Jack Henry & Associates Inc Q4 2024 Earnings Call Transcript

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

Question: Andrew Schmidt - Citi - Analyst : Hi, Greg and Mimi. Thanks for taking my questions. I guess just to drill down on the fourth quarter core and complementary performance. And I know you're right, fiscal year metrics are the best way to look at the business, but was there anything for the fourth quarter that affected revenues there, timing shifts or perhaps the some of the things you called out for the fiscal first quarter that impacted results, or was it truly kind of tough comps? Thank you very much.

Question: Andrew Schmidt - Citi - Analyst : Got it. Appreciate that. And then, maybe, I could ask a question on just the new wins side. Step-up in new core signed above $1 billion in assets is pretty bright spot. Obviously, there's multiple factors that drive that, but is it possible to spill that down? Is it products? Is it go to market focus? What's driving the move up market? I know that's been a theme in the past several years, but it seems like you're making faster progress towards shifting towards higher asset size institutions. So, I would love to get some more color there. Thank you very much.

Question: Andrew Schmidt - Citi - Analyst : Got it. Thank you very much, Greg. Appreciate the comments. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:45PM, JKHY.OQ - Q4 2024 Jack Henry & Associates Inc Earnings Call

Question: Vasu Govil - Keefe, Bruyette & Woods North America - Analyst : Hi. Thanks for taking my question. First one for you, Greg, just as you have taken over the wind, any sort of strategic changes that you are envisioning for the company that the company might need? And where are you focusing more of your efforts at this point?

Question: Vasu Govil - Keefe, Bruyette & Woods North America - Analyst : That's very helpful color. And then a quick one for you, Mimi. Just on the payments segment, it was good to see the acceleration in revenue growth there. I know you called out fraud-related services. I guess just maybe if you could put a finer point on whether all of the acceleration was these value-added services because I think the debit numbers we saw from Visa, MasterCard were pretty consistent sequentially.

Question: Vasu Govil - Keefe, Bruyette & Woods North America - Analyst : Thank you very much.

Question: Jason Kupferberg - BofA Global Research - Analyst : Good morning, guys. I just wanted to start on the margin side. I know that you've comfortably beat your initial fiscal '24 guidance on the margin line. The initial fiscal '25 guide calls for less margin expansion than in 2024. So, is this reflective of some ongoing conservatism, or were there some transitory tailwinds last year you don't expect to recur? I know you're starting off the year down about 100 basis points in Q1, but just wanted to get a little bit of more color on the margin outlook, please.

Question: Jason Kupferberg - BofA Global Research - Analyst : Okay. That's helpful. Just a follow-up on the payments segment. I wanted to hone in on card production a little bit. I know on the issuer processing side, it sounds like things are pretty stable, but there had been some softness in card production earlier in the year. Did you see some reversal of that? What are you expecting for FY25 on the card production side?

Question: Jason Kupferberg - BofA Global Research - Analyst : Excellent. Thank you, Mimi.

Question: John Davis - Raymond James - Analyst : Hey, good morning, guys. Greg, I wanted to circle back to core wins. I think you called out 15 of greater than $1 billion in assets versus five just a year ago. Just curious where that stacks up historically? Has it always kind of been in the low to mid-single digits and now we had a big step up? And then, also you called out that your average client is larger today. Any context behind that, like, it's X percent bigger than it was five years ago, or any color to help us contextualize the kind of moving up market?

Question: John Davis - Raymond James - Analyst : Okay. And that's super helpful. And then, Mimi, I want to drill in on free cash flow a little bit. Obviously, much better in the fourth quarter, I think, at least we expected and for the full year relative to your initial outlook. But if I adjust out the $29 million of over payment in '23 that, I guess, you got back in '24, I still get free cash flow conversion around 80%. So, maybe just help me kind of walk from the 80% to the, call it, midpoint of 70% that you're talking about for we're expecting in fiscal '25? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:45PM, JKHY.OQ - Q4 2024 Jack Henry & Associates Inc Earnings Call

Question: John Davis - Raymond James - Analyst : Okay. No, very helpful. Thanks, guys.

Question: Will Nance - Goldman Sachs - Analyst : Hey, guys. Appreciate you taking the question. I just wanted to follow-up on the 1Q guidance and sort of the trajectory over the course of the year. I know there are some kind of seasonal impacts that typically hit the first quarter around the annual maintenance. I think you've kind of just touched on that. But I think you also referenced processing on the payments side. So, maybe, can you just drill down on sort of expectations, I guess, maybe stripping around -- stripping out the annual license impacts? What are the kind of embedded assumptions around the payments segment in 1Q? Should we expect that kind of the 8% level to continue into next year? And then, maybe just talk about drivers of the acceleration over the course of the year outside of some of the annual fees that you've just hit on?

Question: Will Nance - Goldman Sachs - Analyst : Yeah. That's all super helpful. And then, maybe just more big picture on the payments segment. Got a lot of questions on just what the building blocks for growth there, knowing that issuer processing is a big part of that business. There's been a lot of discussion around the kind of domestic debit transaction trends, kind of, more broadly and just what the growth algo is there. I guess, in a world where debit transactions are growing 6%, what is -- what do you see as kind of the most important driver for growing more in line with sort of how you frame the long-term targets in the segment? You called out enterprise payments, I believe, today. Just what in your mind are kind of the big building blocks to get to the segment targets there?

