Jack Henry & Associates Inc Q3 2025 Earnings Call Transcript

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

Question: Dan Perlin - RBC - Analyst : So I wanted to get back to the question, obviously, around like large capital purchases for hardware being down. I completely understand that. The question is, are you seeing similar restraints when it comes to your more modernized projects and cloud migration? So are you starting to hear elongated implementation cycles in that kind of area? Or is it really just this non-recurring stuff that we're seeing right now?

Question: Dan Perlin - RBC - Analyst : Interesting. Yeah. That's great color. Just a quick follow-up for Mimi. You -- Mimi, you talked about M&A impacts being really kind of de minimis to this year, but you took the opportunity to kind of throw out that there could be impacts to non-GAAP revenue growth for '26. So I'm just wondering if you want to put any kind of context or a finer point around that point.

Question: Rayna Kumar - Oppenheimer & Co. Inc. - Analyst : It's actually Oppenheimer now. Just in terms of the project delays that you experienced in the third quarter, what are you hearing on a timeline? Like are these projects that could come in later this year? Or is it maybe a next year event?

Question: Rayna Kumar - Oppenheimer & Co. Inc. - Analyst : Understood. That's helpful. And then it was nice to see the strong margin expansion in the quarter. And I know, Mimi, you've spoken about 20 to 40 basis points of margin expansion as a medium-term target. Just given the strength we saw in the high-margin revenue and cost management, is that target too low?

Question: Vasu Govil - Keefe, Bruyette & Woods, Inc. - Analyst : I guess the first one, Mimi, just for you to follow up on the change in the revenue guide for the fourth quarter. It sounds like it's mostly hardware and these contract delays. But I think you also mentioned conservatism in the guide. So if you could just break apart the big drivers for the change. And then also if there's a way to size the overall hardware revenue for us so we sort of have a sense for how much that can drive volatility in growth.

Question: Vasu Govil - Keefe, Bruyette & Woods, Inc. - Analyst : Great. That's very helpful color. And then, Greg, one high-level one for you. Sort of any change in how you're thinking about your competitive positioning following the announcement from FIS to acquire the issuer business from Global Payments?

Question: Jason Kupferberg - Bank of America - Analyst : So it sounds like as we start thinking ahead to fiscal '26, there might be a couple of moving parts we need to consider on the revenue line. You've got the effect of the deconversion revenues that you highlighted as a potential headwind. But now we've got some delays in post-core add-ons being pushed into fiscal '26, which sounds like it could be a tailwind. So I'm just wondering how you think those two dynamics might net out and what the implications could be for revenue growth next year just in the context of the medium-term outlook of 7% to 8%. Is there any risk there?

Question: Jason Kupferberg - Bank of America - Analyst : Okay. No, that's definitely helpful for now. So I wanted to come back to the key revenue, the cloud plus processing. Like you said, it's now 76% of total. And you did actually see acceleration in the growth, almost 10% versus 9% each of the past two quarters. Are we going to -- are we expecting to sustain, call it, that 10% level in Q4? And is there any reason to believe that something in that kind of general neighbourhood couldn't sustain into next year?

Question: Darrin Peller - Wolfe Research - Analyst : You mentioned, obviously, the step-up in consolidation you're seeing in your end markets. So again, I mean, I know -- I think you just -- it was just brought up a little bit in the prior question around what it could mean for the future. But at the end of the day, there's positives and negatives, obviously. You have integration revenue if your customers are the acquirer or part of the merger. And then there's obviously the risk. Is -- so just number one, is this an environment that you'd say is big enough of a change in consolidation levels that you would anticipate it actually impacting growth in the next 12 to 18 months? Or are we just a little higher than normal and still watching to see? And just remind us of the positives versus the negatives? Obviously, besides just losing a customer, what could be the positive offsets in a higher M&A environment for you guys?

Question: Darrin Peller - Wolfe Research - Analyst : Yes. So I mean, where we are now? Are you -- what are you seeing? Is it -- do you see it more as a headwind or a tailwind for the next one to two years? And then really, the follow-up for me is more around you guys called out the things you're seeing around the project-related non-key revenue items and then some cyclical impacts on spend on debit, for example. But what's the demand environment like for the core business, the key areas? If you just rank order what you're seeing the most demand for right now and how that's looking from the prior couple of -- it sounds pretty good for the sales pipeline standpoint, but I'd love more color.

