Q1 2025 Jack Henry & Associates Inc Earnings Call
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Speaker Change: Good morning, and welcome to the Jack Henry first quarter 2025 earnings Conference call. All participants will be in listen only mode. So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: I'd now like to turn the conference over to Vance Sherard, Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Good morning, and thanks for joining the Jack Henry first quarter of fiscal 2025 earnings call.
I'm joined by President and CEO, Greg Adelson, and CFO and Treasurer Minicars Lee.
Mimi Carsley: Following my opening remarks, Greg will share his insights on the first quarter of our fiscal year and provide observations on our business in the industry.
Speaker Change: He will then discuss the financial results and full year guidance outlined in yesterday's press release, which is available on the Investor Relations section of the Jack Henry website.
Speaker Change: Afterward, we will open the lines for a Q&A session.
Speaker Change: Please note that this call includes forward looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations.
Speaker Change: He is not obligated to update or revise these statements for a summary of risk factors and additional information.
Speaker Change: Cause actual results to differ materially from such forward looking statements pretty yesterday's press release, and the risk factors and forward looking statements sections in our 10-K.
Speaker Change: During this call we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income reconciliations for these measures are included in yesterday's press release, now I will hand, the call over to Greg.
Greg Adelson: Thank you Vince good morning, and I appreciate each of you do any of this morning's call.
Greg Adelson: Pleased to report overall solid financial performance results in the first quarter of our fiscal year 2025.
Speaker Change: Like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes and doing the right thing for our clients.
Speaker Change: I introduced in my script last quarter I will share three main takeaways from the quarter and that will provide additional detail about our overall business.
Speaker Change: First our financial performance, we exceeded our first quarter outlook, we had non-GAAP revenue growth of five 3% in Q1 slightly ahead of the $5 two 5% anticipated in August.
Speaker Change: As we indicated in August Q1 revenue and margins were impacted by slower growth rates or on premise annual maintenance in card processing. Additionally.
Speaker Change: Additionally, several long term software usage contracts closed in Q1 of last year, creating a difficult comparison for this quarter.
Speaker Change: We remain confident in our full year non-GAAP revenue guidance of 7% to 8%.
Speaker Change: We provided commentary in August that non-GAAP margin would see contraction of 100 basis points. We ended the quarter with only 89 basis points of contraction.
Speaker Change: Second our sales performance.
Speaker Change: After a record Q4 for our sales team. We continued the positive momentum with record sales attainment in Q1 that included six competitive core wins.
Speaker Change: The six three where financial institutions with over $1 billion in assets, including $1 7 billion asset win.
Speaker Change: We also closed six deals to move existing clients from in house processing to our private cloud.
Speaker Change: Third our client conference we had a very successful Jack Henry connect conference last month in Phoenix, with nearly 2600 clients and prospects in attendance.
Speaker Change: This is our largest conference of the year and produces a significant number of sales leads last year 17 of our new core wins were from prospects that attended the conference.
Speaker Change: Now for more detail on our overall business during the quarter. We were proud to be included in several national Best places to work rankings.
Speaker Change: We played 16th in Newsweek's list of top 200, most loved workplaces, marking our third consecutive year ranked in the top 20.
Speaker Change: We also made newsweek's most admired work most admired workplaces list, earning five stars, which is the highest possible rate.
Speaker Change: Additionally, we ranked number 11 in Idc's 'twenty 'twenty four Fintech rankings based on annual revenue, representing our 16th consecutive year on that list.
Speaker Change: We were honored to receive these national recognition as they reflect our people first culture commitment to exceptional service and success in delivering innovative technology that empowers community and regional financial institutions.
Speaker Change: Our payments segment continued to perform well, we signed four new debit processing clients and three new credit clients in the quarter.
Speaker Change: Now has 324 clients on the Dell platform 326 clients using our T D representing approximately 43% of the live RTD client and 290 clients using fed now representing approximately 36% of the lives that now costs.
Speaker Change: And our complementary segment, we signed seven new financial crimes defend your contracts in the quarter. In addition, we signed 26 new contracts for the financial crimes defender faster payments fraud module, a real time solution designed to help mitigate fraud and zelle, but now in RTP transactions.
Speaker Change: We have installed 83 financial crimes defend your customers and have another 94 in various stages of implementation.
Speaker Change: We also had 37 faster payment modules installed in 133 in various stages of implementation.
Speaker Change: Continuing with our complementary segment, we continue to see strong success with our <unk> digital solution for the quarter, We signed 12, new clients to the Bel retail platform as well as 18, New banner business deals. We currently have more than 950, <unk> retail clients with over 180 live with banner.
Speaker Change: We finished the quarter with $12 7 million registered users on the ban on platform.
Speaker Change: At the end of Q1 last year, we had $10 5 million registered users a 20% increase over the past 12 months.
Speaker Change: Each year, we sponsored two technology service, we can talk the Jack Henry strategy benchmark in mid January to early February and this only goes to Jack Henry clients.
Speaker Change: We also co sponsored a survey with bank director and the results from their mid June to early July technology, prioritization and spending questions were published in September.
Speaker Change: And the Bank Director survey, 75% of the respondents reported.
Speaker Change: An increase in their bank technology budget for fiscal year 2020 for their top technology objectives are to improve operational efficiency attract and retain customers and increase deposits.
Speaker Change: Those results are consistent with findings from our strategy benchmark published last spring and that survey, 80% of our own clients said they plan to increased technology spending over the next two years with their top priorities being growing deposits, increasing operational efficiency and growing loans.
Speaker Change: Although the two surveys were conducted six months apart they yield very similar results around planned technology spending and key priorities.
Speaker Change: As I mentioned earlier, Jack Henry connect was a tremendous success and we received rave reviews from our clients prospects and industry consultants that attended the event.
Speaker Change: Along with the more than 2400 clients in attendance, we hosted 130 prospect attendees from 50 financial institutions are technology showcase included 253rd party Fintech with most with most being competitors, which underscores our philosophy of being an open technology.
Speaker Change: Allergy provide.
Speaker Change: Our vendor exit survey indicated 99% of these fintech want to exhibit again at our conference in 2025.
