Jack Henry & Associates Inc at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : So let's jump right in. On the top line, you've been growing at a higher rate than competitors in the market, guiding to 7% to 8% adjusted revenue growth for 2025. What are the key drivers that enable you to deliver that above-market growth rate?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. And I want to come back to the momentum because that was a big focus on the Investor Day last week. One of the things I wanted to hit on is just on the private cloud migration. You've been very consistent in providing updates in just the pace of migrating our customer base over to your private cloud solution. When we look at the growth algorithm historically, how much of that on-prem to private cloud shift and the doubling of ARPU that that entails, how much of that impacted the total revenue growth? And just where are you in that process? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 3:10PM, JKHY.OQ - Jack Henry & Associates Inc at Goldman Sachs Communacopia & Technology Conference

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes, that makes sense. Maybe we can take a step back and look at just the overall macro environment and realizing that the business is not that macro sensitive, but I guess we usually talk about the spending environment, bank spending priorities, how the macro impact is impacting the customer base. What do you see when you talk to customers?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : And I mean, is this even the right question to ask, I mean schools of thought are banks are going to spend more money on tech every year, and it's just what are they spending on? I think there's another school of thought that wants to think about more like an enterprise software spending cycle. So I mean when you see it on the ground, how much does the macro actually impact what banks are willing to spend in any given year?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. Makes sense. So switching gears to the competitive environment, in addition to the private cloud migration, the consistent stream of core takeaways has been kind of a hallmark of the performance of the company. So are you seeing any meaningful shift in the competitive intensity in the business? And how do you think about just the sustainability of that, I think, elevated level of core wins that you saw last year?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. I think one of the notable things was I think the entirety of the acceleration last year was focused on banks, over $1 billion, which was very notable kind of the continued shift upmarket. So I guess, specifically, if you talk about winning larger and larger banks, how do you think about that progression going forward?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Right. Okay. Maybe moving on to the Payment segment. The Payments segment came in stronger than anticipated this past quarter. There's been a lot of focus just in the broader industry around the pace of U.S. transaction growth and how that impacts both payments companies and issuer processing businesses like Jack Henry. That's obviously more of a same-store sales dynamic to the algorithm. But how do you think about some of the other drivers around that business going forward?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Got it. That makes sense. And I do want to come back to the SMB strategy that was announced. But before we do that, maybe we can talk to the Complementary Solutions segment and kind of round out the discussion. I know there's so many solutions in this segment, it's kind of hard to make generalizations. But when you think about a typical FI partner over the life of a 7-year core contract, what do you typically see in terms of utilization of Complementary Solutions, ongoing conversations to upsell the customer over time? And just kind of how does it fit into the broader relationship?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. That makes sense. You mentioned just the anchor products. Do you foresee a time in the future where the anchor products are kind of large enough to talk about in isolation?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. Totally get it. You mentioned kind of selling to noncore customers. And one thing that's been a focus has been the strategy of selling Banno outside the base. Could you give us your latest thoughts on that sales motion and kind of what the plan is for broader distribution? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 10, 2024 / 3:10PM, JKHY.OQ - Jack Henry & Associates Inc at Goldman Sachs Communacopia & Technology Conference

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. Makes sense. Okay. I wanted to shift gears, talk about the tech modernization strategy. It was a big focus at the Investor Day. Can you maybe provide just high level the latest updates on this initiative and how you kind of see it going forward?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. And then if you think about just the financial impacts of that strategy, how do you think about just upfront investment and then sort of the benefits of that conversion whenever that does start in the industry?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. Okay. Great. Okay. I wanted to shift gears, talk about the SMB strategy. I know it's one thing Greg has been really passionate about since he took over the helm, and we heard a little bit about it at the Investor Day. It seems like acquiring is a big part of that offering. I know Jack Henry is not becoming a merchant acquirer like some of your competitors have. But you have been notable among your peers in not really, I guess, distributing or partnering with merchant acquirers as much to distribute payments in this product. Maybe can you talk about how you're thinking around that strategy has evolved around maybe the ability to monetize your distribution into the banking channel?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. No, the demo at Investor Day was very cool. I guess as it relates to customer conversations, what has been the bank response to the product?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Yes. Okay. I wanted to talk through the margin profile. If we look at the 2025 guide, you're guiding to 25 to 40 basis points of margin expansion, kind of right around the long-term targets. How do you see the trajectory of margins going forward? And where do you see further room to optimize in the business?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : And I wanted to touch on the topic of product rationalization. I think you shared some stats at the Investor Day. I think it was kind of like 75% of the business, 70% of the revenue, growing double digits. And you talked about kind of sunsetting or cash-flowing some noncore products that maybe aren't growing, are slow or maybe that are duplicative. And so when you talk about the product rationalization strategy overall, do you view this as sort of additive to that margin framework that you've discussed or is this kind of part of how you get there?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Got it. Got a couple of minutes left. One of the things I thought was notable, I think you guys noted a lot more kind of bullish on the prospect of bank M&A. I think you said latter half of this year and certainly into the following year. And so kind of a 2-part question, just what's kind of driving the optimism around bank M&A? And then second, I mean, it comes up a lot in conversations, and you've been really consistent in saying that M&A is usually a benefit to Jack Henry. I think for people who are less familiar with the story that's often counterintuitive because it sounds like the industry is consolidating. So could you talk about the outlook for bank M&A, but then maybe more importantly, why is M&A a good thing for Jack Henry?

Question: Will Nance - Goldman Sachs & Company, Inc. - Analyst : Great. Well, I think with that, we're out of time. But Mimi, thanks for joining us today.