Earnings Call Transcript - JKHY Q2 2021

Operator, Operator

Thank you for joining us for the Jack Henry & Associates Second Quarter 2021 Earnings Conference Call. This call is being recorded. Participants are currently in a listen-only mode. Following the presentations, there will be a question-and-answer session. I would like to turn the call over to Kevin Williams. Kevin, you have the floor.

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 moment, I'll turn the call over to Dave. He's going to provide his thoughts about the state of our business, the performance of the quarter and some comments relating to the impact 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 close and then provide comments regarding our guidance for our FY '21 provided in the release, and then we will open the line up 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're still operating with well over 90% of our employees working full-time remote and have now updated our return to office date to July 1. 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 for Jack Henry. As I mentioned last quarter, we continued to implement more than 30 new financial institution clients every month on our Banno Digital platform. As of February 1, 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 Pay Center. As I've discussed previously, our Pay Center 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 31. Although I'm very proud of the report and its content, 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 discussed 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.

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 support revenue for the deconversion fees of $2.1 million in the current quarter and deconversion fees of $7.7 million revenue and divestitures 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's 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 is 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, there were 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 impacted all those lines. Processing revenue increased 5% in the second quarter of fiscal '21 compared to the same quarter last fiscal year. This increase was primarily driven by higher card volumes from new customers installed last quarter and increased debit card usage from existing customers. Jack Henry digital revenue experienced the highest percentage 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, as 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 due primarily to higher costs associated with our card processing platform and higher personnel costs related to increased headcount at December 31 compared to a year ago quarter. The increase in cost 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 2020 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 payments segment margins continue to be impacted by the digital costs related to our card processing platform migration. As Dave mentioned, our core segment operating margins increased slightly during the quarter compared to last year on both the 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 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 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 asset was $163.8 million year-to-date. A couple of comments on our balance sheet as of December 31, our cash position is still in very good shape at $147.8 million, down a little from $213 million at June 30. Due to the previous items discussed, there is nothing drawn on the 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 the 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 that return to shareholders, 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 that we continue to forecast revenue from deconversion fees for FY '21 will be down approximately $33 million from what we saw in FY '20. 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, we have always stated that we don't like deconversion revenue as 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-to-4-plus percent. The adjustments between GAAP and non-GAAP revenue guidance for FY '21 is the decrease in deconversion fees compared to the previous year and the small revenue impact from the cruise divestiture in Q2, which was removed from FY '20 for comparison to FY '21. Our non-GAAP revenue guidance has not changed from Q1, reflecting the difference of all deconversion fees and revenue from the divestiture. We anticipate GAAP operating margins for the full year of FY '21 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 FY '21 should be in line with FY '20 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 to $0.87, which I believe is generally in line with the current consensus. However, we have increased our full-year EPS guidance for FY '21, which we provided last quarter, to be in the range of $3.75 to $3.80, and we are now updating our EPS guidance for FY '21 to the range of $3.85 to $3.90, with no change to our projected impact 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.

Operator, Operator

Thank you. Our first question comes from Kartik Mehta from Northcoast Research. Your line is open.

Kartik Mehta, Analyst

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 Kartik, I mean, so the GAAP guidance that we are providing is $1.760 million to $1.770 million. And basically, you take the $30 million decrease in deconversion fees out, and that's how you get to the $1.730 million to $1.740 million. 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% to 6.5% non-GAAP revenue growth over last year's adjusted number.

Kartik Mehta, Analyst

So, the $1.730 million to 1.740 million is the non-GAAP revenue that you're guiding to then?

Kevin Williams, CFO and Treasurer

Yes.

Kartik Mehta, Analyst

Okay. And then, David, I'm just wondering, as you look at your migration of platform and demand from your bank, 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

Yes, Kartik, we haven't indicated that we anticipated a massive demand, but we are indeed observing ongoing interest. This year, we've secured five brand-new credit card customers. As I've mentioned in prior discussions, we have been somewhat cautious with credit because our priority was to successfully complete the debit side of the conversion. We wanted to ensure that our implementation teams were not distracted by adding new credit customers, as that's a different process. So, we've had a slight slowdown in credit sales, but there is demand. We expect this demand to continue in the future. However, we don't foresee becoming a major issuer moving forward, but we are definitely seeing interest from our customers.

