Jack Henry & Associates - Earnings Call - Q2 2021

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to the Jack Henry & Associates, Second Quarter 2021 Earnings Conference Call. Please note that today's call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask your question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Now, I would like to turn the call over to Kevin Williams. Kevin, the floor is yours.

Kevin Williams (CFO and Treasurer)

Thank you, Jay. Good morning. Thank you for joining us for the Jack Henry & Associates, Second Quarter Fiscal 2021 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. He is going to provide his thoughts about the state of our business, the performance of the quarter, and some comments relating to the impacts of COVID-19, thoughts on our recently published corporate sustainability report, and some other key initiatives that we have in place. Then after that, I will provide some additional thoughts and comments regarding the earnings release we put out yesterday after market closed, and then provide comments regarding our guidance for our FY21 provided in the release. Then we will open the lineup 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. Also, on this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income as disclosed in the press release yesterday. The reconciliations for historical non-GAAP financial measures can be found in yesterday's press release.

I'll now turn the call over to Dave.

David Foss (President and CEO)

Thank you, Kevin, and good morning, everyone. We're pleased to report another quarter of strong revenue growth and an overall solid performance by our business. 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 second fiscal quarter, particularly in light of the challenges posed by conducting business in the midst of a global pandemic. We remain extremely thankful for the fact that very few of our employees or their family members have been directly affected by the COVID-19 virus. Our HR teams continue to work closely with all groups around our company to be sure anyone who is affected is receiving the care and accommodations they require. We are still operating with well over 90% of our employees working full-time remote and have now updated our return-to-office date to July 1st.

At this point, I don't anticipate us extending that date, although I definitely expect long-lasting changes to our in-office work model. Most of our customers now have many people physically in their locations every day, and we regularly receive requests to deliver on-site sales engagements and system implementations. As I mentioned on the last call, our sales teams are routinely doing sales presentations and executing contracts with no on-site presence at the customer location. We have also completed many 100% remote implementations with great success, including several full-core conversions. With that, let's shift our focus to a look at our performance for the quarter we completed in December. For Q2 of fiscal 2021, total revenue increased 1% for the quarter and increased 2% on a non-GAAP basis.

Deconversion fees were down more than $5.5 million over the prior year quarter, which impacts the current quarter negatively, but as we have highlighted in the past, is good news if you take a long-term view. Turning to the segments, we again had a solid quarter in the core segment of our business. Revenue increased by 1% for the quarter and increased by 4% on a non-GAAP basis. Our payments segment also performed well, posting a 2% increase in revenue this quarter and a 3% increase on a non-GAAP basis. We also had a strong quarter in our complementary solutions business with a 3% increase in revenue this quarter and a 4% increase on a non-GAAP basis. As I mentioned in the press release, our sales teams again had a very solid quarter as they booked the fifth largest sales quarter in the history of the company.

We inked six competitive core takeaways and 12 deals to move existing in-house customers to our private cloud environment. On previous calls, I highlighted the fact that our competitive core signings have slowed a bit as a result of the pandemic, and that was also true in Q2. With that in mind, you may ask how it was possible for us to book the fifth largest quarter in history with less than the new core win category. Of course, this happens because the sales teams have had tremendous success with our broad suite of complementary offerings, including digital, fraud, and payment solutions. During the quarter, we signed 61 new clients to our Banno Digital suite, six new clients on our treasury management platform, and 11 new clients on our card processing solution. Of course, all of these contracts represent new revenue to Jack Henry.

As I mentioned last quarter, we continue to implement more than 30 new financial institution clients every month on our Banno Digital platform. As of February 1st, we now have more than 4 million users on the platform, 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, and we are continuing to receive accolades as the fastest application in the industry. If you combine our inroads in the digital banking space with our ongoing success with digital lending and digital account opening, we see great things ahead for Jack Henry as a leader in this area. Regarding our new card processing platform, as of the end of December, we have successfully completed the migration of all of our core clients and many of our non-core clients.

We will complete all of the migrations next month, as previously announced. You will start to see the larger positive impact on our financials in the fourth fiscal quarter, as we have emphasized throughout the project. I'm very proud of our team and thankful to our partners and clients for working with us to achieve such a successful outcome. Recently, the Federal Reserve announced that its FedNow team has been working closely with a few companies over the past year to help them design and develop the FedNow network. We have been very active with the FedNow team for more than a year, and we're excited to participate in their pilot program. We look forward to bringing many financial institutions live through our payments hub, which we have branded Jack Henry PayCenter.