Question: Will Nance - Goldman Sachs - Analyst : Got it. Great color. Appreciate you taking the questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:45PM, JKHY.OQ - Q4 2024 Jack Henry & Associates Inc Earnings Call

Question: Cris Kennedy - William Blair & Company - Analyst : Good morning. Thanks for taking the question. Clearly, new sales activity has been very strong, but you're going with larger institutions. Is there any impact on kind of the timeline to implementation of some of these newer wins?

Question: Cris Kennedy - William Blair & Company - Analyst : Great. Thanks for that. And then, just a quick one on return on invested capital. Obviously, it's very high, but it has come down over the last couple of years. Any thoughts on kind of the long term opportunity with that metric? Thank you.

Question: Cris Kennedy - William Blair & Company - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:45PM, JKHY.OQ - Q4 2024 Jack Henry & Associates Inc Earnings Call

Question: Kartik Mehta - Northcoast Research - Analyst : Hey, good morning, Greg. Greg, I wanted to just get your perspective on the core business. I know the focus should be the year, but after saying that I'm going to talk about the quarter, so I apologize for that. Fourth quarter maybe a little bit lower than expectation. But I'm wondering, as you look at FY25, considering all the core wins you've had, is that a business that you think segment that continues to grow kind of in line with the overall revenue growth of the company?

Question: Kartik Mehta - Northcoast Research - Analyst : Makes sense. And then, just on pricing, I know this is always a competitive industry and whenever you have renewals, pricing gets competitive. But just in general, any change in the environment in the last three, six months that you've noticed?

Question: Kartik Mehta - Northcoast Research - Analyst : Perfect. Thank you both Really appreciate it.

Question: Peter Heckmann - D.A. Davidson & Company - Analyst : Hey, good morning. Wanted to follow-up on Banno a little bit and just see I mean [927] on Banno Retail I think you said, that's really impressive. And can you talk about how many clients you still might have on NetTeller or maybe your mobile digital banking product? And how do you think about the growth of Banno once you substantially upgraded most of your clients from the older systems?

Question: Peter Heckmann - D.A. Davidson & Company - Analyst : Okay. All right. That's helpful. And then just in terms of M&A, clearly the pace of M&A has slowed. And just curious like how much of that is Jack Henry's suite of solutions is largely filled out and there's no longer any holes, but are there other effects to the extent that like the industry is less fragmented, there's not as many small players or valuation? How are all those playing into the outlook for M&A?

Question: Peter Heckmann - D.A. Davidson & Company - Analyst : Okay. Good stuff. I'll look forward to seeing you in a few weeks.

Question: Charles Nabhan - Stephens - Analyst : Good morning, and thank you for taking my question. You had mentioned that roughly 73% of your clients are now in the public cloud, I think that's up from 69% at the on the Investor Day last year. My question is how much runway is left on to move your client base to the cloud? And if you could talk about what that could mean for revenue uplift, I think you had cited two times revenue uplift in the past from additional cross-sell as well as some margin benefits as well? Any commentary around that would be helpful.

Question: Charles Nabhan - Stephens - Analyst : Got it. I'm sorry if I cut you off, but my follow-up was around sort of a follow-up to Kartik's question around segment outlook. If I compare fiscal year '24 results to your normalized guide, it looks like core came in a little ahead, whereas complementary and payments were a little below the normalized guide. And just putting aside quarterly cadence, I know you had cited some softness in maintenance, which I think flows through core. Could we expect more of a normalized annual cadence of revenue growth next year, more with core coming in the 6% to 7% range and payments and complementary in the 8% to 9% range?

Question: Charles Nabhan - Stephens - Analyst : Got it. Thank you.

Question: Dave Koning - Baird - Analyst : Yeah. Hey, thanks guys. And I guess my question is a little similar just on what normalized growth is. I guess, if Q1 is 5.25%, the rest of the year has to average around 8.25% to hit the midpoint of the range. And I guess that's a little above normal. And I guess are any segments going to outsize kind of accelerate from Q1? Or is it really just getting all segments in that 8% range kind of the rest of the year?

Question: Dave Koning - Baird - Analyst : Yeah. Okay. Thank you. And maybe one just -- I guess one follow-up question. Net interest income, if we look at the interest income less interest expense, was a positive $5 million or so in the quarter. It was better than it's been in a while. But you have a net debt position. So, I'm wondering how you get a pretty sizable net interest income when you have a debt position and if that's sustainable?

Question: Dave Koning - Baird - Analyst : Got you. Thanks, guys.

Question: James Faucette - Morgan Stanley - Analyst : Hey, good morning. Thanks for the time this morning. Wanted to just ask a quick follow-up question on a couple of points. First, on your customers and their priorities, given where we are in the deposit cycle and the prospect of a return to loan growth next year with lower interest rates et cetera, how have you seen if at all your customers change prioritization in terms of where they're looking to invest between deposit attraction and retention tools versus lending? Are we seeing any change in your customers' focus and priorities right now?

Question: James Faucette - Morgan Stanley - Analyst : Great. Appreciate that. Greg, I wanted to follow up on the comment you made in terms of implementation queues and how wondering how those are trending broadly? And how are you thinking about the puts and takes between margin expansion you're delivering right now versus the potential for additional resource allocation to speed up those implementations broadly?

Question: James Faucette - Morgan Stanley - Analyst : Great. Thank you so much.