Jack Henry & Associates, Inc.

Welcome to the Jack Henry Third Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Vance Sherard, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the Jack Henry Fiscal 2023 Third Quarter Earnings Call. Joining me on the call today is David Foss, Board Chair and CEO, Mimi Carsley, CFO and Treasurer, and Greg Adelson, President and COO. After my opening remarks, I will turn the call over to Dave for his thoughts about the state of our business, financial and sales performance for the quarter, industry comments, and other key initiatives. After Dave concludes his comments, Mimi will provide additional commentary regarding the financial results and fiscal year guidance included in the press release issued yesterday that is available from the investor relations section of the Jack Henry website. We will then open the lines for Q&A. As a reminder, this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends, or results. Like any statement about the future, these are subject to multiple factors that could cause actual results or events to differ materially from those which we anticipate due to multiple risks and uncertainties. The company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled Risk Factors and Forward-Looking Statements. On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for non-GAAP financial measures are in yesterday's press release. I will now turn the call over to Dave.

Thank you, Vance. Good morning, everyone. We're very pleased to report another strong quarter of revenue growth and an overall solid performance by our business. As always, I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for our third fiscal quarter. For Q3 of fiscal 2023, total revenue increased 6% for the quarter and increased 8% on a non-GAAP basis. Consistent with our prior comments regarding the reduction in bank M&A this year, Deconversion revenue was down approximately 65% as compared to the prior year quarter. Turning to the segments, we again had a good quarter in the core segment of our business. Revenue increased 4% for the quarter and increased by 8% on an on-gap basis. Our payment segment performed very well, posting a 6% increase in revenue this quarter and a 7% increase on an on-gap basis. We also had a strong quarter in our complementary solutions businesses, with a 6% increase in revenue this quarter and an 8% increase on an on-gap basis. As I highlighted in the press release, our sales professionals posted an extremely strong quarter led by the core sales team. On our last quarterly call, I mentioned that the sales team set an all-time sales booking record in our fiscal Q2. Although we didn't break that record this quarter, we did set a record for the strongest Q3 in history. During the quarter, we inked 13 competitive core takeaways, so we continue at the approximately one deal per week run rate I've discussed in the past. In addition to our success signing new core clients, we signed 13 existing on-prem core customers to move to our private cloud environment. In addition to the tremendous success we've experienced in our core business this quarter, we continue to attract new clients to our digital banking suite. During the third quarter, we signed 39 new clients to our Bano retail platform, with another 35 clients signed up for Bano Business. Regarding our Bano Digital Suite, as of March 31st, we now have just over 9.3 million users live on the Bano platform. We continue to enjoy the highest consumer rating in the App Store, and we are regularly recognized as the fastest application in the industry. The feedback from our 30 Bano Business beta testing clients has been outstanding and we remain on track to deliver Banno Business into general availability later this quarter. Let me take a moment to address the banking landscape related to the liquidity challenges experienced by a couple of large regional banks in March and earlier this week. Although I'm not aware of any Jack Henry Core clients who have tapped into the Federal Reserve's new bank term funding program, I think the announcement has had a positive effect on the overall concern in the market regarding bank liquidity and I applaud the Fed on their swift and decisive action. Since those events grabbed the headlines, members of our team have spoken with hundreds of our clients, and I personally have visited with a large number of CEOs at our client banks. I'm pleased to say that our banking clients have indicated they have been largely unaffected by these events, with the exception of several who have reported an influx of new accounts as business clients look to diversify their deposit balances. Our clients typically have a diversified customer base, serve small and medium businesses, and consumers in their local communities, and have longstanding and loyal customers. So I think it's logical that they wouldn't see an adverse impact as a result of a few extreme scenarios. Also remember that a large part of our business is focused on the credit union industry, with approximately half of all credit unions with more than $1 billion in assets partnered with Jack Henry as their primary technology provider. Those clients also report being largely unaffected by the challenges in the banking sector. In late April, Intrify conducted a survey which generated responses from more than 550 bank CEOs, presidents, and CFOs, primarily at banks with less than $10 billion in assets. Approximately 77% of the respondents saw no significant inflows or outflows of deposits. 14% said they saw deposits decline by 2% or more. and 9% said they saw an increase of at least 2% in deposits. I think these results are consistent with what we've heard anecdotally from our clients. We have seen no hesitation on the part of our clients to move ahead with technology decisions since the middle of March, and as I mentioned earlier, this was the largest third quarter in terms of sales bookings in the history of our company. What's more, our sales pipeline is now larger than at any other time including a recognizable uptick in opportunities since our last quarterly call in February. I'm well aware of the challenges bankers face in today's economy and understand that things could change. But as we speak today, our clients are generally performing well, and banks and credit unions are continuing to prioritize modernization of their technology stack to remain competitive and serve the evolving needs of their account holders. Hopefully you've all seen the new corporate sustainability report that we published on March 31st. I think it's an excellent representation of the key initiatives and accomplishments we've been working on since we published our last report. In this new version, we've provided a more detailed review of Jack Henry's demographic makeup, a summary of the results of our annual employee engagement survey, an overview of our data privacy and cybersecurity practices, and an outline of our commitment to setting science-based targets through the Science-Based Targets Initiative, or SBTI, to address the reduction of greenhouse gas emissions. Additionally, the report highlights some of the public recognition we've received from organizations like Newsweek, Computer World, and LinkedIn's top companies list. As we look toward the end of the fiscal year, our sales pipeline is much larger than it's ever been, and we continue to be optimistic about the strength of our technology solutions our ability to deliver outstanding service to our customers, our ability to expand our customer relationships, and our long-term prospects for success. I look forward to seeing and chatting with many of you at our Investor Day in Denver in a couple of weeks. With that, I'll turn it over to Mimi for some detail on the numbers.