As I've discussed previously, our PayCenter solution was designed to provide connectivity through a single platform to multiple real-time payments providers, which facilitates a more logical and efficient approach for our clients than any other processor in the market today. Additionally, it allows us to connect clients to the real-time payments network in groups rather than one at a time, which is a significant enhancement over any other offering in the industry. In addition to working with the Fed on the FedNow program, many of you know that we have also been very involved in the rollout of the PPP program through the first two rounds last year and the latest round earlier this year.

We are currently working with many of our financial institution clients to help submit and process thousands of PPP loans with their current pipeline totaling almost $1 billion in loans to small businesses around the country. Hopefully, many of you noticed that we released our first corporate sustainability report on December 31st. Although I'm very proud of the report and its contents, I think it's important to note that Jack Henry has practiced the concepts of corporate responsibility since our founding. This report is our way of summarizing the standards and practices we've been dedicated to for more than 40 years and which are evident every day as we strive in all cases to adhere to our guiding principle of doing the right thing. In the report, we discuss our commitments to our five key stakeholders: our employees, customers, stockholders, communities, and the environment.

Our investment in corporate responsibility is embodied through our commitment to enabling our associates to engage in meaningful work that they love, providing innovative financial solutions to our customers to support responsible business decisions and keep their clients connected, delivering a strong return on investment to our stockholders while maintaining long-term sustainability for our business model, encouraging our communities to flourish by connecting people with technology, and pursuing environmentally friendly practices to support a strong future for us all. In January, Cornerstone Advisors published the results of their annual survey of bank and credit union executives. According to that study, 73% of banks in our target market expect to increase their technology spending as they rebound from the pandemic in 2021, with 22% of them indicating an increase of greater than 10% year over year.

This correlates with the information we're receiving from other sources, which puts the average expected increase in tech spending for 2021 in our market at around 5%. I think that pent-up demand is reflected in the continued influx of RFPs we're receiving and the ongoing interest in Jack Henry technology solutions. As we begin the second half of our fiscal year, our sales pipeline is very robust, and we continue to be optimistic about the strength of our technology solutions, our ability to deliver outstanding service to our customers, our ability to expand our customer relationships, the spending environment, and our long-term prospects for success. With that, I'll turn it over to Kevin for some detail on the numbers.

Kevin Williams (CFO and Treasurer)

Thanks, Dave. Our service support revenue line of revenue decreased 2% in the second quarter of fiscal 2021 compared to the same quarter a year ago. However, adjusting service and support revenue for the deconversion fees of $2.1 million in the current quarter and deconversion fees of $7.7 million and incentives of $1.2 million in the prior fiscal year quarter, this revenue line would have grown 2% for the quarter compared to the previous year. Service and support revenue primary driver was data processing and hosting fees in our private cloud, which continues to show very strong growth in the quarter compared to the previous year.

However, the growth in that line was totally offset by a decrease in our product delivery and services revenue, which was due to decreased license, hardware, and implementation revenue for primarily on-premise customers, pass-through revenue, which is related to our billable travel, primarily related to travel limitations related to COVID, and our Jack Henry Annual Conference, or our JAC, which was held virtually and therefore no registration fees for customers or vendors for our tech fair, and then, obviously, as mentioned, deconversion fee revenue for the quarter compared to the prior year, which is all those lines were a decrease. Processing revenue increased 5% in the second quarter of fiscal 2021 compared to the same quarter last fiscal year. This increase was primarily driven by higher card volumes from new customers installed last year and increased debit card usage from existing customers.

Jack Henry Digital revenue experienced the highest percentage of growth of all revenue lines in both Q2 and year-to-date this year compared to the same periods last year. Our total revenue was up 1% for the quarter, Dave mentioned, compared to last year on a GAAP basis and was up a little over 2% on a non-GAAP basis, excluding the impact of deconversion fees and revenue from divestitures. Our cost of revenue was up 3% compared to last year's second quarter. This increase was primarily due to higher costs associated with our card processing platform and higher personnel costs related to increased headcount at December 31st compared to a year-ago quarter. The increase in costs was partially offset by travel expense savings as a result, again, of COVID travel limitations. Our research and development expense decreased 1% for the quarter compared to last year.

