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Jack Henry & Associates (NASDAQ:JKHY)
Q4 2019 Earnings Call
Aug 21, 2019, 8:45 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to Jack Henry & Associates fourth quarter and fiscal-year 2019 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. Kevin Williams, chief financial officer.

Sir, you may begin.

Kevin Williams -- Chief Financial Officer

Thanks, Brian. Good morning. Thank you for joining us for the Jack Henry & Associates fourth quarter and fiscal year-end 2019 earnings call. I am Kevin Williams, CFO and treasurer, and on the call with me today is David Foss, president and CEO of Jack Henry.

In just a minute, I'll turn the call over to Dave to provide some of his thoughts about the state of our business, the performance of the quarter, and then I will provide some additional thoughts and comments regarding the press release we put out yesterday after market close. I'll provide guidance for FY '20, and then we'll open the lines up for Q&A. First, I need to remind you, the remarks and responses to questions concerning future expectations, events, objectives, strategies, trends or results, constitute forward-looking statements or deal with expectation about the future. Like any statement about the future, these are subject to a number of factors, which could cause actual results or events to differ materially from those which we anticipate due to a number of risks and uncertainties.

And 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. With that, I'll now turn the call over to Dave.

David Foss -- President and Chief Executive Officer

Thank you, Kevin, and good morning, everyone. We're once again 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 that went into producing those results for our fourth quarter and for the entire fiscal year. As we've discussed throughout the fiscal year, the changes associated with ASC 606 introduced some lumpiness in the financials for the year, but if you look at our annualized numbers, we posted a very solid financial performance.

For fiscal-year 2019, revenue was up 6% and was up right in line with our guidance of 7% if you account for the significant decline in deconversion fees in FY '19 as compared to the prior year. The core segment of our business saw a revenue increase of 5% for the year as compared to fiscal-year 2018, and an increase of 6% if you exclude the impact of deconversion fees from both years. Our payment segment performed well, posting an 8% increase in revenue for the year and a 9% increase excluding the impact of deconversion fees from both years. Our complementary solutions businesses posted a 6% increase in revenue in fiscal-year '19 and a 7% increase excluding the impact of deconversion fees from both years.

As I mentioned in the press release, our sales teams again had an extremely solid quarter in Q4. We booked 15 new core wins in the quarter, with all of them as competitive core takeaways, bringing us to 57 new core clients signed in the fiscal year. Additionally, we booked 25 in-house to outsourcing deals in the quarter, and we signed 17 new customers to our new debit processing solution. With all of that success though, the traction we're getting with our Banno Digital Suite is possibly most notable.

We signed 41 clients to the full suite in the quarter, bringing our total to 122 for the full year. The combined sales organization exceeded quota again this quarter and continues to manage a solid pipeline as we head into fiscal-year '20. Jack Henry's full suite of modern, cloud-enabled solutions continue to position us well to win share in the market. Regarding our new debit and credit processing solution, we now have 509 customers live on the platform, including 44 debit customers installed as new rather than migrated.

We also have nine new credit customers live on the platform. We have now migrated more than half our existing core customers, and we're still on track to complete our core customer migrations by the end of fiscal 2020. As we discussed on the last call, we expect our noncore clients will extend our migration date until November of 2020 because of the extra programming and testing effort required for those noncore customers. On July 1, we announced the acquisition of Geezeo, a best-of-breed personal financial management and analytics company based just outside of Boston.

The deal happened just after the close of our fiscal year so it has no impact in FY '19, but it's a terrific, strategic acquisition for us to start the new year. As you may have read, we've known the Geezeo team for many years and had recently partnered with them, so we understand their technology well. They have already done a good portion of the integration work required with our Banno Digital Suite, so we've hit the ground running on this deal. This technology continues to move us forward toward our goal of offering the most robust digital banking suite in the industry, including PFM, personal financial management, and deep analytics for the consumers who bank with our financial institutions.

Overall, this was a very good year for our company. Our employee engagement and customer satisfaction scores remain very high. Our sales teams are performing extremely well and have positioned us for another successful year of selling, and overall demand for Jack Henry technology solutions remains very high in all segments of our business. As we begin the new fiscal year, I continue to be very optimistic about our future.

With that, I'll turn it over to Kevin for some detail on the numbers.

Kevin Williams -- Chief Financial Officer

Thanks, Dave. The services and support line of revenue increased 2% compared to the prior year's restated quarter. Remember, prior year numbers are restated for ASC 606, the new revenue recognition rules. Our license, hardware and implementation revenues were down $5.2 million in the quarter compared to last year, as we continue to have headwinds from decreased license and on-prem implementation revenue because of the fact that almost all of our new core installs are electing our private cloud model, which is good for us long term.

Our outsourcing and cloud services were up nicely to offset the decrease in license, hardware and implementation revenues, and our deconversion fees were up slightly compared to a year ago. The processing line of revenue, which is all of our transaction, remittance, card and digital, grew 7% compared to the prior year. Total revenue was up 4% for the quarter and up 6% for the year compared to last year, and on a non-GAAP basis, revenue was up 4% for the quarter and 7% for the year. Our reported consolidated operating margins were down from 22% last year to 20% this year primarily due to three headwind impacts: first, a significant decrease in our license revenue this quarter compared to a year ago, as license revenue is our highest margin revenue; second is the additional cost of processing our debit card customers' transactions until we can get them all migrated to the new platform; and then third is the additional cost for the employee pay per performance plans that are being funded with a portion of the savings from the Tax Cuts and Jobs Act, or the TCJA, that we talked about in the beginning of the fiscal year.

