have ever really thought about an IPO, now they're thinking IPO. They're thinking, oh my gosh, look at that valuation or the stack concept, of course, is alive and well out there too. So, it's a little challenging as far as valuation expectations right now. We are seeing deals. I think on the last call, somebody asked about what we were seeing and I was frustrated frankly at the time because we had seen so little and we assumed the pandemic would drive some people to put their companies up for sale and we were really seeing very little. Now there's more of a normal deal flow coming through. So, we're looking at deals. But to your point, expectations for valuations have definitely increased. And you know as well we're a disciplined acquirer. We don't chase after the shiny object when it comes to acquisitions. And so, we haven't bid on any of them yet. But we are actively looking at deals. John Davis - Raymond James & Associates, Inc.: All right. Thanks, guys. David B. Foss - Jack Henry & Associates, Inc.: Thanks, JD.

There are no follow-up questions at this time, sir. Please continue. David B. Foss - Jack Henry & Associates, Inc.: Thank you, I appreciate it. Again, we were pleased with the overall results from our ongoing operations. I 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 work hard to improve our company on all fronts for the future. All of us at Jack Henry continue to focus on what is best for our customers and shareholders. With that, thanks again for joining us. And operator, will you please provide the replay number for the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.