Speaker Change: The conference agenda was robust and anchored by the significant progress we made on our technology monetization initiatives.
Speaker Change: We continue to execute the strategy of breaking out key components of the core and building them on a cloud native API first platform V. Jack Henry platform we.
Speaker Change: We are live with domestic wires international wires data broker and entitlements, we are in beta testing with both exception processing and general Ledger.
Speaker Change: We remain on track to deliver a digital retail and commercial deposit only core during calendar year 2026.
Speaker Change: I will continue to provide more details on our progress throughout the year.
Speaker Change: As we've done in prior years, the Jack can reconnect we held our annual CEO Forum, which was attended by 185 Ceos, a new record for us.
Speaker Change: General feedback throughout the meeting suggested the attendees are less concerned about the overall economy in the last year and they continue to invest in technology to enhance digital capabilities improve efficiencies and modernize their businesses.
Speaker Change: The CEO agenda was well received by both clients and prospects, including a demonstration of our recently announced SMB solution with move.
Speaker Change: As mentioned at Investor Day, we remain on track to deliver this unique solution to banjo early adopter clients in may of 2025.
Speaker Change: This solution will be sold through our banks and credit unions to capture more and higher value deposits, while positioning the financial institution at the center of their relationship with their SMB customers.
Speaker Change: S&P will benefit from eight daily settlement Windows tap to pay capabilities for both iOS and Android devices, one click enrollment in approval and continuous accounting reconciliation.
Speaker Change: In closing we hold our annual shareholder meeting next week in Missouri, We will also offer a webcast viewing option for observers to watch remote.
Speaker Change: I remain extremely optimistic about the demand environment based on the recent surveys I referenced in our pipeline our pipeline returning to an all time high.
Speaker Change: Furthermore, we continue to hear positive feedback from our clients prospects and industry consultants regarding our key differentiation.
Speaker Change: <unk>, a culture exceptional service and innovative technology.
Speaker Change: These strengths along with our proven track record of execution will continue to drive positive results and position us well for the future.
Mimi Carsley: With that I'll turn it over to me for more specifics on our financials.
Speaker Change: Great and good morning, everyone.
Speaker Change: Our continued focus on culture service.
Speaker Change: While supporting our community and regional financial institution client led to another quarter of solid revenue and earnings growth and how do you start to turn it over here.
Speaker Change: I'll cover the details behind our first quarter results and then conclude with commentary on our second quarter outlook.
Speaker Change: And our fiscal 'twenty guidance.
Speaker Change: Q1, GAAP and non-GAAP revenue increased 5% consistent with our expectations and providing the base for achieving our full year guidance.
Speaker Change: Quarterly deconversion revenue of approximately $4 million, which we released prior to full earnings is largely flat with the same period last year, reflecting minimal consolidation of our clients.
Speaker Change: Is it all of them.
Speaker Change: With our expectation.
Speaker Change: Now taking a closer look at the peak out.
Speaker Change: GAAP and non-GAAP services and support revenue increased 4%.
Speaker Change: Yeah on the processing and hosting.
Speaker Change: It continues to be significant drivers of services and support revenue growth.
Speaker Change: License and hardware revenue compared with prior year moderated services and support revenue.
Speaker Change: Our private and public cloud offerings increased 11% in the park.
Speaker Change: <unk> strong persistent threat.
Speaker Change: It's reoccurring revenue contributor at 30% of our total revenue and has long been a double digit growth engine.
Speaker Change: Do you think the processing revenue, which is 41%. However, total revenue and then another significant contributor to our long term growth model.
Speaker Change: Strong performance with 7%, Brett I thought the GAAP and non-GAAP basis.
Speaker Change: Continuing long term trend quarterly drivers included increased card Gainesville and payment processing revenue.
Speaker Change: Completing commentary on revenue I mean, I like Gorgon total reoccurring rugby 93 per cent.
Speaker Change: Enterprise revenue was 71% in total revenue and grew at 9%.
Speaker Change: Living hardware 19 revenue grew 1%.
Speaker Change: Next maybe dangerous.
Speaker Change: Beginning with the cost of revenue, which increased 6% on both a GAAP and non-GAAP basis for the quarter.
Speaker Change: Writers in the quarter included higher direct costs increased personnel got internal items and amortization.
Speaker Change: For clarification Angeles model amortization of acquisition related intangible.
Speaker Change: For the quarter.
Speaker Change: Net R&D expense increased 8% on both a GAAP and non back yeah English acquire.
Speaker Change: The quarterly increase was primarily related to personnel.
Speaker Change: And then with SG&A expense for the quarter on a GAAP basis decreased 18% versus prior year related to last year's one time see that car.
Speaker Change: SG&A increased 7% on a non-GAAP basis.
Speaker Change: We remain focused on generating annually compounding margin expansion, while the quarter results delivered an 89 basis point decrease in non-GAAP margin was 25% we remain confident in our ability to deliver full year margin expansion consistent with our full year guide.
Speaker Change: These solid quarterly results produced fully diluted GAAP earnings per share I think dollars 63 up seven.
Speaker Change: 17%.
Speaker Change: This was partially driven by the beat if expense and he wanted to fiscal 'twenty bore that were nonrecurring.
Speaker Change: Reviewing our three operating segments there please.
Speaker Change: Good performance across the board.
Speaker Change: Our core net revenue increased 5% for the quarter on a non-GAAP basis against a tough comp.
Speaker Change: First day, he revenue was 52% of total quarterly revenue at tremendous growth at 12% now.
Speaker Change: 19 revenue primarily.
Speaker Change: And your own maintenance decreased 4%.
Speaker Change: non-GAAP operating margin decreased 84 basis points margins were impacted by software usage and head count associated with implementation.
Speaker Change: Payments segment quarterly revenue increased 6% on a non-GAAP basis.
Speaker Change: And then again had impressive non-GAAP operating margin, Brett behind and three basis points.
Speaker Change: Revenue growth was due to continued growth in our card related risk management solutions and strong growth from faster.
Speaker Change: Margins benefited from lower cost of revenue and card network incentive.