Our operating margins for the year were down from 24% last year to 22% this year for all the reasons just listed, plus the fact that our deconversion fees were down $15.9 million for the year compared to last year. So all in all, with all those headwinds, we feel very good about the operating margin we turned in for the year. Our segments operating margins continue to be very solid with small fluctuations. However, our payments segment will continue to have increased margin headwind going forward as the additional cost continues to increase as we migrate our existing customers to the new payments platform.

Our effective tax rate for the year was 23% this year compared to 19.6% last year. Remember, last year was low due to timing of tax benefits due to TCJA. For cash flow included in the total amortization, which is disclosed in the press release, is the amortization of intangibles related to acquisitions, which increased to $20.8 million year-to-date this fiscal year compared to $18 million last year. Depreciation was up slightly for the quarter -- or I'm sorry, was down slightly for the quarter, and non-acquisition amortization was up due to more of our internally developed products being put into production.

Our operating cash flows were $431.1 million for the year, which was up 5% compared to last year. And we invested $176.8 million back into our company through capex and development products, which is up from $149.9 million a year ago, with much of the increase in capex related to data center upgrades back in Q1 that we've talked about on previous calls. Our free cash flow was $260.5 million or 96% conversion of net income for FY '19. For FY '20 guidance, as Dave mentioned, we're being very successful with new core wins.

But out of the 57 new core wins this year, all but four have elected to go with our private cloud delivery model. And with the continued migration of our existing in-house customers to our private cloud, it means continued decrease in license revenue and in-house implementation revenue. In fact, we believe this could be a revenue headwind of roughly $15 million next year compared to the year just completed. Currently, we are projecting deconversion fee revenue to be flat to slightly up in FY '20.

However, revenue from all of our processing customers will continue to grow very nicely. Therefore, our total revenue is projected to grow between 6.5% and 7% for FY '20. With the projected decreased license revenue and additional cost headwinds from our payments platform migrations, we project operating income will grow approximately 5% on a GAAP basis and closer to 6% on a non-GAAP basis for FY '20. We will continue to experience revenue and operating income fluctuations between our first quarter -- or fiscal quarters due to license, implementation and payment platform migrations and software subscription usage, which, again, is recognized in the first quarter of the year.

Operating income and margins will be highest in Q1 due to the software subscription revenue and then will drop off for the next three quarters, very similar to FY '19, due to ASC 606. We anticipate operating margins for FY '20 to be mostly in line with FY '19 at approximately 22% for the year. Our effective tax rate for FY '20 will be 23% to 23.5%, which is up from our actual effective tax rate of 21.7% for FY '19, due to some state tax benefits and other benefits that we got this year from stock -- restricted stock that we do not anticipate getting in FY '20. Having said all that, our projected FY '20 EPS is in the range of $3.60 to $3.64.

And remember, due to software subscription revenue recognition is a little front-end loaded, so EPS for Q1 FY '20 should be in the range of $1.02 to $1.05. Therefore, in summary, on a non-GAAP basis, revenue should grow 6.5% to 7%. Operating will grow approximately 5.5% to 6%. And with the expected higher tax rate, our EPS for the year will be $3.60 to $3.64.

As we discussed on the last call, we will not be finished with the migration to the new payment process platform by the end of June '20. As Dave mentioned, we are still on plan to have all of our core customers that we process through debit payments to be migrated by June '20 and all noncore customers to be moved by November 2020. However, these noncore customers are currently being processed on both platforms, and therefore, we will not be able to shut either platform down completely to recognize the significant reduction cost until the first half of 2021. We conservatively calculate a reduction of direct cost of revenue of over $16 million once we get the migrations complete, with approximately 30% of that savings that will be recognized by Q1 of FY '21, and the balance of the savings will be recognized by Q3 of FY '21.

We also anticipate cap software to be up a little FY '20 compared to FY '19. However, we expect capex to be down significantly from FY '19, which means our total cap spend will be down to allow more leverage of net income to free cash flow in FY '20 compared to FY '19. This concludes our opening comments. We are now ready to take questions.

Brian, will you please open the lines for questions?

Questions & Answers:


Operator

Yes, sir. Thank you. [Operator instructions] And our first question will come from the line of Vasu Govil with KBW. Your line is now open.

Vasu Govil -- KBW -- Analyst

Hi. Thanks for taking my question. I guess just first on the deconversion fees. You're sort of calling them out to be flat next year. To the extent that deconversion fees are sort of -- seem to be on a declining to flat trend, does that -- I mean, I'm assuming that means lower attrition in the business.

Does that start to help alleviate the overall growth rate at some point versus the historical 6% to 7%?

David Foss -- President and Chief Executive Officer

Well -- and this is Dave. I would say I don't know that it's going to accelerate significantly, and we have no control over deconversion fees. We've talked about it on prior calls. So that's all a function of when one of our customers is acquired by somebody else and other financial institutions, that's generally when they end up paying a deconversion fee.

Now if they're in-house, they may have no fees associated with that. But there are -- our cloud-hosted customer, that's when the deconversion fees kick in. So in theory, if there were no deconversion fees in the future, and at the same time, we're layering in new customers, then your point would be well made. But I don't know that, that's a reasonable expectation because there is -- there continues to be churn in the space, there continues to be mergers happening.

And again, we have no way to predict accurately what might happen, because it's just a function of when one of our customers decides they're going to sell their institution. So I wouldn't be comfortable making that assumption because I think one of the underlying conditions there would be that M&A would come to a stop. And that's just not going to happen, I think. We've seen a pace of about 4% per year for the last 30 years, and I believe that's going to continue going forward.