This decrease was due primarily to a slightly higher percentage of our overall costs being capitalized for product development this quarter compared to a year ago. Our SG&A expense decreased 10% in the second quarter of fiscal 2021 over the same quarter in the prior fiscal year. This decrease was primarily almost completely due to travel-related expense savings as a result of COVID-19, which required us to hold our JAC virtual this year, as previously mentioned, and also due to the gain on disposal of assets in this quarter of this year. Our reported consolidated operating margins decreased slightly from 22.4% last year to 22.2%, which is primarily due to the various revenue headwinds already discussed and our increased cost. On a non-GAAP basis, our operating margins increased from 21.1% last year to 21.3% this year, primarily due to the items already mentioned.

Our payment segment margins continue to be impacted by the additional costs related to our card processing platform migration, as Dave mentioned, as he discussed in his opening comments. Our core segment operating margins increased slightly during the quarter compared to last year on both a GAAP and non-GAAP basis, while complementary segment margins decreased slightly on a GAAP basis but improved on a non-GAAP basis compared to last year. The effective tax rate for the quarter was essentially flat at 23.1% this year compared to 23.2% last year, and our net income was $72 million for the second quarter compared to $72.1 million last year, with earnings per share of $0.94 in both quarters. For cash flow, our total amortization increased 4% year-to-date compared to last year due to capitalized projects being placed into service in the past.

Included in the total amortization is amortization of intangibles related to acquisitions, which decreased to $8.9 million year-to-date this fiscal year compared to $10.5 million last year. Our depreciation was up 5% year-to-date, primarily due to CapEx in the previous year and those assets being placed into service. We purchased 675,000 shares of Jack Henry stock year-to-date for $110 million, and we've paid dividends of $65.5 million for a total return to shareholders of $175.5 million year-to-date. Our operating cash flow was $194 million for the first six months of the fiscal year, which is down a little from $215 million last fiscal year. We invested $76.6 million back into our company through CapEx and capitalized software. And our free cash flow, which is operating cash flow, less CapEx, and less Cap software, and then adding back net proceeds from disposal of assets, was $163.8 million year-to-date.

A couple of comments on our balance sheet as of December 31st. Our cash position is still in very good shape at $147.8 million, down a little from $213 million June 30th due to the previous items discussed. There is nothing drawn on revolver, which has a maximum capacity of $700 million, so we've got a lot of dry powder, and we had no other long-term debt on our balance sheet other than the capitalized operating leases. In the press release yesterday, we confirmed both GAAP and non-GAAP revenue guidance yesterday, and they were basically guided as previously in line. However, 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 or the economy stalls or actually reverses, then this guidance will be revised. Also, I'd like to emphasize that in our GAAP guidance, we continue to forecast revenue from deconversion fees for FY21 will be down approximately $33 million from what we saw in FY20. We have seen a $14.6 million decrease in the first half of the year alone, and we will see a significant decrease in Q3, as that was the largest quarter for deconversion revenue last fiscal year and the largest increase year-over-year. We see little to no current M&A activity that would drive deconversion revenue at this point, which in the short term, as Dave mentioned, will hurt revenue growth.

But in the long term, as we have always said, we don't like deconversion revenue because we would much rather keep the customer and the revenue for the long term. This means, based on the GAAP revenue guidance provided in the press release impacted by the decreased deconversion fees, we continue to look at a GAAP revenue growth of 3%-4% plus. The adjustments between GAAP and non-GAAP revenue guidance for FY21 is the decrease in deconversion fees compared to the previous year and the small revenue impact from the Cruise divestiture in Q2 that was removed from FY20 for comparison to FY21. For non-GAAP revenue guidance, it has not changed from Q1. The difference is all deconversion fees and revenue from the divestiture.

We anticipate GAAP operating margins for the full year of FY21 to be down just slightly at about 22% from last year for all the reasons previously mentioned, and our non-GAAP margins to actually improve slightly compared to last year for the entire fiscal year. Our effective tax rate for FY21 should be in line with FY20 at around 22%. And with the significant headwinds created by the projected significant decrease in deconversion revenue in our third fiscal quarter, we are guiding Q3 EPS to be $0.83-$0.87, which I believe is generally in line with the current consensus.