Speaker Change: I don't really complementary statement quarterly non-GAAP revenue increased 7% from a strong product map and hosting.
Speaker Change: Hosting and digital being a consistent source.
Speaker Change: They make margin contracted five basis points, primarily due to amortization licensing fee and direct support com.
Speaker Change: Really offset by the growth in hosting and digital revenue.
Speaker Change: Now, let's turn to a review of cash flow and capital allocation.
Speaker Change: First quarter operating cash flow was $117 million.
Speaker Change: $40 million decrease over the prior period, reflecting a timing shift higher annually and collection.
Speaker Change: You bought last year that historical norm.
Speaker Change: Trailing 12 month free cash flow was $289 million, resulting in a 72% conversion.
Speaker Change: Our consistent dedication to value creation resulted in a trailing 12 month return on invested.
Speaker Change: Capital and 20%.
Speaker Change: Heading into the second quarter, I hope, you've clearly kind of a.
Speaker Change: Quarterly cadence and full year guidance metrics.
Speaker Change: As you're aware in yesterday's press release included fiscal 'twenty 25, Oh, your GAAP guidance, along with a reconciliation to our non-GAAP guidance metrics all of which I'll reiterate.
Speaker Change: We have the press release also included a fiscal 'twenty non-GAAP EPS measure is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers and it should be noted that at 24% tax rate.
Speaker Change: All of the current fiscal year guidance metrics are in line with our near term target is the business operation remain healthy and consistent.
Speaker Change: Our outlook for financial performance remains upbeat with a piece of it is about 2025, non-GAAP revenue and margin on track to increase sequentially throughout the year.
Speaker Change: It's accelerating cadence you would result in a strong second half it will be more pronounced than typical.
Speaker Change: Consequently.
Speaker Change: Due to expectations for non-GAAP revenue growth is approximately 6% with non-GAAP margin last slightly yeah.
Speaker Change: The rest of the year is expected to increase strongly resulting in our full year guidance remaining consistent with our longer term target.
Speaker Change: As a reminder, we see fluctuations in quarterly results relating to software you pitched license component.
Speaker Change: Along with the timing of implementation.
Speaker Change: Therefore, the correct indicator of our business is a consistently strong fiscal year financial results.
Speaker Change: In conclusion, you want.
Speaker Change: And was consistent with our expectation and sets us up to achieve them all year and it's consistent with our stated long term target.
Speaker Change: We remain focused on delivering long term profitable growth at scale.
Speaker Change: Compounding revenue growth and margin expansion.
Speaker Change: We appreciate the efforts of our more than seven to 100 dedicated to selling it it.
Speaker Change: It drove these strong results and our investors for their ongoing cost.
Speaker Change: Why we please open the line.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And the first question comes from Andrew Schmidt with Citi. Please go ahead.
Andrew Schmidt: Hey, Greg gave me me thanks for taking my questions. This morning, if everybody can just drill down on the.
Speaker Change: Core revenue growth for a moment.
Andrew Schmidt: Maybe just unpack first quarter performed a little bit and I know you manage to the full year. So you don't want to get too caught up in the first quarter performance, but maybe just a little a few more details on how core performed in the first quarter and then.
Speaker Change: As the year progresses could you talk about your.
Speaker Change: Trajectory, we should expect there and the drivers as the year progresses. Thank you very much.
Speaker Change: So I'll start off with the core attainment, because that could be a combination of what youre doing and I'll. Let me talk about the specifics on the revenue. So six core wins I will tell you that there were a couple of pushes that we had due to the hurricane.
Speaker Change: And are the hurricanes that happened and we had we had a few deals that we anticipated that would've closed in the first quarter that got pushed to the second quarter. So we didn't lose them. They just were timing and obviously, we're not going to push people to try to sign the contract during those type of of challenges. So that that's part of it but honestly.
Speaker Change: Writing part that we highlighted was that we continue to win the multibillion dollar opportunities, including a $7 billion and we have several others that we expect to come here and into fruition as well so that part of the.
Speaker Change: I think the potential part of your question is on the sales side and then I'll, let me handle the revenue component.
Speaker Change: It is great. It just out demand remain strongly intact.
Speaker Change: All in and you should expect.
Speaker Change: It was an across the all of the segments.
Speaker Change: And particularly to your question around or we're going to continue to see that he grows strong installation of prior it yourself.
Andrew Schmidt: And do we expect similar to how you called it out in your note that Q1 will be a floor for revenue growth.
Speaker Change: Subsequent acceleration as the year progress.
Speaker Change: Nothing particular to call out from a cadence perspective, I, just think you're going to see a very strong right now.
Speaker Change: I think one other point, Andrew and really for everybody else because I think it does point out that we still had a record quarter. So if you look at our complementary products and the things that we're doing.
Speaker Change: No Tien tsin to lead to just core wins.
Speaker Change: Having a record quarter, even with with six core wins, which again, we typically have Q1's typically light for us anyway coming off of the 20 or so that we won in Q4 of last year, but the reality is it really what pushes that happened from the hurricane or it would have been.
Speaker Change: A fairly normal first quarter.
Speaker Change: Got it yeah that makes sense, it's good to see the balance in the bookings there with a record sales quarter.
Speaker Change: Maybe just in the week of the election could you just remind us how.
Speaker Change: Jack Henry's impacted by consolidation from an underlying revenue growth perspective, and then you know whether this cycle. Obviously, it's very early but you know whether this cycle should be any different than what we've seen historically thanks. So much.
Speaker Change: So again I'll start maybe he can add on is I think theres a couple of things. So one what is baked into 25 I don't think the election results will change much of what we have baked for 25, you know knowing you know honestly, we have a president that we've seen before so we know a little bit more of his playbook and what we should.
Speaker Change: Specs related to.
Speaker Change: Regulatory hopefully some improvement in the timing of M&A.
Speaker Change: But for our institutions, we do have several already lined up with acquisitions that will be happening in the second half of our year and 25 that are already baked into the number if something else accelerates then obviously that would be additional gravy for us, but but we've already added I think we mentioned this on the last call we've.
Speaker Change: Already added additional conversion jeans and migration genes for both banking and credit Union based on the feedback that we've gotten from our clients and of course, we get knowledge of deals that are going to happen very early on so they can get those slots and so you know.