Kevin Williams -- Chief Financial Officer

However, if deconversion fees are flat, that means we are not losing any more customers than we lost this year. And based on our revenue models, which is based on the asset size or the number of accounts processed, then that should help to grow our business and not create a headwind.

David Foss -- President and Chief Executive Officer

Right.

Vasu Govil -- KBW -- Analyst

That's helpful. And then just, I guess, another quick one. The second half seems to have been considerably stronger in terms of core signings that you've announced. Anything you would attribute the strength to? I mean are you seeing an uptick in the overall demand in the market as banks catch up with the latest technology? Or do you think you may also be benefiting from perhaps your competitors being distracted with integrations?

David Foss -- President and Chief Executive Officer

I think it's too early to tie anything to our competitors being distracted, although I certainly hope that they will be distracted going forward. I think it really is a reflection of the recognition Jack Henry is getting. And this isn't new. I'd say over the past two years or three years now, I think the new technology solutions we've rolled out and the significant enhancements we've made to our core solutions within all of these other complementary solutions that we've rolled out, including treasury management and the new digital platform and all that, when you combine all of that, Jack Henry is getting a lot of recognition in our space for having leading technology.

I think that's what's driving that. And core signings, they kind of are a little -- they tend to be a little bit lumpy. I've said on many calls in the past, if you can do 10 new core signings in the quarter, that is very significant. We're on a pace here.

This past quarter, we did 15. The quarter before that, we did 18. I mean I don't see that slowing down. But again, the kind of -- the hurdle you should keep in mind is, 10 is significant for a quarter.

So I definitely see that continuing.

Vasu Govil -- KBW -- Analyst

If I could squeeze in a quick one for Kevin. Kevin, for 2020 guidance, you said 6.5% to 7% revenue growth. But then you said operating income growth would be lower at 5.5% to 6%, but margins would be flat. I just wanted to understand, if margins are flat, my operating income is not going in line with the revenue growth.

Kevin Williams -- Chief Financial Officer

Well, margins -- and that's on a non-GAAP basis. On a GAAP basis, margins will be down slightly, and that's where I said that our operating income will grow roughly 5%.

Vasu Govil -- KBW -- Analyst

Got it. Thank you very much.

Operator

Our next question will come from the line of David Togut with Evercore ISI. Your line is now open.

David Togut -- Evercore ISI -- Analyst

Thank you and good morning. Were there any major themes in the 15 new core wins in the quarter in terms of size of financial institution? You called out strength in treasury management. Any other major takeaways from the wins in the quarter?

David Foss -- President and Chief Executive Officer

No. I don't know that there were any themes in the quarter. I mean there were some nice sized wins. We featured one.

We featured Busey, for example, in a press release, a large multibillion-dollar institution. So I don't know that there were any themes. The one thing that I would emphasize again though, is this recognition we're getting for offering a very complete solution, particularly with the digital offering on the front end. I think a lot of core customers that we're talking to today are really recognizing that the Jack Henry Banno solution is an industry-leading digital solution, and so that is helping to influence some of these core decisions, without any doubt.

David Togut -- Evercore ISI -- Analyst

Understood. And then on the guidance, Kevin, you indicated 6.5% to 7% revenue growth for FY '20. Could you give us an indication of how that breaks down by each of your three segments?

Kevin Williams -- Chief Financial Officer

The three segments, I mean, obviously, all three of them should grow nicely. I mean core, it will be probably the biggest one, David. I mean it's probably going to grow in the 8% because of all the outsourcing activity we have going on. Payments should continue to grow nicely in the 6% to 7% range, and complementary should be right there at the 5% to 6% range.

So it's kind of blend together.

David Togut -- Evercore ISI -- Analyst

Thanks for that. And just a quick final question. You've indicated, Dave, that you have no need to really participate in industry consolidation, at least at the level that we've been seeing at this year. Any updated thoughts in that regard? And then are there any impacts, let's say, on sales cycles, closing rates? Obviously, it was a good quarter, but just maybe the tenor of conversations in the market as two of your major competitors have completed large acquisitions.

David Foss -- President and Chief Executive Officer

So no update as far as any plans that Jack Henry has to do a "transformational acquisition". Nothing changing there. And again, we don't have our head in the sand here. We're very aware of what's going on around this and very conscious of the decisions that are being made there.

But we don't see a need to do something, again, I use the word transformational pretty regularly. The topic certainly is coming up with prospects and customers out there. Generally, I would say the tenor is to Jack Henry's favor. The fact that we're very focused on being a provider to banks and credit unions in the United States and offer investors the technology solutions for those customers.

So I would say -- and again, it's early days, as I answered previously, I can't say there's distraction going on with our competitors or anything like that. But in early days, I would say that tone tends to be more favorable toward Jack Henry because we are so focused in our strategy, as opposed to any hand-wringing about -- concerns about our strategy.

Kevin Williams -- Chief Financial Officer

Yes. And the other thing, David, is obviously, we have our annual education conferences in the fall. And our Symitar Education Conference is next month, and we've already got record attendance signed up for it and also record prospects that are signed up to come to that. It's a little early to state what's going to happen at the Banking and ProfitStars conference, but I think that is an extremely good indication of all the activity that we have coming to our education conference.

David Togut -- Evercore ISI -- Analyst

Appreciate all the insights.

Operator

And our next question will come from the line of Peter Heckmann with D.A. Davidson. Your line is now open.

Peter Heckmann -- D.A. Davidson -- Analyst

Good morning, gentlemen. Thanks for taking the question. Can you talk about -- first, can we just go over for 2021, Kevin, your comments on the savings from eliminating the duplicate platforms and the number you provided as well as how you see that being realized over the first three quarters in the year?