However, we have increased our full-year EPS guidance for FY21, which we provided last quarter, to be in the range of $3.75-$3.80, and we are now updating our EPS guidance for FY21 to the range of $3.85-$3.90 with no change to our projected impact or a decrease in deconversion fees. The increase in guidance is primarily due to expense control, margin improvement for the year, and continued improved efficiencies. This concludes our opening comments. We are now ready to take questions. Jay, will you please open the call lines up for questions?

Operator (participant)

Thank you. And as a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. And if you would like to withdraw your question, please press the pound key. Our first question comes from the line of Kartik Mehta from Northcoast Research. Your line is open.

Kartik Mehta (Executive Managing Director and Director of Research)

Hey, good morning, Kevin and Dave. Hey, Kevin, I apologize. Could you just walk through the revenue guidance part again? I'm just trying to understand maybe what was in the press release this time versus what you guided last time. I thought there was about a $30 million difference, but I just wanted to make sure I understood.

Kevin Williams (CFO and Treasurer)

So, Karthik, I mean, so the GAAP guidance that we're providing is $1.76 billion-$1.77 billion, and basically, you take the $30 million decrease in deconversion fees out, and that's how you get to the $1.73 billion-$1.74 billion. Obviously, there's a lot of other moving parts and rounding and different things in there, but by the time you get everything adjusted and the rounding taken into effect, which obviously takes a pretty significant spreadsheet, you're still looking at the 6%-6.5% non-GAAP revenue growth over last year's adjusted number.

Kartik Mehta (Executive Managing Director and Director of Research)

The $173 million-$174 million is the non-GAAP revenue that you're guiding to then?

Kevin Williams (CFO and Treasurer)

Yes.

Kartik Mehta (Executive Managing Director and Director of Research)

Okay. And then, Dave, I'm just wondering, as you look at your migration platform and demand from your banks, I know in the past you had said that you thought there would be demand for your banks to get into the credit card business. I'm wondering where that stands now and if you're seeing that come to fruition.

David Foss (President and CEO)

Yeah, Kartik, I won't say we never said that we expected it to be a huge demand, but we certainly are continuing to see demand. We've signed five so far, brand new credit card customers so far this year. We had kind of, and I've talked about this on previous calls, we kind of kept the brakes a little bit on credit because we wanted to successfully complete the debit side of the conversion and didn't want our implementation teams to be focusing on trying to add new credit customers because that's a separate, different implementation. So we've had the brakes on a little bit on the sales side and the credit side, but there is demand there. We expect to see demand going forward, but again, it won't be - we don't expect to be a major issuer in the future, but we certainly are seeing demand from our customers.

Kartik Mehta (Executive Managing Director and Director of Research)

And then just one last question, Dave. What are your customers doing about or trying to do about some of the fintech competition they have, whether it be Chime or any of these other guys? Are you seeing demand for different types of products, or how concerned are your customers about those fintech competitors?

David Foss (President and CEO)

Yeah, well, there's a few different aspects to that question. So first, there are some that are trying to figure out whether or not the neobanks are truly competitors or not. Oftentimes, the neobanks are attracting the customer who's looking for free. And our customers, like any customer, have trouble making money on free, so sometimes they're not terribly distressed if some of those customers leave to go to somebody like Chime. I think that explains why these neobanks aren't making any money. But that's the short-term view, and if you take a long-term view, are they going to attract the customer and then build on that customer for the long term? So a lot of our customers are trying to figure out how to compete in that space. Many of them have launched digital-only banks, digital-only brands, and of course, we support that.

We've talked about that on the call before, where we're hosting a separate brand in our Jack Henry Private Cloud, a separate processing environment, separate marketing by the bank to make sure that they have an opportunity to attract those customers. The other approach that some banks are taking is trying to figure out how to partner more closely with fintechs, so not necessarily with a neobank, but with other fintechs to enable the same type of, we'll say, cool experience, make sure that they're providing that connectivity. And of course, as I've discussed many times on this call, Jack Henry is very supportive of that environment where we provide the hooks, provide the connectivity for fintechs to connect into our infrastructure and help our banks achieve success that way. So it depends on the bank. You have some who maybe put their head in the sand a little bit.