Speaker Change: So we're working through that but we will see what happens I think the regulatory challenges that we see today, hopefully theres some lessening of that.
Speaker Change: And then obviously the approach that they've taken in the past rajeev on really slowing down M&A and the timing of getting approvals, we would hope and expect that that would enhance and again the more we're winning and we're growing asset sizes with our own institutions, which we've been articulating the 27%.
Speaker Change: Growth over the last four years and 34% credit Union growth over the last four years that continues to position us in more of the driver's seat.
Speaker Change: And a lot of these opportunities.
Speaker Change: Yeah, I think spot on the only thing I would add is given last year and the guidance for this year for conversion revenue, it's hard to imagine that potentially next year.
Speaker Change: Yeah, the impact of M&A, leading to higher conversion rate, but again as we said you never know how that's really hard to forecast and it really depends on the institution and where they are.
Speaker Change: Oh.
Speaker Change: But I would not bake in anything else with it.
Speaker Change: Given the tightening of the turnover of the new.
Speaker Change: Administration.
Speaker Change: Got it. Thank you very much really appreciate the comments.
Speaker Change: Thank you.
Speaker Change: The next question comes from Vas you go Ville was K P. W. Please go ahead.
Vas: Hi, Thank you for taking my questions I guess first one for you Greg I wanted to ask about the banner will be tailwind I think you said 12, new wins in the quarter, which you know is a good number but if I look back it's probably one of the slowest we've seen in the last several quarters just anything to call out there anything timing related like you talked about the core.
Vas: And then I know you have identified thought body of course also to sell a battle and do just any you know how is that effort going and any color around that.
Greg Adelson: Yeah. Good question. So on the on the number of wins I don't there's nothing no concern there I think a lot of it is timing you know a lot of a lot of beno deals are tied at this point in time to core wins.
Vas: You know, we're still moving customers over from a from the old platform and we're actually getting ready to announce we told our customers that we'll be announcing a sunsetting of a net seller of platform, which again will help accelerate some additional ones that have kind of been laggards to move.
Vas: But the reality is no concern there at all in to get 18 banner business is very much in line with what we had last year.
Vas: And.
Vas: Fourth quarter, you really you know that's always a heavy heavy sales win for us, but comparing it to the Q1 of last year, we were fairly much in line.
Vas: What was that particular quarter related to the outside of the base. So this this really mostly applies to the banner than it does to some of our other products that were taken outside the base.
Vas: But you know honestly, we've had some challenges with with.
Vas: Some of our competitors.
Vas: And as open as they they say they are and so we've been trying to work through some of the timing and cost that they want to.
Vas: To embark upon us and honestly as a byproduct of that we have really looked at a different way of approaching this and I don't necessarily want to share what we're doing because.
Vas: I don't want it to to get out too to our competitors, but it is a way for us.
Vas: Bypass some of the typical integration points that you have to have and do it a different way and we're working that path parallel and its really more appropriate and applicable to the banner platform Vantiv platform has a lot more API integrations that need to happen, which makes it more difficult for some of those those that integration work.
Vas: So what we're going to do is be able to leverage some of the things that we're doing in move.
Vas: And be able to offer that through through a process that will allow us to get outside the base.
Vas: And we're going to do that in parallel with what we're doing with the other outside of the base initiatives. So no change at this point in time line.
Vas: Just a little bit of a change in probably.
Vas: The level of productivity and success that we had hoped to have.
Vas: And by the end of this fiscal year, so more to come on that but but but we are taking a different approach and I think it's going to be more successful for us.
Speaker Change: Great. Thank you for that color and a quick one for you maybe just on the free cash flow conversion like anything any change to the 65% guide that you had given us last quarter, just any puts and takes there.
Vas: And so I feel comfortable with the guy or meeting attack at the 65 to 75. There were a couple of people that know that at Q1 at 18% pass along I would just remind everyone that the annual the trailing 12 months.
Vas: Our indicators the free cash flow because there are times, particularly Q4 Q1.
Vas: The timing of the payments related to the annual maintenance.
Vas: I called out on last quarter's call.
Vas: Q4 benefited about $60 million from a higher mix in paid in Q4 and the Q1.
Vas: Do you think about that Q1 15 per cent. It really is closer to 100% like we've seen in prior years Q1, but.
Vas: But I think the 72% should give everyone comfort that we are well within that guidance full year guidance range.
Speaker Change: Great. Thank you very much.
Vas: Welcome.
Speaker Change: And the next question comes from Reena Kumar with Oppenheimer. Please go ahead.
Reena Kumar: Good morning, Greg and Mimi Thank for taking my question. So.
Reena Kumar: So one of your competitors recently called out a comparative of room left on them, bringing dollar off of tank.
Reena Kumar: I'm just wondering if you're seeing any increased competition for banks and credit unions and core processing and your focus area.
Speaker Change: No I mean, right now I said.
Speaker Change: You know we compete with we've always competed with with that particular company.
Speaker Change: In that space and you know they they we don't want them all.
Speaker Change: We went a lot and a lot more than anybody else, but we sure don't win them all but from us from a standpoint of competitive pressure no. You know that particular deal like I don't know what happened and yeah. There was.
Speaker Change: There was a significant difference in price for sure but the reality is we're continuing to be very successful in that space, including like I said, the 7 billion dollar opportunity. We just won plus a lot of the renewals that we've been able to do over the last you know 18 months or all.
Reena Kumar: At our larger client base and so as you know anywhere from 15 to the 30 that we've been renewing they're all staying with Jack Henry So there's no concerns at this point.
Speaker Change: Understood. That's very helpful that the economy seems to be showing more resilience evidenced by recent earning for parts from other payment companies do you think if this macro environment.
Reena Kumar: It'd be upside care 25 to 40 basis point margin expansion target for the fiscal year.
Speaker Change: Yeah, I think at this point, it's probably a little too early to say for us because we're just closing our first quarter, we do already have a pretty substantial second half plans.
Speaker Change: It reflects robust growth but.
Speaker Change: But yeah, particularly in the area transaction.
