JACK HENRY & ASSOCIATES INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Exceeded Q1 outlook with 5.3% non-GAAP revenue growth, slightly ahead of August's 5.25% anticipation. Full year non-GAAP revenue guidance 7%-8%, non-GAAP margin contraction 89 basis points vs. anticipated 100 basis points.
• Sales Performance: Record sales attainment in Q1 with six competitive core wins, including three financial institutions over $1B in assets (one $7B). Closed six deals moving clients to private cloud.
• Client Conference: Successful Jack Henry Connect conference with nearly 2,600 attendees, generating significant sales leads; 17 new core wins last year from conference prospects.
• Business Highlights: Included in Newsweek's Best Places to Work, IDC FinTech rankings. Payments segment signed 4 new debit, 3 new credit clients; Complementary segment signed 7 Financial Crimes Defender contracts, 26 faster payment fraud module contracts. Banno digital solution had 12 new retail, 18 new Business clients; 12.7M registered users on Banno platform, 20% increase YOY.

Segment Performance

• Core Segment: Non-GAAP revenue increased 5% in Q1. Key revenue was 62% of total segment quarterly revenue, growing 12%, while non-key revenues (on-premise annual maintenance) decreased 4%. Non-GAAP operating margin decreased 84 basis points.
• Payments Segment: Quarterly revenue increased 6% non-GAAP. Non-GAAP operating margin grew 103 basis points. Driven by card-related risk management solutions and faster payments.
• Complementary Segment: Quarterly non-GAAP revenue growth increased 7%. Segment margin contracted 45 basis points due to amortization, licensee fees, and direct support costs, partially offset by hosting and digital revenue growth.

Guidance

• Full year non-GAAP revenue guidance 7%-8%.
• Q2 non-GAAP revenue growth expected ~6%, non-GAAP margins flat to slightly down, with strong second half expected.
• Fiscal 2025 GAAP guidance provided, with reconciliation to non-GAAP metrics.

Risks

• Fluctuations in quarterly results due to software usage license components and implementation timing.
• Impact of regulatory changes and M&A activity on revenue growth.
• Uncertainty around macroeconomic conditions affecting client spending on technology.

Question and Answer

Q: Drill down on core revenue growth A: Greg mentions pushes from hurricanes caused some deals to slip, but still had record quarter with multibillion-dollar opportunities.

Q: Impact of consolidation on revenue growth A: Election results not expected to significantly change '25 guidance; M&A activity already baked in, with conversion teams in place.

Q: Banno retail wins and third-party core sales A: Banno wins tied to core wins, NetTeller sunsetting to accelerate moves; third-party core sales efforts ongoing with different approach.

Q: Second half revenue growth drivers A: Hardware comp easing, cloud revenue growth, faster payment transactions, card volume pick-up, new products ramping.

Q: Capital allocation and M&A A: Prioritize innovation, support dividend, pay down debt, look at share repurchases; M&A on table if financially attractive and accelerates tech roadmap.

Q: Core modular platform and clients A: Strategy of moving core to public cloud resonates with prospects, emphasizing culture, service, and innovation.

Q: Loan origination platform A: Enterprise Account Opening solution in early adopter phase, launching in 2025.

Q: Data broker and CFPB rule A: Ahead of CFPB 1033 rule with direct API integrations to data aggregators; Data Broker solution in early stages, expected to drive revenue in future.

Q: Cloud migration runway A: 73% of clients on private cloud, expecting low to mid-90s penetration, with deposit-only Core ready in 2026.

Q: Card processing growth deceleration A: Modest growth due to timing of negotiations and transaction volume balance.

Q: Interest income and stability A: Stable due to timing of bank counter-party negotiations, correlated with interest rates.