Kevin Williams -- Chief Financial Officer

So Pete, what I said was we're going to have -- right now, we've identified a little over $16 million of direct costs that will come out of the business. 30% of that will be recognized by Q1 of FY '21, and the balance of that, the other 70% will be recognized by Q3 of that year. So it's pretty easy to do the math. I mean you're going to take out $4 million or so going into Q1, and you're going to take out the other $12 million or so going into Q3.

So we'll see the whole savings by Q3 of FY '21.

Peter Heckmann -- D.A. Davidson -- Analyst

Got it. Thank you. And then can you talk about -- just really good activity on the new business side. Can you talk about your capacity for implementations and how the backlog for converting new business looks? Is that getting extended at all?

David Foss -- President and Chief Executive Officer

Yes. No. So the good news is we're pretty flexible in our ability to absorb additional deals. We've been running at a pace -- a pretty significant sales pace here for quite some time, and it's been kind of slowly but surely escalating.

So we've been able to staff appropriately. We've seen, what I think, our sales team is doing an excellent job of forecasting for the operations side of the business, so we've been able to staff appropriately as we add these deals. So are there a couple of areas where there's maybe a little bit of a backlog pressure? Sure. But that's one of those things that you manage all the time in a business like this, trying to make sure that you don't overstaff and figure out, is that demand going to be continuing or is that just a blip? But I would say today, our ability to manage the backlog is everything's in hand and we have no major concerns there.

The other thing I'll point out, when it does come to us increasing staffing, and we've emphasized many times in the past, the fact that Jack Henry is constantly winning these Best Place to Work awards around the country, and the Glassdoor ratings that Jack Henry maintains, really gives us a leg-up when it comes to recruiting people in this essentially full employment environment that we live in today. We're having no challenges in recruiting because of that recognition. So I'm very comfortable that we're in a position where we can maintain the backlog at an appropriate rate and deliver successfully for our customers.

Peter Heckmann -- D.A. Davidson -- Analyst

Great. Great. And just one more maintenance item. Kevin, implicit in your revenue guidance for the year, should we assume that Geezeo is going to contribute maybe $5 million to $10 million of revenue?

Kevin Williams -- Chief Financial Officer

Yes. Geezeo is going to contribute somewhere around $9 million, Pete, and have virtually no impact on our operating income in FY '20. Obviously, there's a lot of integration efforts to get that in line, so there's not going to be a whole bunch of new revenue. However, I will say that having that and having that in our plan will help drive additional Banno sales.

Peter Heckmann -- D.A. Davidson -- Analyst

Got it. Thank you, Kevin.

Operator

And our next question will come from the line of Kartik Mehta with Northcoast Research. Your line is now open.

Kartik Mehta -- Northcoast Research -- Analyst

Hey. Good morning, Kevin and Dave. Kevin, I wanted to go back to the platform savings you talked about. Is $16 million the total amount of savings you anticipate? Or is that just the first part, and you're anticipating a lot more savings coming from platform -- new platform consolidation?

Kevin Williams -- Chief Financial Officer

Well, Kartik, that $16 million is what we have identified at this point. Do we think there's some additional leverage and additional opportunities? Absolutely. But that's what we've identified, and that's what I'm willing to state right now that will have an impact. And I mean having said that, I mean, if I was able to take $16 million out right now, then I'd be projecting operating income growth of 10% next year instead of 5% roughly.

So it sounds like a small number, but it's pretty significant.

Kartik Mehta -- Northcoast Research -- Analyst

Yes. I just wanted to make sure. Obviously, it sounds like there's other opportunities, but this is what you're willing to commit to at this point in time. Is that fair?

Kevin Williams -- Chief Financial Officer

Yes, that's fair.

Kartik Mehta -- Northcoast Research -- Analyst

OK. Dave, just as you talk to your customers and the banks, considering what's happened to the yield curve and maybe some of the net interest margin squeeze that they might -- are already seeing or anticipating, is that changing their behavior? Or are you seeing any difference in conversations with them about spending on technology?

David Foss -- President and Chief Executive Officer

It's a good question, Kartik, and it's a logical question because you would expect that would be happening. But it's actually the opposite. There is so much enthusiasm out there right now as we talk to customers about, first up, what Jack Henry is doing, enabling them with technology, but secondly, about the opportunities for them to grow their institutions. And yesterday, in American Banker, there was an article published about banker optimism.

And they quoted a survey they had just recently completed, banker optimism at the end of Q2 was higher than it's been in more than two years, and they said it was up significantly in the quarter as compared to the prior quarter. And so I'm not -- I don't exactly understand what's happening there, but I believe it because that's what we experience in the conversations that we're having with prospects and customers. They're really still maintaining this optimistic view about the future and their ability to grow their institution. And certainly, our sales pipelines haven't slowed down.

Even though we had a huge sales quarter in Q4, the pipeline continues to be very robust. And so there is still this optimism out there that seems a little counterintuitive, but it's definitely there.

Kartik Mehta -- Northcoast Research -- Analyst

And then, Kevin, could you -- would you be willing to put some dollars around your capex? You said it will be down significantly in FY '20 compared to FY '19, if I heard that right. If so, what's significant?

Kevin Williams -- Chief Financial Officer

Yes. I don't have that number right in front of me, Kartik. But what I said was our total cash spend, so cap, software, internal software development and capex, will all be down nicely in the next year compared to this year.

Kartik Mehta -- Northcoast Research -- Analyst

OK. Thanks. I appreciate it.

Operator

And our next question will come from the line of John Davis with Raymond James. Your line is now open.