Speaker Change: And card volumes, we anticipate.
Speaker Change: Rolling our spending in the spring, but there is always an upside on the economy and consumer sentiment is stronger.
Speaker Change: I appreciate all the color. Thank you.
Speaker Change: Thank you very much.
Speaker Change: And the next question comes from Jason Kupferberg with Bank of America. Please go ahead.
Jason Kupferberg: Thanks, guys good morning.
Jason Kupferberg: I just wanted to start on the second half revenue growth outlook and definitely appreciate the clarity on Q2 to get our models tuned I guess you got to be at about 9% in the second half to get to the midpoint.
Jason Kupferberg: The midpoint of the full year and you talked about implementation cadence, but can you maybe just go away a layer deeper into the visibility you have.
Jason Kupferberg: Actors that are going to drive that acceleration and just clarify you know which revenue line. So that's gonna be most pronounced in it it sounds like a lot of it is core but just wanted to check in on that.
Speaker Change: Great question, Jason Let me give you a little bit more color on some of the drivers that make us feel quite confident that that could happen here. So first I did call out the hardware last year.
Speaker Change: Well, it's quite strong.
Jason Kupferberg: It's a harder comps in first half this year and second half.
Jason Kupferberg: So the first half as he our hardware is about $7 million drag impact that Ive, just got a little bit into that can happen here. We expect cloud revenue you know the record growth to continue the impact is a new sale impact as well.
Speaker Change: Our strong growth in the faster payments adoption and we're starting to see and well. So I think that's another opportunity in the second half on car days I guess, that's it during our question. Yeah. We expect this spring to pick up a little bit and we do have a love where Q4 comp and then.
Jason Kupferberg: I think just as new products continue to ramp things like defender accelerating we're hunting implementation.
Speaker Change: Consulting run rate Rhatany their transaction and then overall digital adoption I to the F&B strategy.
Speaker Change: The impact of all that.
Speaker Change: Teach in for Irene yourselves success coming on board it gives us confidence in the second half.
Speaker Change: Okay, and I'm, just talking about core wins for a second I think you mentioned six in the quarter I know its typical year you you target 50 to 55. Its still early we know this is never ratable, it's usually lumpy by quarter and I think you said a couple of deals slipped because of the hurricanes, but wanted to.
Speaker Change: Just check in on overall pipeline, our confidence and visibility end and at 50 to 55 is still a reasonable ZIP code for this fiscal year based on how you see the pipeline converting over the next few quarters.
Speaker Change: It is and again, we're still you know we're tracking well last year. We did the 15 no more than $1 billion and were tracking again nice with that was already having three in the first quarter, which again is typically a lighter quarter for us and not just $1 billion deal.
Speaker Change: One was a 7 million dollar deal so absolutely on track and the pipeline is as robust as it's ever been this is at an all time high again, even after the record Q4 and year end record Q1, so feel very confident in the team's ability to to go get our normal numbers.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: And the next question comes from will Nance with Goldman Sachs. Please go ahead.
Will Nance: Hey, guys. Thanks for taking the question.
Will Nance: Just another one on the second half acceleration, it's nice to hear the confidence there and I just.
Speaker Change: It sounds like most of that is more kind of implementation and tough comps from the prior year, maybe there's a little bit easier of a comp and and payments in the back half of the year, but I guess big picture. When you think about exiting the year at a stronger growth rate.
Speaker Change: No maybe excluding <unk>.
Speaker Change: Having an easier comp in payments is there anything in that back half growth rate. They you would caution us against run rating.
Speaker Change: Into the first half of the following year.
Speaker Change: Not exactly asking for following your guidance, but just wanting to kind of understand if if if they feel like that's a good run rate given the implementation schedule for the following few quarters.
Speaker Change: I appreciate your question well I would say FY 'twenty, because there's a little bit far away to give it to them.
Speaker Change: Oh, yes, and as he said.
Speaker Change: Wouldn't recommend taking any one quarter and annualizing that.
Speaker Change: I think as we get a little closer we'll certainly give it but I think there are some things.
Speaker Change: New products.
Speaker Change: Implementation faster pain, and adoption cloud or others that are a continuation and not just you know kind of a one time like some of the rollover I E. It really yeah yeah.
Speaker Change: Yeah, the only thing I'll add to that is just much as we we described at the Investor day.
Speaker Change: Our our goal is to continue to you know to inch.
Speaker Change: Inch up to the levels of closer to the 8% where all of the things we're doing we're hoping and.
Speaker Change: And believing that that is going to get us there, but the mood peaceful just had been launched at the end of the year and seeing the level of success there much as Mimi said with a lot of the new products and continued implementations and getting through some of the cues that we have and honestly even in some of the things that we've been able to to get launched in the <unk>.
Speaker Change: Monetization.
Speaker Change: Things around data broker and all that so much time still needs to take place before we feel confident with with giving you any more additional guidance, but the reality is we have all the things in motion and we do have an all time sales pipeline.
Speaker Change: Pipeline to go make it happen.
Speaker Change: Got it okay. I appreciate that figured I would ask and then and and then just I guess any color on just how youre thinking about capital allocation and the M&A environment.
Speaker Change: You touched a little bit on bank M&A, but just any any kind of.
Speaker Change: Capital allocation priorities come to mind and what might.
Speaker Change: It might be an environment more conducive to M&A.
Speaker Change: Yeah, I would say we were steadfast in our prioritization from a capital allocation perspective, we're continuing to invest in our future growth through innovation and we continue to support our long standing dividend policy, we paid down the debt we are continuing to pay down the debt throughout the year as we start to build into it.
Speaker Change: More positive cash flow position does paying down that debt will always continue to look at share.
Speaker Change: Share repurchases as an option and M&A is always on the table. It just there hasn't been any interesting prospects over the last several quarters until hopefully if people think between the interest rates coming down and M&A being working days that are hopefully there'll be some interesting prospects, but again that would have.
Speaker Change: B not only financially attractive be an acceleration G. R Tech roadmap journey.
Speaker Change: Okay understood I appreciate you taking the questions today.
Speaker Change: And of course, thank you. Thank you will.