Kartik Mehta, Analyst

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 would 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

Yes. 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 neo banks are truly competitors or not. Oftentimes, the neo banks 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 neo banks aren't making any money. But that's the short-term view, and we 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 neo bank, 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.

Operator, Operator

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

Unidentified Analyst, Analyst

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, but perhaps 30% to 40% of this showing up in fiscal '21. Is it 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 for the full year annual cost savings. So, we're probably going to see more like 15% to 20% of it in this year, and then we'll see the full amount in FY '22.

Operator, Operator

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

Steven Comery, Analyst

Wanted to ask about sort of the dichotomy between core demand and complementary demand as far as like 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 is core, if you think about a core replacement, anybody who makes that decision. Look, 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 technologies. They need to take care of the 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 for 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 financial institutions need to upgrade their digital or other things, as Dave mentioned. So, I think that's a big driver or a big difference in the two.

Steven Comery, Analyst

Okay. Yes. 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, not executing on them?

David Foss, President and CEO

Yes. I believe during the November call, I mentioned that the pace of RFPs for new core deals has significantly increased. There is indeed pent-up demand as many companies have paused their evaluations, but they still need to upgrade their infrastructure. We began to see an uptick in RFPs during the late fall, which I also noted in November, and that remains true today. Currently, our sales pipeline is as robust as it was about 18 months ago. Typically, we aim for our sales pipeline to be around 90% of the annual quota at any given time, considering that not all deals will close. We have now returned to that level, and approximately 90% of our annual quota is in the pipeline at this moment. The core demand is picking up again, which makes me quite optimistic about our sales prospects going forward.

Steven Comery, Analyst

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 lapse the credit risk?

David Foss, President and CEO

It's not necessarily about coming back into the office. I think we're at a point where all of our banks and credit unions have established their operating models. They have a mix of in-office and remote workers. I don't know any of them that have returned to 100% in-office work. They've figured out their operating models, and I don't expect that we'll ever return to how things were two years ago. They will maintain a remote workforce, much like we will. The focus now is on understanding how to operate effectively with a combination of in-office and remote work, and they acknowledge the need for a technology upgrade. It's time to make that decision and move forward with the upgrade. We can also conduct core conversions completely remotely. As I mentioned earlier, we are successfully performing 100% remote conversions. Most banks and credit unions prefer to have some personnel on-site, but we are fully capable of handling that.

Operator, Operator

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

John Davis, Analyst

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 we should 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 would 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, Analyst

Okay. But I would assume that all else equal, you're going to have stronger growth in 4Q just given the easier comps. 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, Analyst

Okay. No, that's fair. And you touched on it a little bit. I just wanted to focus on payments in the quarter for a second. Maybe talk a little bit about the pieces. How is bill pay doing? I assume some of the weakness in this quarter is just from lower transactions, but maybe if you kind of normalized for transactions like 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

Yes, you're correct. Overall, the transaction count in the payments business has increased by about 11% year-over-year for the same quarter. Payments volume is back to what I consider normal, but bill pay is lagging behind, with only a 2% increase year-over-year. It's a very mature sector that isn't growing quickly. We're still adding customers, but the pace is not nearly as fast as it was a few years ago. However, our ACH origination platform continues to expand, particularly with real-time payments and other developments. While ACH is often viewed as outdated, it is still experiencing significant growth and a lot of volume is moving through that platform. Overall, with our ACH origination platform and the card platform, growth is returning.

John Davis, Analyst

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 normalize for the pandemic, that's not still on the table?

Kevin Williams, CFO and Treasurer

Well, I mean, yes, Jay, I mean, we talked about that. And I think that's still an extreme possibility. But again, like I said, in my 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 closer to double-digit growth.