John Davis -- Raymond James -- Analyst

Hey. Good morning, guys. Kevin, you mentioned that the in-house to outsourcing trend is definitely beneficial long term. Do you have an idea or can help us contextualize when that can flip from kind of being a revenue headwind to a revenue tailwind? Understanding that, obviously, given the upfront implementation and license revenue and return for revenue down the road, when you get a backlog, is it like -- when you go to '21, is it possible that becomes a tailwind instead of a headwind? Or is that some multiyear headwind?

Kevin Williams -- Chief Financial Officer

It's very possible we could have it in '21, John, because obviously, we're -- as I've said in my opening comments, we anticipate license and on-prem implementation to be down $15 million next year. So -- and that's going to get down pretty low to where it should not be much of a headwind anymore. And the fact that we have to defer the implementation revenues for all the outsourcing customers under the new rev rec rules means that, that will grow just like the outsourcing revenue grows, and we'll get that implementation revenue growing as well. So I'm not going to stand here and say it's going to be huge driver, but it will stop being a headwind and could actually help growth instead of go against it.

John Davis -- Raymond James -- Analyst

OK. And then I assume that would also help margins at the same time, right? So it would be -- that revenue headwind is also margin headwind, so that's going to be something else that will drive margins higher in '21, absent -- or outside of the payments platform winding down.

Kevin Williams -- Chief Financial Officer

Absolutely, John. Because obviously, our license revenue is essentially 100% margin. So if we can get license revenue to stop declining and just stay flat, then that in and of itself will be a benefit to our operating margins.

John Davis -- Raymond James -- Analyst

OK. And then, Dave, I just wanted to touch on -- you've been calling out for a few quarters now how well Banno has been doing. Maybe just talk a little bit about why it's winning in the market, what people love so much about it, and I guess, why they're picking Jack Henry and that product specifically. That would be helpful.

Thanks.

David Foss -- President and Chief Executive Officer

Sure. So that thing I think Banno was getting recognized for most significantly is the -- first off, the user experience, the design of the platform, the design of the user experience because, again, this is not only being used by people in the banks but primarily being used by their consumers. So the design, the user experience, intuitive design, those types of things. Now everybody says they have an intuitive design, but we are getting a lot of recognition from experts in the space, people who work at these banks and credit unions, who have been hired as the digital -- chief digital officer, they are people that are recognizing Banno, in particular, as being a best-in-breed solution.

But then I think the more significant thing, oftentimes, is the fact that we've tried to design the solution to enable our customers -- and remember, our customers, community banks and credit unions, their primary competitors are the Tier 1 banks, the JP Morgan Chases and BofAs of the world, and so we designed this system to enable them to deliver the same level of service they're used to delivering when they're right across the teller line, but they can do it in a digital world. So as opposed to pushing all the consumers away from ever interacting with a human, the Banno solution is designed so that there's tools that the consumer can do things on their own if they want to, but if they want to engage with a human, the tools through that digital channel are designed to make it really easy for the consumer and really easy for the banker to assist their customer, that human touch that all credit unions and banks are known for -- community banks are known for, that human touch, but do it in the digital channel. That's where we're getting, I think, great recognition, is the fact that we've married the value of the community banks and credit unions have always tried to bring to the market, we've married that value with an industry-leading digital experience for their consumers. And we're the only ones out there doing that.

John Davis -- Raymond James -- Analyst

OK. That's great. And last one for me, just want to touch on capital allocation a little bit, more specifically M&A. Obviously, there's been a lot of chatter around B2B payments and the ability for you to potentially buy something and push that through your banks.

So is that something that's on your radar, that you're looking at? Is there anything else from M&A perspective? I mean in your comments, there's nothing transformative being contemplated currently, but some smaller deals, anywhere that you think would make sense for some small tuck-in deals? Or comments on B2B. And then finally, just kind of how you guys think about buybacks here.

David Foss -- President and Chief Executive Officer

Sure. So nothing -- no, so B2B is a great big topic. So as far as merchant acquiring, are we planning to do a large acquisition in the merchant acquiring space? The answer would be no. That's not part of the strategic plan right now.

Are we involved in that space? Yes. Are we involved in the B2B space? Yes. We have to -- our EPS platform, we have over half a million small businesses that we serve through our Enterprise Payment Solutions platform today, and we're continuing to add to the solution offering that we have there. We just don't feel that the merchant acquiring offering is key to our success there.

So yes, we are continuing to add functionality. We're always looking at acquisitions, not just tuck-in acquisitions, although we've had great success with a lot of those, particularly smaller strategic deals like the Geezeo deal that we just did. But we're always looking at potential acquisitions that would be additive to our suite, additive to the story for our customers, things that would help our customers and obviously our shareholders. So we continue to be very active in the acquisition space as far as looking at potential deals, but we don't feel the need to go do some very large acquisitions to become a merchant acquirer.

John Davis -- Raymond James -- Analyst

OK. And I would assume, absent M&A deals being available or sizable, you guys would just continue to buy back stock given kind of where the balance sheet is today.

David Foss -- President and Chief Executive Officer

Yes. That's -- we've discussed that many times, the fact that we always have acquisition at the top of the list. I think we have a very solid acquisition team. We know how to do acquisitions well, so that's always the top of the list.

But then we are opportunistic when it comes to share buybacks as well, and we're committed to our dividend policy, of course.

John Davis -- Raymond James -- Analyst

OK. All right. Thanks, guys.

Operator

And our next question will come from the line of Brett Huff with Stephens. Your line is now open.

