Jack Henry & Associates, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Jack Henry & Associates third quarter FY 2020 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, press star 0. I would now like to hand the conference over to your speaker today, Kevin Williams, Chief Financial Officer. Thank you. Please go ahead, sir.

Thanks, Stephanie. Good morning. Thank you for joining us for the Jackson & Associates third quarter fiscal 2020 earnings call. I am 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 David to provide some of his thoughts about the state of our business, the performance of the quarter, as well as some comments about our response related to the impacts of COVID-19. And then after that, I will provide some additional thoughts and comments regarding the press release we put out yesterday after market closed and provide comments regarding the guidance Q4 and full year FY20 provided in the release. And then we will open the lines up for question and answers. 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 in the sections in our 10-K entitled Risk Factors and Forward-Looking Statements. On this call, we will also 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'll now turn the call over to Dave.

Thank you, Kevin, and good morning, everyone. Those of you who listen to our earnings calls on a regular basis may recall that I've started every earnings call I've ever done by thanking our employees for their hard work and dedication to our customers and our company. At no time have I ever been more passionate about that point than I am today. Since the onset of this pandemic, the Jack Henry team has moved mountains to address the unprecedented needs of our customers, while at the same time demonstrating true commitment to each other and our communities. To give you a sense of what that effort has included, here are just a few of the key initiatives completed by our team since early March. Our crisis management team began conducting daily meetings at the beginning of March to provide an ongoing review of information and plans for every aspect of our business. They have been instrumental in our planning and success as the world around us has changed so significantly. Early in March, our Human Resources team enhanced our healthcare program to cover 100% of COVID-19-related medical treatment for all employees. We announced that we were offering full-time work-from-home status on March 16, and our Corporate Technology Services team successfully transitioned 96% of our employees by the end of that week. The other 4% are required in a Jack Henry location every day to manage one of our data center operations. Those employees began receiving bonuses immediately after we moved to a work-from-home status. Our lending solutions team launched an online paycheck protection program offering for our customers within three business days of the CARES Act being passed in early April. We had customers processing loans for their small businesses two days before the SBA was ready to start funding those loans. We also expanded our lending network to provide support to our clients who were unable to book a loan for one or more of their small business clients. To date, we have helped our clients process almost 70,000 loans through the PPP program. And lastly, as you can probably imagine, call volumes in our call centers have increased exponentially as our customers and their consumers moved out of their offices due to the various stay-at-home orders. During that time, not only have the Jack Henry customer service teams risen to the occasion, but they did it while improving on our already industry-leading response times and customer service ratings. Truly remarkable. These are just a few examples of the outstanding efforts put forth by our team during this crisis. In the past, many of you have commented on 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 the past couple of months. I could not be more proud of our team and their ongoing commitment to our customers and our company, and I thank every one of them for weathering this storm with grace and passion. Of course, we are not at the end of the road when it comes to dealing with the ongoing impacts of COVID-19. We continue to operate primarily in a remote status, and our customers continue to get comfortable with their new operating model. Although most of our clients are still unsure about the long-term impacts on their businesses, we're seeing many get back to focusing on the day-to-day. A good measure of this shift is the level of engagement we saw with our sales teams in April as things started to settle a bit. Of particular note, we've already signed five new core competitive takeaways in April as well as a variety of other new contracts and the combined sales organization exceeded their quota for the month of April. We will be closely monitoring sales performance and sales pipelines as the fourth quarter continues to progress. With that, let's shift our focus to a look at our performance for the quarter we completed in March. For the third quarter of fiscal 2020, total revenue increased 13% for the quarter and increased 9% on a non-GAAP basis. Deconversion fees were up almost $15 million over the prior year quarter with almost all of that variance attributed to a single customer in New York. If you exclude the deconversion revenue variance and focus on the non-GAAP number, you can see we posted a very strong overall revenue quarter. Turning to the segments, we again had a solid quarter in the core segment of our business. Revenue increased by 12% for the quarter and increased 7% on a non-GAAP basis. Our payment segment also performed well, posting an 11% increase in revenue this quarter and an 8% increase on a non-GAAP basis. We also had an extremely strong quarter in our complementary solutions businesses with a 16% increase in revenue this quarter and 11% increase on a non-GAAP basis. Despite the obvious COVID-19 challenges for the sales team at the end of the quarter, all three of our sales groups again hit or exceeded their quota, and for the year, they continued to run ahead of last year's record pace. In the third fiscal quarter, we booked 14 competitive core takeaways and 11 deals to move existing in-house customers to our private cloud environment. Our Banno digital platform continues to see very strong demand with 24 new clients signing for the full digital suite in the quarter. We also signed 16 new clients to our new card processing solution. Speaking of the new card processing platform, we have been providing regular updates on our progress during these calls for the past several quarters. We are now 82% complete with the migrations and we ended March with almost 750 financial institutions on the new platform. Prior to the onset of COVID-19, we were poised to wrap the migration for our core clients by June 30th 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. As a result, we have delayed any migrations previously scheduled in our fiscal Q4 into Q1 of fiscal 2021. I anticipate the migrations for our 86 non-core clients will also be delayed as a ripple effect, so we now plan to see those migrations happen in fiscal Q3 of 2021. Regarding implementations for our other solutions, we are working closely with our customers who are scheduled for on-site delivery of our solutions to ensure their needs are met while taking all necessary safety precautions for our employees when they are required to be at a customer site. Delays of customer system installations due to COVID-19 have been very limited, and we've developed processes to handle remote installations when applicable. We expect these processes to provide flexibility and value both during and after the pandemic. We will continue to work as a partner with our customers regarding implementation plans, customer service needs, and support for their end consumers to ensure they get the help they need during this difficult time. Despite the uncertainty caused by the ongoing pandemic, let me remind you of a few of the fundamentals about our company. Fundamentals we emphasize regularly in our discussions with investors and analysts. First, more than 85% of our revenue is recurring in nature. Second, we have very little debt on the balance sheet and we continue to operate with a solid cash position. Third, We've paid a dividend for 119 consecutive quarters and we continue to be committed to our dividend policy moving forward. Fourth, we have an extremely engaged workforce as evidenced by our employee engagement survey results and Best Place to Work awards. And finally, remember that we weathered the financial crisis 12 years ago with very few bumps or bruises. As we move forward, we will inevitably continue to implement minor changes to our delivery and service models, but we don't anticipate the need to make any significant changes in the way we serve our customers. We have a commitment to doing the right thing for our employees, customers, and shareholders 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 continued stability for our company as we move to the other side of this pandemic at some point in the future. With that, I'll turn it over to Kevin for some detail on the numbers.