Speaker Change: The next question comes from Dominic Gabriel with Compass point. Please go ahead.
Dominic Gabriel: Hey, good morning, everybody. Thank you so much for taking the question. So I guess I was just curious if there was any change in the expected pace and deemphasizing some of the lower growth less profitable businesses and you just touched a little bit on it earlier in the call, but if you could give some extra color there.
Speaker Change: Sure.
Speaker Change: Yeah, Yeah, it's a great question and honestly I was going to bring it up even in Will's question. So I'm glad you did so we we are focus on if some of these things as we've mentioned through Investor day in individual meetings is that you know.
Speaker Change: This process of product rationalization is going to take several years for it to completely take fruition.
Speaker Change: There are some opportunities that we're exploring on whether they would be small businesses of a potential divestiture as we've talked about before I already mentioned a couple of products that we've been announcing sunsetting. So those take we typically get two years for that to happen some of that will allow us to move customers faster too.
Speaker Change: The to the better margin and faster advancing products like a banner that tell her to a banjo and yellow Hamburg to financial crimes and things along that line.
Speaker Change: But there's other things that we're doing that will take a little bit more.
Speaker Change: Time and scrutiny that we're still working through but it is a priority. We actually just came out of our strategy meeting and it continues to be a priority and we have a team focused on it yeah. The only other color I would lay out there for your question Tom.
Speaker Change: Yeah, So no, but it's doubtful at this point that you'd be like one big chunk in our corner and if somebody were going to pursue different paths, whether it'd be sun setting whether it be just more cash Kelly.
Speaker Change: The actual you know looking at divestitures that I doubt that they stack up.
Speaker Change: One on top of each other I didn't want to have that big of a noticeable impact any one quarter, obviously really called that out.
Speaker Change: But I think it's just over time, you'll see the improvement on that revenue.
Speaker Change: Revenue yeah.
Speaker Change: The laugh at it drive Omnichannel performance and it should you know based on what we've been doing in the analyst day, and it's also going to help us with some of the level of Tech modernization you know.
Speaker Change: In the shared services environment, and some of the cost containment and expense control back to our focus on continued margin expansion. So all of those things will help us drive both the revenue growth.
Speaker Change: Growth as well as the margin.
Speaker Change: Yeah for sure and it was nice to see the margin being better than you were expecting this quarter I guess.
Speaker Change: The election results basically just happened so I'm just going to go back to this for a second.
Speaker Change: Do you think that do you have any sense from your clients that they were holding up certain tech investments until they understood who the winner was going to be.
Speaker Change: And do you think that there's incremental tech spend that they're likely going to pursue that maybe was not captured in just the budget. You know growth that you guys talk about once or twice a year in your surveys.
Speaker Change: That could come through in like complementary products, where they're going to start making some of those discretionary investments.
Speaker Change: Because of how the election went and maybe more or less.
Speaker Change: Yeah honestly I don't at this point.
Speaker Change: We've been so direct and have gotten so such positive feedback on what they do want to do which you know all made collective sense, regardless of who who was in the Whitehouse now you know I don't know what I don't know I do there could be opportunities that happened through the M&A environment.
Speaker Change: And you know folks are looking at.
Speaker Change: Opportunities to.
Speaker Change: Purchase.
Speaker Change: You don't have an M&A and there could be products that get accelerated because the.
Speaker Change: Because of an opportunity that that particular bank had or didn't have them, but I would say based on what we know today and the most recent feedback we literally just got a month ago at our CEO Forum.
Speaker Change: Don't see that necessarily as of today.
Speaker Change: Alright, thank you.
Speaker Change: Thanks.
Speaker Change: And the next question comes from Peter Heckmann with D. A Davidson. Please go ahead.
Peter Heckmann: Hey, good morning, everyone. Thanks for taking the question Greg I, just wanted to see him with a with a G H H.
Speaker Change: Use conference.
Speaker Change: Connect.
Speaker Change: How much of a priority or how much emphasis are you putting on the.
Speaker Change: Modern core a.
Speaker Change: Modular platform and how is that resonating with clients and is it your sense that that some of these multibillion dollar institutions are really looking for.
Speaker Change: A vendor that has a.
Speaker Change: You know pretty well thought out and in and underway process to migrate towards a non bundled core I mean, how much how important is that in terms of their decision making.
Speaker Change: Yeah, you know.
Speaker Change: From the prospects that were there and we as I mentioned, we had 50 prospects and I met personally with 15 of them.
Speaker Change: For a period of time, yeah. The strategy of what we're doing so it's not just about the unbundling of the core it's just the strategy of taking the core into the public cloud and not just core but also some of the noncore products that we build understanding the value of being in the public cloud. So those those prospects and of course our clients.
Speaker Change: You know as well, but our prospects have told us that they're not seen that same level of conversation with whom they are with today. So yes that strategy plays strongly it but it also plays the other things that we emphasize our culture our service.
Speaker Change: Other innovative technology that we've been building through the years with whether that'd be financial crimes are what we've done in pay center or what we've done and in our enterprise account opening and things along that line. So it is a combination of things Pete that that drive this but the overall strategy not just core but the.
Speaker Change: Overall strategy is what is grabbing just gravitating event to Jackson.
Speaker Change: Matt on them I think all of them, what's really resonating is that shared services approach. So as we build an entry for the tech modernization, that's supporting and enhancing that experience on existing course that and so that's giving people comfort that there's innovation on the course that they might go.
Speaker Change: Today, as well as where they're going tomorrow.
Speaker Change: One last point that I did emphasize this was the open philosophy.
Speaker Change: They walk into our tech showcase and see 250.
Speaker Change: You know fin techs that are there in.
Speaker Change: Versus other client conferences you know they also they know we were putting our money where our mouth is and the reality is they understand the Jack Henry is going to allow them.
Speaker Change: Two.
Speaker Change: What is the best product for them and so that is a big part too because they're not getting that same level of cooperation today and if they do want to go with a fintech or doing outside the base integration as I referenced before.
Speaker Change: They're typically get charged an arm and a leg to do it.
Speaker Change: Mhm, Okay. That's helpful. And then can you just you haven't talked too much about our loan our loan origination platform.