You have others who are being aggressive about launching digital-only banks, and then you have some that are working with fintechs to create a whole new experience in some other way. And it just depends on the profile of the bank and their feeling of the competitive nature of those players.

Kartik Mehta (Executive Managing Director and Director of Research)

Thanks, Dave. I appreciate it.

Operator (participant)

Thank you. Next question comes from the line of Peter Heckmann from D.A. Davidson. Your line is open.

Carson Krigbaum (Registered Client Service Associate)

Good morning. This is Carson on for Pete. Just one quick question. I believe you had previously said that the company expects to recognize around $16 million reduction in annualized direct costs of revenue as the legacy debit processing platforms are shut down, with perhaps 30%-40% of this showing up in fiscal 2021. Is this still about right?

Kevin Williams (CFO and Treasurer)

I don't know that 30% or 40%. It was because that was kind of the guide we gave before we moved everything out a quarter. So it's probably going to be a little less than that that we see the impact in Q4 because remember, that number that we gave was a full-year annual cost saving. So we're probably going to see more like 15%-20% of it in this year, and then we'll see the full amount in FY22.

Carson Krigbaum (Registered Client Service Associate)

Gotcha. Thank you.

Kevin Williams (CFO and Treasurer)

Yep.

Operator (participant)

Thank you. Next question comes from the line of [Steve Comery] from [G. Research] Your line is open.

Hey, good morning. Wanted to ask about sort of the dichotomy between core demand and complementary demand as far as what's holding back demand on the core side and what's driving it on the complementary side.

David Foss (President and CEO)

Sure. So the biggest thing with core, if you think about a core replacement, anybody who makes that decision, the thing I say all the time is if you're the CEO of a bank or credit union, when you decide to make a core replacement, that's the most difficult technology decision you will ever make in your role as the CEO of a bank or credit union because when you replace the core, it touches everything, right? You're replacing the entire guts of your processing operation. And so in this environment, the pandemic environment where everybody had people working from home, that type of decision and that type of disruptive move was a little bit challenging for a lot of CEOs to make that move.

But they still wanted to offer innovative new technology, and they needed to take care of their customers, particularly because all of their consumers were living and working from home and expected to have an outstanding digital experience. So they needed to continue to implement these smaller point solutions, complementary solutions to augment the services that they provide to their consumers and that they provide internally to their employees, and so that's where we have this broad suite of complementary solutions, and I highlighted a few of them on the call today. That's where a lot of those things have really stepped up, particularly around digital, so there's digital banking, which we used to call online banking and mobile banking. There's digital lending. There's digital account origination. All those things have been hot commodities here lately because of that move to remote work.

Kevin Williams (CFO and Treasurer)

And one other thing I'd throw out there is there's roughly 11,000 banks and credit unions in the United States, and a very small percentage of those actually go through a core system evaluation on an annual basis. But a very high percentage of that 11,000 FIs need to upgrade their digital or other things, as Dave mentioned. So I think that's a big driver or big difference in the two.

Okay. Yeah. So I mean, should I read that as there is some degree of pent-up core demand just from companies not doing evaluations this year and not executing on them?

David Foss (President and CEO)

Yeah. Yeah, so on the, I think it was the August call, no, the November call, I highlighted there that the RFP pace for new core deals had really started to pick up, and so you're absolutely right. There is pent-up demand. People just kind of put a stop on it, but they still need to upgrade their infrastructure, so we saw RFPs start to pick up in the late fall, I'll say. I highlighted it on the November call, and that's absolutely true today, so we are today, if you look at our sales pipeline today, it is as full as it was, we'll say, 18 months ago, so 18 months ago, let me back up a second. We normally think in terms, as we run the business, the sales pipeline, you want to have about 90% of the annual quota for the company.

And any given day, the sales pipeline should be at about 90% of the full year's quota because some deals aren't going to happen, and some will happen, and so on. And we're back to that level now, so we're almost about 90% of our annual quota is in the pipeline today, and that's why I say the engine is running again where core demand is picked up, and that's part of the reason that I'm pretty optimistic about our opportunity for sales success going forward.