Brett Huff -- Stephens Inc. -- Analyst

Good morning, guys. Thanks for taking my questions. One of my question -- a question was asked earlier about bank -- Dave, you answered my question about bank enthusiasm, and I'm wondering if you're still seeing the same mix of -- is that revenue-driven or cost-driven? Or is it banks realizing that they have a tech deficit and need to catch up with maybe the fintechs? Are you seeing -- first of all, what are the drivers of that enthusiasm? And then has it changed much recently?

David Foss -- President and Chief Executive Officer

Yes. It's a good question. I wouldn't say that it has changed significantly recently, but it has been interesting. A lot of it is around finding tools that will help deliver efficiency within the institution.

So years ago, that was not -- was almost never on the list. And today, it's always one of the key topics is how do we improve our efficiency ratio within the institution? What are those tools that can help us when it comes to efficiency? The second driver is definitely around the topic of digital. And it's not just digital banking as far as mobile banking and online banking. It's things like online loan origination, how do we get to commercial customers with an online experience, those types of things.

So that's been going on for a year or so, so I wouldn't say that's a recent change, but it certainly is a driver that we have in place today that five years ago wasn't even a topic. Today, it's very much about enabling the digital experience for the customer, whether it's a commercial customer or a consumer, and then introducing efficiencies into the operation. And then you mentioned a tech deficit. So certainly, a lot of institutions feel like they've been in that space for a while now, so they're trying to figure out how to improve their overall technology infrastructure.

That helps us. But I wouldn't say any of those are brand new in the quarter or even in the last six months. But certainly, as compared to five years ago, they're -- it's a totally different environment.

Brett Huff -- Stephens Inc. -- Analyst

That's helpful. And then second one for me is, Kevin, thanks for the additional detail on the cost takeouts around the processing -- or the new card processing system. It's helpful. I wondered if you have any or willing to share with us any near or long-term outlook or expectations around the revenue lift that you might get from that.

I know probably not from debit because you're sort of getting like-for-like, but what about the credit side? Is there -- have you guys started sketching out what that might look like? And would you be willing to give us any insight? Or is it a little too early?

Kevin Williams -- Chief Financial Officer

Well, Brett, I think it's is still a little early there. I mean as Dave said, we've been very successful in signing new debit customers and new credit customers. So we're going to get some nice lift. But the fact is that credit cards is still so new that we've signed 17 new credit card customers, and not all those were even implemented yet.

So I think it's a little premature to do that, Brett. I mean probably by our Q2 earnings call, we can probably give you a much better idea because we'll be way down the path of migration and have a much better idea of new implementations of both debit and credit.

David Foss -- President and Chief Executive Officer

The thing I will add to that, Brett, so we have nine of those customers live now on the credit side. The thing that we're looking forward to is when we get to the point where we can start to sell both debit and credit outside our core base. Today, we're really focused inside the core base because we need to get through these migrations and make sure we've got everything set. But then when we hand this off as a ProfitStars offering, to our ProfitStars sales team to sell outside the base, that opens up a lot of new prospects for this team.

And that will come some time in -- not in fiscal '20. That will probably happen in fiscal '21.

Kevin Williams -- Chief Financial Officer

And just one more reminder that I'd like to put out there, Brett. If you remember -- I mean when we started down this path basically two years ago, when we went with the build, buy or partner methodology, I mean, we did this, and the timing was because we were losing customers. And so yes, we're going to have some nice uplift, but the fact that we're making this move actually stops us from losing customers and got rid of the headwinds. So that's helping us right now in a large part.

Brett Huff -- Stephens Inc. -- Analyst

Right. That's helpful. Thanks, guys.

Operator

Thank you. [Operator instructions] Our next question will come from the line of Tim Willi with Wells Fargo. Your line is now open.

Tim Willi -- Wells Fargo Securities -- Analyst

Yes. Thanks and good morning. A couple of questions. First one is on the modeling side.

Kevin, just thinking about the tax rate, which you called out as being a headwind for fiscal '20 versus '19. Is this a good way of thinking about the steady-state tax rate as we sort of start to think into the '21, '22 time frame? Or are there some variables out there around tax planning strategy, et cetera, the you can't really say that the tax rate you're guiding to right now is probably a reasonable one to use on an ongoing basis?

Kevin Williams -- Chief Financial Officer

No. I'd say, Tim, that long term, 23% to 24% is the tax rate that you should be using for long-term modeling.

Tim Willi -- Wells Fargo Securities -- Analyst

OK. Perfect. And then a couple of follow-ups. Number one is the sort of the transition from software license into the cloud, et cetera.

As you look at your current installed base, I guess, is there a way to think about maybe how much of that you have -- that you've addressed that is addressable? I'm sure there would be some banks that are going to continue to do it the way they have. But just in terms of thinking about how those headwind plays out, have you pretty much played through it with your installed base fees in-house to sort of outsource, your cloud transitions?

David Foss -- President and Chief Executive Officer

Oh, no. We have years of that movement to go yet. So we're today at around 60%?

Kevin Williams -- Chief Financial Officer

58%.

David Foss -- President and Chief Executive Officer

58% of our core base is installed in our cloud offering. And I've said many times before, I don't see us getting to 100%. You always have some banks and credit unions that want to remain in-house. But we have years -- at the pace that we're going today, we have years yet of that type of movement, in-house customers moving to the cloud, so's we're definitely not at the end of that road.

Tim Willi -- Wells Fargo Securities -- Analyst

Is the headwind probably as large as you would expect it to be? Given that there's still years to go on this transition, we shouldn't expect that to be bigger than it is right now as you discuss the revenue outlook for this year versus prior years?