Speaker Change: Can you talk a little bit about some of your thoughts there in terms of our solutions on the on the lending side and whether or not.
Speaker Change: That's something that we made here a little bit more about over the next few years.
Speaker Change: Yeah, and then I expect you to hear more and starting in 2025, so we've been working on combining the the.
Speaker Change: Loan vantage platform now has been built to be a single consumer and commercial platform and we've taken the account opening software what we call open anywhere and we've added that into the solution. So it's now called enterprise account opening and it will allow the institution to.
Speaker Change: It competes very nicely with encino or anybody else out of the market today and we are we will be in what we call early adopter in January of 2025.
Speaker Change: So it's coming up and so we'll start to have some of our our customers are kind of working through that with us, but we are very excited about that and what opportunities. It will continue to bring to our financial institutions and it is a top priority.
Speaker Change: Yeah, Yeah yeah.
Speaker Change: Strategic benchmarks there for sure.
Speaker Change: Good deal all right I appreciate the feedback I'll get back in the queue.
Speaker Change: Thanks Keith.
Speaker Change: The next question comes from Chris Kennedy with William Blair. Please go ahead.
Chris Kennedy: Yeah. Good morning, Thanks for taking the question Craig you mentioned data broker a couple times can you just remind us of what the opportunity is there and just maybe talk about the CFPB rule in open banking and how that drives that.
Speaker Change: Yeah. So let me start with the CFPB rule. So 10 33, if you remember back to some of the comments that we had made in prior quarters, where we had eliminated screen scraping and our bet ban on digital platform. We're the only provider that's a 100% eliminated screen scraping so.
Speaker Change: We are already ahead of what what was coming out with 10 33, knowing that there was going to be something we now have direct API integrations into eight of the leading financial data aggregators. So the big names that you've heard of like Peninsula, and yoga, Liam Plaid Intuit and M X, but there's there's several others and I think we have like eight or nine.
Speaker Change: More in the queue to do full API, so and as a reminder, you know this is really this rule does not impact core it really impacts digital banking providers. So we are significantly ahead of anybody in the space today.
Speaker Change: That for 10 33.
Speaker Change: The data broker.
Speaker Change: So data broker you know we have we have a few clients that are lives that have been testing. This in our early adopter, but the reality is is that we are bringing into a single.
Speaker Change: Data repository, the ability for our customers to get their core data or digital data their payments date of their fraud data their lending data all from Jack Henry in a single repository as well as we are getting access to third party.
Speaker Change: Whoever third parties, they used to be able to bring that data in as well and of course, you know we got.
Speaker Change: Got all the the guardrails and things that we need to do to make sure that that happens. So we're just in early stages of bringing some of the.
Speaker Change: The groups and so we have core in there today, we have digital in there today, we'll have payments and by the end of the calendar year and will have Friday by the end of the first quarter of 2025. So we expect more sales to occur obviously as you get more and more of the data in there, but we've been testing it out it's going really well as far as us.
Speaker Change: No uptick in revenue probably not much in 2020 five.
Speaker Change: But we do expect it to be a something that will help drive 2026.
Speaker Change: Great. Thanks for taking the question.
Speaker Change: Sure.
Speaker Change: And the next question comes from John Davis with Raymond James. Please go ahead.
John Davis: Hey, Good morning, guys, maybe we talk a lot about the second half rabbit, so but wanted to touch on margins and the guy that buys margins will be up somewhere close to 100 basis points in the back half of the year, obviously, you have revenue accelerating easier comps or anything else.
Speaker Change: Part of the margin thoughts.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: I would say the first half we are it's a little bit more pronounced from the headwinds we see them, but they stopped where he says you know and additionally, I'd call out Q2 was a bit of a soft comp cause immediate impact yeah. We had big departure last year in Q2, but not the replacement.
Speaker Change: And so that's a bit of a gorilla where from a head count from the roughly like 200 gig he has yeah.
Speaker Change: Our Q2, 'twenty five birthdays teaching 20 or.
Speaker Change: So I think those things make a little bit challenging in the first half, but as we get the second half.
Speaker Change: It's certainly aligns to Iraq, new breath, I feel pretty comfortable with the full year die of the 25 to 40 basis points.
Will Nance: Okay, Great and then Brad you called out 20% increase in Banco users year over year. It is better for a business of a meaningful contributor to that and if so is it safe to assume that banner revenue is growing well above that 20% user growth number.
Will Nance: Yeah. The banner business is not a meaningful contributor is a contributor.
Speaker Change: But as far as the growth it truly is about our implementation numbers and so so as we add more and more business customers. Yes, there can be some additional users but that growth of 20% is been really been driven.
Speaker Change: Through the the retail platform, but.
Speaker Change: But as we continue to add remember the way we price panel business is that the retail customer if they wouldn't regardless of how many retail customers. They have they pay that same amount of kind of an add on fee to what the retail team or the retail.
Speaker Change: Pieces, so as we continue to get more penetration and some things that we're doing to actually do adoption activities I think that that number will become more and more meaningful but you know as far as the revenue growth, we've been kind of consistent over the last year.
Speaker Change: A year or two years on where we've been on the revenue growth and visuals.
Speaker Change: I remember digital is more than just Daniel.
Speaker Change: Right Alright.
Speaker Change: Thanks Scott.
Speaker Change: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
James Fawcett: Hey, Thanks, very much morning, everybody wanted to ask Greg really quickly you mentioned the implementation queues.
Speaker Change: Just wondering how those are trending broadly in and how are you thinking right now about the puts and takes between the margin expansion yet expansion, you're delivering it versus the potential for additional resource allocation to help speed up those implementations.
Greg Adelson: Yeah. He gets exchanged yeah. We we look at that you know literally every month as part of part of our discussions with our teams during what we do various reviews with them and so we balance that you know very well we've added people in our financial crimes defender group last year, a significant number honestly to do that.
Speaker Change: That is implementations or in some cases, especially in financial crime. They can take up to six months because of the data that needs to get transferred over so some of it isn't just a people thing some of it is purely just waiting. The other thing is is that a lot of these can be tied to our core implementation. So they get delayed till.