Okay. And then maybe just finally, is the trigger for actually executing on these core contracts or starting implementations, is the trigger people actually coming back into the office, or is there sort of a different trigger where banks sort of lap the credit risk?

No, yeah, it's not necessarily them coming back into the office. I think we're to the point today where all of our banks and credit unions have figured out their operating model, so they have people in the office. They have people working remote. I don't know of any of them that have gone back to 100% in-office. They've figured out their operating model, and so I don't expect, I'll say ever, maybe that's too dramatic, but I don't expect ever to get back to our operating model for banks and credit unions to be like it was two years ago. They'll have a remote workforce going forward just like we will. So that is not the trigger. I think now it's them understanding how to run the business with a combination of in-office and remote, and they recognize they need to do a technology upgrade.

Okay, now let's get down to business and make that decision and move forward with the technology upgrade. And then we can do core conversions 100% remote now. I highlighted it in my opening comments here. We're doing 100% remote conversions. Most banks and credit unions don't particularly like that. They prefer to have at least a few people on site, but we're fully capable of doing that.

Okay. Thank you.

Sure.

Operator (participant)

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

John Davis (Managing Director)

Hey, good morning, guys. Kevin, I appreciate the comments on the 3Q EPS guide. Obviously, your full-year guide implies roughly 8% non-GAAP growth, revenue growth in the back half of the year. Any help there? How would you think about that sequentially, 3Q versus 4Q?

Kevin Williams (CFO and Treasurer)

Well, I mean, there's obviously a lot of conversions that are going to be happening. Some of those were pushed out from the first half, JD. Obviously, the payment engine is really picking up pace. The digital continues to grow very nicely. Plus, especially on the payment side, Q4 is going to be a little easy comp compared to last year because of the impact of COVID last year. So I mean, it's a combination of things. There's not just one thing I'd really point to, JD, but I mean, we have monthly calls with all of our VPs and senior VPs, Dave and I do, and I can assure you that, in fact, we had one just earlier this week or last week, and they all still feel very, very good about the forecast and the guidance that we're giving out there for the balance of this fiscal year.

John Davis (Managing Director)

Okay, but I would assume that all else equal, you're going to have stronger growth in 4Q just given the easier comp, so it kind of builds sequentially.

Kevin Williams (CFO and Treasurer)

Absolutely. I mean, non-GAAP is going to grow faster in Q4 than Q3, and GAAP definitely because, like I mentioned in my opening comments, the deconversion impact on Q3 is just huge compared to last year.

John Davis (Managing Director)

Okay. No, that's fair. And you touched on it a little bit. I just wanted to focus in on payments in the quarter for a second. Maybe talk a little bit about the pieces. How's bill pay doing? I assume some of the weakness in the scores just from lower transactions, but maybe if you kind of normalized for transactions, what payments would have grown, just trying to understand kind of the pieces there and how we should think about that as the economy recovers.

David Foss (President and CEO)

Yeah. So you're absolutely right on. So overall, transaction count in the payments business is up around 11% year over year for the same quarter. So payments volume is back as far as I'm concerned, but it is bill pay that is kind of the laggard. So bill pay is only up about 2% year over year. It's a very mature business, just not growing very fast, and we are continuing to add customers, but nowhere near the pace that we were several years ago. So between the card platform and then don't forget our ACH origination platform, that continues to grow. With real-time payments and all the fun stuff we're doing there, people tend to think of ACH as being old, and of course, it has been around for a long time, but it still grows rapidly.

There is still a lot of volume going through that platform as well. So between our ACH origination platform and the card platform, growth is back, I guess I'll put it that way.

John Davis (Managing Director)

Okay, and I think pre-pandemic, you guys had talked about approaching double-digit growth in payments. Is there any reason why once everything comes back and normalizes for the pandemic, that's not still on the table?

Kevin Williams (CFO and Treasurer)

I mean, yeah, JD, I mean, we talked about that, and I think that's still an extreme possibility. But again, like I said in my own comments, as long as the economy continues to open up and pick up and goes forward with some of the new wins that we're having on both debit and credit and even on our bill pay and direct bill pay, I think payments could get back close if not to double-digit growth.