Kevin Williams -- Chief Financial Officer

Yes. I don't think the headwind is going to be bigger, Tim. In fact, I think it's smaller because as we continue to move more and more of our customers to outsourcing, we sell those license. So I mean if our license fees go down this year as much as we are projecting, then I don't see them going down much more in '21.

Because some number of our customers, especially some of our larger banks and credit union customers, continue to be in-house or they continue to buy license fees, which is why our in-house maintenance -- even though we've had a significant shift from in-house customers, our in-house support and services, our maintenance revenue continues to be very solid. In fact, we saw growth in that line again this year.

David Foss -- President and Chief Executive Officer

And that headwind is more a function of us finding new customers who are not buying license. This time probably they're signing as outsourced customers. The move from in-house license, somebody was already a customer who is in-house moving to outsourced environment. And that's all good news for Jack Henry right there.

Kevin Williams -- Chief Financial Officer

Because most of those customers aren't buying a lot of new license anyway.

David Foss -- President and Chief Executive Officer

Right. Right.

Tim Willi -- Wells Fargo Securities -- Analyst

OK. Thank you for the clarification. The last one I have is just around card, again tied a bit into Brett's prior question. But just thinking about what you're signing with new customers and I guess even existing customers that are migrating to the new platforms, is there any way to think about the wallet share or how robust the products and/or the functionality is, that they're signing up for? Because I know that was something you talked a lot about when you made this decision as the bells and the whistles and all the feature functionality you could bring to a card platform. So I'm just curious, you talked about a lot of wins and a lot of new customers.

Are the scope of the contract meeting or exceeding expectations?

David Foss -- President and Chief Executive Officer

Yes, definitely. So when we talked about the -- having more opportunity for a greater wallet share, it was around the fact that because of the new platform, we'd have the ability to sell and enhance rewards programs, for example, enhanced analytics, reporting packages, those types of things. And I would say -- so not only is that happening with new customers that we're signing, where they're signing up for most of those options, but the customers we're migrating over from the existing platform are very often signing up for those new pieces of functionality that they didn't have before. So keep in mind, we said when we announced this deal that an existing customer would transition with a new platform for the same pricing, for the same function.

But our hope was, our expectation was that they would add functions which would add revenue, and that's definitely what we think.

Tim Willi -- Wells Fargo Securities -- Analyst

That's all I had. Thanks very much.

Operator

Thank you. Our next question will come from the line of Joseph Foresi with Cantor Fitzgerald. Your line is now open.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi. Most of the questions that I had were answered, but I do have a couple kind of just building off of a lot of the conversation. The first one is, I know you said that you're not going to see $16 million until sort of FY '21, but what does the cadence of margins look like this year? Are they going to -- because capex is going to go down. Are they going to start to build toward the end of this year and then really start to accelerate in FY '21? Or are they going to stay flat and then we don't start to see it into FY '21? I just want to get a sense of how you think about the margin cadence.

Kevin Williams -- Chief Financial Officer

So Joe, I mean, it's -- because of what we're going through with the migrations, what you're going to see in FY '20 as far as margins on a quarterly basis is going to be very similar to FY '19. Margins are going to be very strong in Q1 because we're going to recognize all of the annual software subscriptions revenue. In fact, we recognized those July 1, which -- and obviously, that's almost 100% margins because the software has already been delivered. And then margins will trail down from there as we continue to migrate our customers, and the additional cost comes in.

We will offset that some in the second half of '20 as we start doing some of the cost reductions in the second half. As I said, we will see at least 30% of that cost savings by Q1 of FY '21. So those savings will be coming out in the second half. The timing of that is not exactly noted down, but we know that's when it's going to come out.

So the margin will throw down. And therefore, going into FY '21, you're going to see the margins really go up again in Q1 because, again, the software subscriptions and the reduction of the cost that we take out in the second half of '20. The margins will go down a little bit in Q2, just like we have this year and next year, but then in Q3, you should see a really nice pop in margins, maybe 100 bps or so, because of all the additional cost that come out in the second half of FY '21.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. So it sounds like the back half of FY '21 will really be when you start to see the acceleration on the margin side.

Kevin Williams -- Chief Financial Officer

Q3 of '21 is when you should really see a lift in margins.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. And then just two others. From a timing perspective, what does -- what could derail the plan that you've sort of laid out for us? And congratulations on the plan because I know I've been asking you about it for about three or four quarters. But what could derail that or cause delays even further than what you've laid out?

Kevin Williams -- Chief Financial Officer

Well, we currently have more than half of our debit customers migrated over, Joe. So I mean everything is going according to plan. In fact, many of -- this week, we migrated, I believe, it's 25 or 26 more customers, and with 0 issues by the time we got them all migrated. So the plan is working exact the way it is.

We're having no -- and remember the reason we're doing the plan we're doing is because we did not want to have any impact on the end users. And we have been extremely successful with that, because we've not had to reissue any new cards or have been no new pin setup by the end users, and so the end users don't even know they've gone through a migration. So it's going extremely well. So as far as the migration plan and getting all of our core customers off by the end of June, I don't see hardly anything that could derail that.

Obviously, if there is, we'll be honest and come up and tell you what it is. But I don't see any derailment. The noncore customers, the only challenge there is we are relying on a third party to provide some of the programming and different things for us. But I don't see that being a problem, and it shouldn't derail it at all.

I mean, if anything, it could potentially cause a slight delay, but I don't see anything derailing it.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. And then just the last one for me. On the top line, we've been in sort of this, I guess, mid- to upper single-digit growth rate area code. But if I heard everything correctly on the call, the pipeline is very strong.

