Jack Henry & Associates Inc at Morgan Stanley Financials Conference Summary

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

Question: James Faucette - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>So Mimi, great to have you back here at our conference. We really appreciate you being here. Maybe we'll start off with -- I'm sure how every one of your conversations starts off, and can you outline for us kind of how you would characterize the current demand environment compared to a quarter ago when we spoke to you at our TMT conference? And in particular, anything surprised you of how conversations are evolving with customers?

Question: James Faucette - Morgan Stanley - Analyst : Right. Yes, I think a lot of the comments you have there about how you interpret your customers' mood and how they're approaching the business, echoes a lot of what we've heard so far here at the conference with banks and other financial institutions saying, hey, we're all very attuned to politics and the news flow, but the world is kind of moving on and doing so at a very consistent pace compared to what we've seen last few quarters at least. So I guess talking about that sales pipeline though, talk to us a little bit about how that has been evolving. I think most recently, you mentioned that you have about 26 migration contracts, including 7 -- the fiscal third quarter. How do you see the next 6 to 12 months in terms of transition? And in particular to your private cloud and what is Jack Henry doing right now to optimize these transitions for customers?

Question: James Faucette - Morgan Stanley - Analyst : Got it. And I know we're kind of mixing specifics with Jack Henry and macro. But I did want to go back quickly to a comment that was made last quarter or so, and that was you're generally pretty insulated from changes in the macro, and you can see that in the consistency of Jack Henry's growth. However, you did call out a little bit of consumer softness last earnings. Has that changed at all, normalized or in -- with the benefit of a little bit of passage of time, what do you think was happening there?

Question: James Faucette - Morgan Stanley - Analyst : Got it. And then one thing on just visiting in terms of like, I think there's been a lot of question, especially Jack Henry historically has benefited from M&A within the -- M&A and just within the banking segment, so for your customers. And that does have implications for your earnings, et cetera. But one of the things that seems to have been floating around in the conversations even at a high level over the last couple of days here, the conference has been -- the prospect of bank deregulation, but particularly for small and midsized banks. And one of the focuses is the point that those smaller banks are subject to the same capital requirements as their larger peers. How has your view evolved over the last several months as it relates to deregulation and maybe things like capital requirements? And what do you think the impact is on your business if changes here were to come to fruition?

Question: James Faucette - Morgan Stanley - Analyst : Got it. So let's talk about your business and strategy on a go-forward basis. One thing that you have talked quite a bit about over the last couple of years has been winning larger core competitive deals. And in particular, we've cited that aggregate assets of new core takeaways are more than -- have more than doubled over the last couple of years. How does that asset growth compare with the broader industry? And I guess maybe what I care about more is what is resonating with these larger institutions in the Jack Henry offer?

Question: James Faucette - Morgan Stanley - Analyst : Got it. And you talked about you've seen a significant -- or you expect a significant increase in competitive core wins in the fiscal fourth quarter. The macro and some of these other issues that we've talked about, does that complicate that? Or do most people feel sanguine and relaxed enough that they can go ahead with those?

Question: James Faucette - Morgan Stanley - Analyst : Got it. So I want to ask a philosophical question, and this has longer-term impacts, especially as it relates to pricing and engaging with customers. A good friend of mine is in charge of IT systems at a small bank. It's small, but they're a Jack Henry customer, and he was kind of laughing. He's like, our contract with Jack Henry has been unchanged for like decades, right? And I think the point he was kind of driving at is should there be more -- or that he was basically saying is like, look, we're surprised there's technology is always changing, et cetera, but we have these very long-term agreements. And I've had this conversation with investors as well, should there be more push to try to reengage with long-term customers, revisit pricing, create opportunities for upsell? Like what's the right thought process that we should have around that from a strategic perspective?

Question: James Faucette - Morgan Stanley - Analyst : And so let me pose the question from a different angle then. Is the level of lack of churn and retention within the industry a good thing for you? Or could we be better served at least from a business perspective, if you or others were pushing the price issue a bit more, even if it resulted in a little bit more churn?

Question: James Faucette - Morgan Stanley - Analyst : Got it. Got it.

Question: James Faucette - Morgan Stanley - Analyst : Well, to that point is like in the same conversation, I posed the theoretical like what if you did switch and use like that's probably -- once the contract and the decision is made, it's probably a four-year process in their particular --

Question: James Faucette - Morgan Stanley - Analyst : Right. No, that's exactly right. We've been going for a little over 20 minutes here. I want to see if there are any questions from the audience. Do you have anything, mic or no? Okay. All right. So I want to go back to what you mentioned on your kind of the targets that you had for the payment segment, maybe you were aggressive and optimistic there. It came in a little softer than you thought even if there wasn't much change. Just give us a little insight if that -- how much you moderator changed your outlook for the rest of the fiscal year once you kind of saw what the year was actually developing?

Question: James Faucette - Morgan Stanley - Analyst : No. Just want to make sure that we're on the same page there. So what I really want to talk about in this subject or area is your partnership with Moov for merchant acquiring. To me, it's like a very interesting and compelling potential offering that you have for your financial customers and being able to take advantage of the things that Moov has built. Can you give us some early indicators from the closed beta that was planned for June or how you expect that to develop? And ultimately, I guess, how do you see this impacting your business in the payments segment broadly?

Question: James Faucette - Morgan Stanley - Analyst : Right. Yes. No, I think it's really interesting, and you hit on a few things, whether it be the upfront underwriting as you're adding a new business or trying to gain ability to process payments as a new business plus access to capital, plus the bookkeeping relative to other players in the market, like it's an interesting nuance. I'm excited to see how banks try to bring that to their customers.

Question: James Faucette - Morgan Stanley - Analyst : For sure. So let's talk about some of the other products where you're already in flight. And I want to talk about Banno business. And just wondering, how is traction for the Banno business evolved since you reached 270 clients? And what enhancements do you have slated to strengthen your competitive position in that space?

Question: James Faucette - Morgan Stanley - Analyst : Got it. Another product question, and we have just a few minutes left here, but you mentioned that some of your customers may eventually want to jump directly to public cloud-type solutions. But what have you been hearing about regulators' willingness to allow kind of that PII to be hosted and stored fully in the public cloud? And how has that changed your pace of conversation with customers?

Question: James Faucette - Morgan Stanley - Analyst : Got it. And just last couple of things. Capital, capital allocation. Right now, you're trailing 12-month free cash flow of just over $300 million, it's about a 71% conversion rate, but you've got plans to return to your 80% to 100% free cash flow conversion levels. Where are we in that process? And how is that going to impact your allocation decision-making once you get back to those levels?

Question: James Faucette - Morgan Stanley - Analyst : Got it. And then M&A has always been a key fixture within Jack Henry. We had high valuations and then valuations come down, but maybe the capital environment was (inaudible) quarter. Where are you at right now? And what kind of opportunities are you seeing? Is M&A -- how much potential is there for that to return to be back to a meaningful contributor and part of what Jack Henry is doing?

Question: James Faucette - Morgan Stanley - Analyst : Those two things could be different, right?

Question: James Faucette - Morgan Stanley - Analyst : Got it. Well, Mimi, per usually blue through our time. I appreciate you being here today.