Question: Kartik Mehta - Northcoast Research - Analyst : Greg, I know you talked a little bit about the delay, a lot actually. I'm just wondering, has that been reflected at all in your conversations with financial institutions on their core decision? Is it -- are they kind of waiting at all to make those decisions? Or is that still business as usual, and it's only really impacting the smaller projects?

Question: Kartik Mehta - Northcoast Research - Analyst : And Greg, I know earlier in the call, you talked about the SMB product. And obviously, you have this partnership with Moov. And I'm wondering how that's going. I think you anticipated, hopefully, it would generate some revenue going into next fiscal year. And I'm wondering if you're seeing any uptake on the product or any update there?

Question: Andrew Schmidt - Citi - Analyst : I appreciate the comments on the total level of assets that you've won. It's an important distinction versus the number of FIs, so appreciate that. I know a lot of questions have been asked on the demand environment, and I'll ask in a slightly different way. I understand that these are long-term decisions, and obviously, a lot of confidence in terms of near-term conversions. Have there been any changes in terms of the mid to upper funnel when we think about just how FIs are working through the decision-making process? Just curious when we get -- I know it's a little bit early, but just curious in terms of the earlier part of the funnel, if you're seeing anything there.

Question: Andrew Schmidt - Citi - Analyst : Got it. Super helpful. And then when we think about just the headwinds that you're seeing, obviously, a lot of this you mentioned is timing. But we have seen in previous cycles that discretionary projects get pulled back, and sometimes they don't materialize for some time. So is there an element -- how large is that discretionary component versus nondiscretionary component when we think about just the headwinds that we're seeing here?

Question: Andrew Bauch - Wells Fargo - Analyst : Just wanted to revisit how this business operates through the cycle. I know -- appreciate the defensiveness and the recurring nature of all of it. But if we were to go into a more pronounced recession, how would we kind of handicap the impact there? Is it just the trends that you would see today would be more pronounced? Would there be changes to kind of the core pricing strategy? Just trying to understand the recessionary scenario.

Question: Andrew Bauch - Wells Fargo - Analyst : Understood. And then if I could, just a follow-up question. Just wanted to put a finer point on the consolidation activity you've been seeing. Could you give us a sense on the -- a little bit more around what you're seeing? Is it from a bank size, could be an AUM? Is it across banks versus credit unions? Just additional -- like a little bit more targeted on where you're seeing that activity pick up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:45PM, JKHY.OQ - Q3 2025 Jack Henry & Associates Inc Earnings Call

Question: James Faucette - Morgan Stanley - Analyst : Apologies for the background noise. Just wanted to follow up on that comment there, Greg, around competition, competitive intensity. Just wondering how that's -- if you've seen that manifest at all in terms of like your engagements or win rates or even pricing intensity thus far. And how are you expecting that to evolve, especially as there does seem to be some increased focus from historical competitors?

Question: James Faucette - Morgan Stanley - Analyst : That's great color. And then, I guess, associated with that, I just want to ask back on Banno. How has traction trended with Banno Business? I know it's early, but can you update us on the go-to-market, particularly given some of the implications of -- on the competitive front and how you're thinking about that as a product enhancement to the portfolio?

Question: John Davis - Raymond James - Analyst : Greg, I just want to circle back on core wins. And I'll echo Andrew's comments, the asset size, it's helpful. You've historically given us kind of a number of wins. Now you're giving us assets. But I guess the real question -- and maybe if you can help us directionally think about ACV, right? So if assets year-to-date are up almost 50%, I'm sure ACV has gone up 50%. But how do we think about number versus assets? And like what really matters, is kind of dollars of revenue contracted? And so maybe just help us directionally kind of correlate the asset size to kind of an ACV.

Question: John Davis - Raymond James - Analyst : But I guess it's safe to say that asset is more important than number. Is that a fair assessment?

Question: John Davis - Raymond James - Analyst : Okay. No. Understood. Mimi, one quick one for you on margins. How should we think about the margin implication of kind of the nonstrategic revenue runoff? Is this lower-margin business, and therefore, could be a margin tailwind as that kind of revenue rolls off? Or is it higher margin? Just help us think about that and any impact that may have had, not only this quarter but for the full year guide as well.

Question: John Davis - Raymond James - Analyst : Okay. And want to squeeze one last quick one in, if I can, Mimi, free cash flow. I think the midpoint of your guide would imply free cash flow below 100% in the fiscal fourth quarter. At least in my model going back, it's never been below, I think, like 120%. So just curious if there's anything specific around free cash flow that you see coming in the fourth quarter that we should be aware of or any other comments there would be helpful.