Speaker Change: Core gets gets done as well, so, but we absolutely evaluate the need to expedite the revenue flow and balance that against the operating margins. So what we do that literally every month.
Speaker Change: Got it and then wondering it's been a few months since you announced the partnership with move it seems like an interesting potential product both for Jack Henry as well as Jack Henry's customers, just any update on kind of progress there and when we may start to see that enter the market commercially.
Speaker Change: Yeah. So lots of progress we've made honestly a lot of advancements even since investor day, when we publicly announced that we did a full demo of this at our client conference in front of you know the 4000 people that were there and got rave reviews for for for for them being able to.
Speaker Change: See that as far as timing as I announced where we're on time to be able to deliver this to our early adopter banner clients in may of 2025 and.
Speaker Change: And so we're on track to do that.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Ken <unk> with Autonomous Research. Please go ahead.
Ken: Hey, good morning, Thanks for taking the question I wanted to circle back on the cloud migration I think you said cloud revenue was 30% of revenue growing low double digits.
Speaker Change: 70, 75% of our clients on the private cloud can you just give us a sense for how much runway there.
Speaker Change: There is for cloud revenue to continue to grow at double digit rates are you seeing any traction in the in the public cloud yet just trying to get a sense for how sustainable that growth is on on the cloud side, and maybe where the revenue shows up.
Speaker Change: Across the segments as well thank you.
Speaker Change: Yeah, Hey, Ken I'll start with just kind of the migration and then let me go through the revenue component of it but so we are at 73% right now in the private cloud and so we don't expect to get to a 100% and we expect to be somewhere in the low to mid nineties, because there just be some of the customers that just just don't want it.
Speaker Change: Moved.
Speaker Change: And but we have several years, we're still expecting this year to do our normal fortyish from it into out and so they'll there'll be somewhere in those numbers and we're really on track we.
Speaker Change: We had based on first quarter of last year versus the first quarter of this year or into house was very similar in number and the other thing. That's happening is that we are down to a lot of our larger clients. So even if we moved less.
Speaker Change: Or fewer than a quarter. They typically are larger clients will bring more of an impact.
Speaker Change: As well and it just as a reminder, on average between banks and credit unions about a $1 75 per cent increase.
Speaker Change: Increased.
Speaker Change: So does that is that is part of where we are as far as years of runway. We expect to be you know three or four or five more years of that at some pace.
Speaker Change: But in the same time I announced earlier about the deposit only core being ready in 2026. So we could see some lift at that point in time of folks moving to either directly from in house to the public cloud or from the private cloud to the public cloud or being in both you know because it will be a deposit only core.
Speaker Change: In 2026, as we build out the rest of the core components, so but more to come on that but we still have some runway and they are larger.
Speaker Change: Yeah, I mean, I think you hit on all the salient point that there's still runway to get the clients are actually larger healthcare claims, whereas you know we grow with our clients as they brought.
Speaker Change: Even though the ones that are already in a private cloud environment and they have more accounts as they are.
Speaker Change: Grow and expand our we're going to continue to get revenue growth with that but that's the only other thing I would call out front.
Speaker Change: Brian I'd, just add it's continuing to be a strong growth engine for us in the future.
Speaker Change: Okay, Great and then and then he said non-GAAP revenue would grow 6% in the second quarter can you just remind us of the the building blocks I guess by segment just to get to that 6%.
Speaker Change: Yeah.
Speaker Change: Can we can follow up offline in terms of the components, but I would just say like on a whole I don't expect to see a lot of different changes from the momentum we had in Q1 in terms of for the statement you still think that.
Speaker Change: For card Q2 is going to be a little bit better than Q1, but it's still probably a modest spend expectation him. He's still cloudy is our slowest quarter in Q2 hardware has lots of it driving C. One it's still a dry and Chile as well so yeah.
Speaker Change: Some drive some small things like a call center and item processing right. So I think that's what we're getting after that takes firsthand.
Speaker Change: And then taking up solidly from there in the back half.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thanks good.
Speaker Change: And the next question comes from Dave Koning with Baird. Please go ahead yeah.
Dave Koning: Yeah, Hey, guys a couple of things first of all card processing you put that in the press release was 5% growth last quarter was 8% growth and I know like the networks and stuff, where we're pretty stable growth was was there anything in there just to call out why that decelerated a bit.
Speaker Change: Yeah, and I think our transaction volume was pretty much in line I would say why are we seeing on the positive side, we've seen higher ramp faster pain and stuff and that's really taking off.
Speaker Change: Bill pay.
Speaker Change: From there after that.
Dave Koning: It's a modest kind of Robert.
Dave Koning: Isn't that a little slower than prior year, but you know moderate modest growth.
Dave Koning: So I think that you know pretty.
Dave Koning: Pretty much in line.
Dave Koning: Okay.
Dave Koning: A year or two.
Dave Koning: Yeah.
Dave Koning: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay and then the one other thing the and we talked about this last quarter to interest income remains high and you guys had a ramp kind of a year and a half or so later than I would say a lot of other I guess you had some ramp.
Speaker Change: But you've really ramped up a lot in the last year or so now and again it was really high in Q1 does that does that state or what what created kind of a little later ramp in that and does that stay kind of stable through the year.
Speaker Change: Mostly I would say it was deemed to just the timing of negotiations with some of our bank counterparties in terms of getting more attractive yield on those balances. It does have some correlation with interest rates I think it's pretty stable for Q2, well see what the fed does in the back.
Speaker Change: Half of the year and what they do but I would say, you'll see some correlation with interest rates.
Speaker Change: And interest income.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Dave.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over debentures for any closing remarks.
Speaker Change: Thank you was we look forward to hosting you at next week's shareholder meeting either in person or on the webcast and in the coming weeks, we will be attending various investor events in the U S and Europe.
Speaker Change: But again like to thank all Jack Henry Associates for their hard work and dedication which have contributed to our outstanding results.
Speaker Change: Thank you for joining us today why it please provide the replay number.
Speaker Change: The replay number for today's call is 87734475 to nine.
Speaker Change: And the access code is 648.
Speaker Change: 82509.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].