There's less conversion fees, which means that there are more people in-house. You're taking capex down, and you've done a reasonable amount of the migration. And your competition is absorbing very large acquisitions. Plus you've said that there's been really no change in spending, if anything, an acceleration.

So as we look at FY '20 heading into FY '21, I think you can guess my question, what is that -- could there be a revenue growth acceleration? All the data points we seem to be hearing would be implying that, that could take place. But I wanted to, of course, put that question to you guys.

Kevin Williams -- Chief Financial Officer

So Joe, let me answer this. Obviously, I mean, in this industry when you start looking more than a year out, the crystal ball gets pretty cloudy in a hurry. But as I've said, so with the significant decline that we are projecting this year in license revenue, if that does, as my crystal ball predicts, kind of sets a baseline for us for license revenue going forward, with the -- once we get the migration complete and we continue to add new cards and we get to where we can sell -- as Dave mentioned earlier, sell both debit and credit outside the base to noncore customers, I would say that you could see a lift in 2021 going out '20 in revenue. Is it going to be greater than 10%? I don't think so.

But it could be higher than the 6.5% to 7% that we've been running pretty steady at now for the last three or four years, and what we've guided to do next year.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

Thank you. And our next question will come from the line of Dave Koning with Baird. Your line is now open.

David Koning -- Robert W. Baird -- Analyst

Hey, guys. I guess, first of all, the cadence of revenue growth last year, I think it went 8%, 7%, 5%, 4% kind of through the year. And I know there was some 606 impacts and stuff. Is all that now kind of anniversaried? All that kind of turbulence in this year, because of the way it all worked last year, the comps now are pretty normal so that we get pretty similar growth rates for all quarters of this year.

Kevin Williams -- Chief Financial Officer

Well, you're still going to have a little more growth in Q1 because of all the software subscriptions that we sold in FY '19. That revenue will all be recognized in Q1. So you're still going to have a little faster growth in Q1 than you did the rest of the year. Now having said that, once you get past Q1, the revenue growth in Q2 through Q4 should be somewhat flat -- I mean, stable throughout the year.

However, just on timing limitations and timing of license revenue recognition and different things, you're still going to have some lumpiness, but it should be pretty stable once you get past Q1.

David Koning -- Robert W. Baird -- Analyst

And was the 6.5% to 7% growth, was that like just GAAP revenue growth? Or was that...

Kevin Williams -- Chief Financial Officer

Yes. That's GAAP.

David Koning -- Robert W. Baird -- Analyst

OK. OK. And then -- that's GAAP, OK. On the margin side, I looked back a couple of years, I think you did -- in fiscal '18, you did about 22% adjusted margins, meaning adjusting out term fees and stuff.

In this year, it looks like 21% or a little under 21%. But if you just fully add back this year the $16 million of spending, you'd get back to around what the level was in '18. But why wouldn't core margins be up? Like why are they only flat? Is it literally just that license revenue has continued to come down and your core margins --

Kevin Williams -- Chief Financial Officer

Yes.

David Koning -- Robert W. Baird -- Analyst

OK. So that's the only big reason.

Kevin Williams -- Chief Financial Officer

It's all driven by the shift in what revenue you're really recognizing. So when you take license down at 100%, and even though your payments margins are nice margins, they're nowhere near 100% margins. So it's a trade-off of the type of revenue that you're recognizing.

David Koning -- Robert W. Baird -- Analyst

OK. And then finally, I know 2021 doesn't get the full $16 million benefit. But if it did, that is about 100 basis point annualized tailwind. So would it be fair to say 2021, if you got that full benefit, you'd get 100 bps from that? And then is 50 basis points core margin expansion kind of normal? So it would be up 150 in like kind of normalized type year?

Kevin Williams -- Chief Financial Officer

As long as -- I'm not saying yes, but I'm going to qualify that by saying as long as we don't see another significant decrease in license revenue in '21 compared to what we think we're going to see in '20.

David Koning -- Robert W. Baird -- Analyst

OK. OK. And 50 bps would be kind of a normal -- like I know there's all the moving parts from term fees, the implementation. But should we think longer-term, 50 would be pretty normal?

Kevin Williams -- Chief Financial Officer

Yes.

David Koning -- Robert W. Baird -- Analyst

Yes OK. Great. Thanks, guys.

Operator

Thank you. And that concludes our question-and-answer session for today. So now it is my pleasure to hand the conference back over to Mr. Kevin Williams, chief financial officer, for any closing comments or remarks.

Kevin Williams -- Chief Financial Officer

Thanks, Brian. Again, we want to thank you all for joining us today for our year-end and fiscal Q4 earnings call. We're pleased with the results from our ongoing operations and the efforts of all of our employees and associates to take care of our customers. Our executives, managers and all of our associates continue to focus and what is best for our customers and our shareholders.

Again, thank you for joining us today. And Brian, will you please provide the replay number?

Operator

Yes, sir. A replay of this conference will be provided following the conclusion of this call. To dial out and access this number toll-free, you may dial (800) 585-8367, and the toll number is (404) 537-3406. Again, those numbers are (800) 585-8367 and (404) 537-3406.

[Operator signoff]

Duration: 55 minutes

Call participants:

Kevin Williams -- Chief Financial Officer

David Foss -- President and Chief Executive Officer

Vasu Govil -- KBW -- Analyst

David Togut -- Evercore ISI -- Analyst

Peter Heckmann -- D.A. Davidson -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

John Davis -- Raymond James -- Analyst

Brett Huff -- Stephens Inc. -- Analyst

Tim Willi -- Wells Fargo Securities -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

David Koning -- Robert W. Baird -- Analyst

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