John Davis (Managing Director)

Okay. Thanks. And last one for me, Kevin, the margin was obviously quite a bit better this quarter. The margin guide, I guess the implied guide, would assume that maybe not all of this is sustainable considering you get 90 basis points in 4Q from the payments platform migration. So just trying to think about, is there a potential upside of the margin or you guys, was there anything specific in this quarter that's more kind of one-time-ish, any changes to the, call it, 50 to 75 basis points of kind of normalized operating leverage once we kind of get to the other side of the pandemic and the payments platform migration?

Kevin Williams (CFO and Treasurer)

Yeah, JD. So that's a good question. Obviously, there's a lot of moving parts and a lot of strange things going on in our financials right now. Is there some potential upside for Q4? Absolutely. But when you look at Q3, I mean, some of the big savings we got were definitely travel-related because our people just aren't moving because of restrictions and different things. But that also impacts revenue. So as I said in my opening comments, I mean, licensed hardware, implementation, billable travel is all down. And so when we do get to start traveling again and travel expense will go up and our salespeople are starting to get out there and move a little bit and some of our installs are moving a little bit more. So our travel costs are going to go up. Yes, some of that's billable, which also increased revenue.

But remember that in our business, the revenue is all kind of delayed. So even though our travel expenses may go up and other costs go up, the revenue related to that travel is probably not going to happen for a quarter or more. So there's potential for some negative impact on the margin in the short term, but it's going to drag along all that revenue. So you're absolutely right. There is some potential upside for margin in Q4. And once we get past this and into more of a regular cadence, I think we can go right back into that regular margin expansion that we've seen historically.

John Davis (Managing Director)

Okay. All right. Thanks, guys.

Kevin Williams (CFO and Treasurer)

Thanks, JD.

Operator (participant)

Thank you. Next question comes from the line of Nik Cremo from Credit Suisse. Your line is open.

Nik Cremo (Lead Equity Reasearch Analyst)

Thanks, guys. I just wanted to follow up on the core segment. I mean, just given the RFP pipeline strength that you guys have been calling out since last summer into the fall and this quarter, I mean, should we start to see an inflection back towards pre-COVID levels of new core wins in the core segment starting in the back half of 2021 or early 2022? And then just as my follow-up, how should we think about the impacts of the core segment's growth next year, just given the relatively lower level of new wins since COVID began?

David Foss (President and CEO)

Yeah. That's a $1,000 question you've asked there about what to expect. The best guidance I can give you there is that the pipeline, the incoming pipeline as far as the deal volume that we're working today is back to the level that it was pre-pandemic. Now, can I predict exactly when things will sign and close? It's more art than science when it comes to timing on those things. But if we assume that we'll win at the same rate that we were winning pre-pandemic and we know that the pipeline is at about the same level as it was pre-pandemic, logically, we can assume, I think, that sometime later this calendar year, the rate of wins will be similar to what we were experiencing pre-pandemic.

The thing to keep in mind is once we sign a new core deal, the revenue doesn't hit the P&L. The majority of the revenue doesn't hit the P&L, oftentimes for at least a year afterwards. Once we start a conversion, that conversion is a major impact to the financial institution, as I was highlighting earlier. Some people call it rip and replace where you're taking everything out and replacing it with a brand new system. That takes many months of planning and operation to get that conversion completed. The revenue, the big chunk of revenue normally follows oftentimes a year after we've signed the contract or announced a win.

Nik Cremo (Lead Equity Reasearch Analyst)

Understood. Great. Thanks for the color.

Kevin Williams (CFO and Treasurer)

Sure.

Operator (participant)

Thank you. Once again, if you would like to ask a question, please press star one. Next question comes from the line of Ken Suchoski of Autonomous Research. Your line is open.

Ken Suchoski (Research Equity Analyst)

Hey, thanks, Kevin and Dave, for taking the question. I really appreciate it. I was just wondering if you could talk about how you expect your new sales to trend as the economy reopens. It looks like the sales pipeline is quite strong, and I was just curious if you expect that to accelerate as you get back into seeing these customers in person. So any expectation there would be really helpful.