John Davis, Analyst

Okay. And for my last question, Kevin, the margin improved significantly this quarter. The implied guidance suggests that some of this improvement may not be sustainable, especially considering the 90 basis points from the payments platform migration in the fourth quarter. I'm curious if there is potential for further margin improvement or if there were specific factors this quarter that might be one-time occurrences. Additionally, are there any updates on the expected normalized operating leverage of 50 to 75 basis points once we move past the pandemic and the payments platform migration?

David Foss, President and CEO

Yes, that's a good question. There are a lot of factors at play and some unusual items affecting our financials right now. Is there potential upside for Q4? Possibly, but looking at Q3, a significant portion of our savings came from travel-related expenses since our employees are not traveling due to restrictions, which also affects revenue. As I mentioned, areas like licensing, hardware, implementation, and billable travel are all down. As we start traveling again, travel expenses will increase, and our salespeople are beginning to get out and move more, with some of our installations picking up as well. So, while our travel costs will rise, some of that will be billable, leading to increased revenue. However, keep in mind that our revenue tends to be delayed. Thus, even as travel and other costs rise, the related revenue might not materialize for a quarter or more. So, there could be some short-term negative impact on margins, yet it will accompany the eventual increase in revenue. There is indeed some potential upside for Q4. Once we get through this period and return to a more normal pace, I believe we can resume the regular margin expansion we've historically experienced.

Operator, Operator

Thank you. The next question comes from Nik Rima from Crédit Suisse. Your line is open.

Unidentified Analyst, Analyst

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 like last summer and 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 '21 or early 22? And then just as my follow-up, how should we think about the impacts of the core segments growth next year, just given the relatively lower level of new wins since COVID began?

David Foss, President and CEO

Yes, there are many follow-up questions you've raised, but regarding what to expect, the best guidance I can provide is that our incoming deal volume pipeline has returned to pre-pandemic levels. While I can't predict the exact timing of when deals will be signed and closed, I believe that if we continue to win at the same rate as before the pandemic, and considering our pipeline is similarly robust, it’s reasonable to expect that later this year, our win rate will align with what we experienced prior to the pandemic. It's important to note that once we sign a new core deal, the revenue typically does not hit the financial statements for at least a year afterward. Additionally, starting the conversion process significantly affects the financial institution, as mentioned earlier. This conversion often involves considerable planning and can take several months to complete. Therefore, the bulk of the revenue usually appears a year after we've secured the contract or announced a win.

Operator, Operator

Thank you. The next question comes from Ken Suchoski of Autonomous Research. Your line is open.

Ken Suchoski, Analyst

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

Yes. 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 will 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 will certainly be our objective. And 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. So, we'll have to see how that goes as time goes forward, but that's my hope.

Ken Suchoski, Analyst

That's helpful. I guess just a longer-term margin question. I mean, it looks like your margins have declined versus where they were maybe six to 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

Yes. Looking back to 2017, which is the earliest year for a true comparison due to our restatement for ASC 606, we can see that this change significantly affected how we recognize revenue and, in turn, impacted our margins. Since 2017, two main factors have contributed to our margins. First, the transition to a new card platform has increased our costs, as we could not reduce expenses until the migration is completed, which, as Dave mentioned earlier, will be by the end of March. Once we complete this migration, we will start realizing cost savings and expect to see a rebound in margins in Q4, followed by a full year of reduction in FY '22. Second, we have not secured any new core business since 2017, meaning we have seen virtually no new core license revenue, which is typically a high-margin area. On the banking side, there have been only a few in-house deals, with similarly limited activity on the credit union side, primarily involving smaller bank solutions. These two factors have primarily driven the decrease in margins. However, as I noted, you can expect to see margin improvements in Q4 and continued growth in the following year. Our license and hardware revenue now constitutes a minor part of our overall revenue, so its impact is negligible. As we successfully transition more on-premises customers to our private cloud and expand our card business, which is high-margin, we anticipate our margins will continue to recover and reach historical levels in FY '23 and beyond.

Ken Suchoski, Analyst

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 here 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 crews, which was 140 very small credit unions that we divested on October 1, 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.

Operator, Operator

Thank you. 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. And again, it will be held virtually. It's planned to be held on Tuesday, May 11, 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 e-mail 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 continue 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, Operator

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