David Foss (President and CEO)

Yeah, it's a good question. As I highlighted in my opening comments, the quarter we just finished was the fifth largest sales booking quarter we've ever had in the history of the company. Well, that's pretty good. So saying that I expect it to accelerate significantly probably isn't a reasonable position to take. But what I do expect, as we just talked about in the last question, is more on the core signing side. I expect as we go forward that we'll start to see more on the core signing side. The thing that'll be interesting to watch is, can we sustain the pace that we've seen on the complementary side? Because if we can increase core bookings and sustain the complementary bookings, that's significant. That's meaningful. I'm not ready to say that that's achievable, but that'll certainly be our objective.

I think we have the opportunity to do that because we're getting all of this great recognition for some of this wonderful technology that we've been rolling out here, particularly in the area of digital. We'll have to see how that goes as time goes forward, but that's my hope.

Ken Suchoski (Research Equity Analyst)

That's helpful. And I guess just a longer-term margin question. I mean, it looks like your margins have declined versus where they were maybe six, seven years ago. I mean, can you just talk about the main drivers of that? And is there an opportunity to get those margins back to those levels or even above those levels?

Kevin Williams (CFO and Treasurer)

Yeah. So the big thing, I mean, if you're going to go back six or seven years, and you really can't go back that far because you can really only go back to 2017 because when we restated for ASC 606, that was the farthest back we went. So you really can't look beyond that and get a true comparison of margins because ASC 606 definitely changed how we recognize revenue and had a significant impact on margins. But from 2017 forward, the primary impact on our margins has been two things. One, the migration to the new card platform has increased our cost because we haven't been able to reduce any costs until we get through the migration, which, as Dave said in his opening comments, is going to be complete at the end of March. So we will start to see that cost savings.

We'll see a nice rebound in margins in Q4 and then a full year of that cost reduction in FY22. The other thing that's happened since 2017 is we have literally sold no new core business. So there's been virtually no new core license revenue, which is very high-margin business happening in the last three or four years. I mean, on the bank side, I think we've sold maybe three or four in-house deals since 2017. On the credit union side, not very many more than that. And most of those were smaller bank deals for our Core Director solution. So those are the two primary drivers that's caused that margin to come down. Now, what's going to happen is, like I said, you'll see margin improve in Q4. We'll continue to see it improve in the following year.

We have gone through the transition of getting, I mean, our license and hardware revenue is now a very small percentage of our total revenue, so very little impact from that. So as we continue to migrate our on-prem customers to our private cloud and continue to sell additional card business, and our card and our private cloud business continues to become a much larger percentage of our total revenue, that's very high-margin business. Our margins will continue to improve and get back to the historical rates in FY23 and beyond.

Ken Suchoski (Research Equity Analyst)

Thank you. That makes a lot of sense. And if I could just squeeze one last one here, just that divestiture, what was the revenue impact in the base year that you're assuming for the full year? I know you gave it for the three months and the six months, but just curious what the full year impact was.

Kevin Williams (CFO and Treasurer)

So the revenue for the core business, that's really what we sold was the core business of Cruise, which was 140 very small credit unions that we divested October 1st. And the quarterly revenue from that was right at $1.2 million, just like represented in the press release this quarter. So the total for this fiscal year on the GAAP to non-GAAP adjustment will be just under $3.7 million for the three quarters in this fiscal year.

Ken Suchoski (Research Equity Analyst)

Okay. Really helpful. Thanks a lot. Appreciate it.

Kevin Williams (CFO and Treasurer)

You bet, Jen.

Operator (participant)

Thank you. Once again, if you would like to ask a question, please press star one. There are no further questions at this time. I would like to turn the call back over to Kevin for closing remarks.

Kevin Williams (CFO and Treasurer)

Thanks, Jay. First of all, I want to let everybody know that we are planning an Analyst Day this spring. The virtual event, again, it will be held virtual, is planned to be held on Tuesday, May 11th. So please mark your calendars to save the date. We will be sending out an invitation with a schedule of events, timing, and an online registration soon. And it will be sent to individuals. Please don't share it because we want to know who's actually attending this virtual event. But please be looking for this invite in your email inbox in the near future. Now, to wrap up the call, we are very 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 continuing to work hard to improve our company on so many fronts for the future. All of us at Jack Henry continue to focus on what is best for our customers and our shareholders. With that, I want to thank you again for joining us today, and Jay, if you would please provide the replay number, I'd appreciate it.

Operator (participant)

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