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spk33: Good morning and welcome to the Jack Henry Fourth Quarter 2024 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 Vance Sherrard, Vice President, Investor Relations. Please go ahead.
spk31: Thank you, Drew. Good morning, and thank you for joining us for the January 4th quarter and full year 2024 earnings call. Joining me on the call today is President and CEO Greg Adelson and Mimi Cartley, CFO and Treasurer. After my opening remarks, I will turn the call over to Greg for his comments on our fourth quarter results and observations related to our business and the industry. Mimi will then provide commentary around the financial results and fiscal 25 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 can 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 Greg.
spk30: Thank you, Vance, and hello, everyone. I appreciate all of you joining this morning's call. We are very pleased to report strong sales and financial performance in the fourth quarter and for all of fiscal 2024. I want to especially thank all of our associates for your hard work, dedication, and unwavering commitment that significantly contributed to these outstanding results. I will begin with a summary of what I believe are the three main takeaways and then provide additional detail on all areas of our business. We produced record revenue and operating income for fiscal 24 with $2.2 billion in revenue and $489.4 million in operating income. Our sales team set an all-time record for sales booking for both the fourth quarter and the fiscal year that included 22 competitive core wins in the quarter and 57 for the fiscal year. We signed 15 new core contracts this fiscal year with financial institutions that have over $1 billion in assets compared to only five in fiscal 2023. This was a direct result of our technology modernization strategy and execution, one Jack Henry initiative, and several new innovative solutions. Now for more detail on each of these takeaways. For the fourth quarter, total revenue increased 5 percent and increased 6 percent on a non-GAAP basis. For the fiscal year, total revenue increased 7 percent on a GAAP and non-GAAP basis. Operating income increased 1 percent for the quarter and increased 5% on a non-GAAP basis. For the fiscal year, operating income increased 2% and increased 10% on a non-GAAP basis. As I mentioned, the fourth quarter was the highest quarter for sales bookings in the history of the company, and we set a new record for sales bookings for the fiscal year. I am very proud of the remarkable year by our sales team. The 15 core clients signed with over $1 billion in assets also was a new fiscal year record. Of those clients, 10 are banks and five are credit unions. Over the past four years, we have continued to see an increase in the average asset size of our core clients. Average assets for our bank clients have increased to $1.35 billion, a 27% increase over the past four years. Average assets for our credit union clients have increased to $1.27 billion, a 34% increase over the past four years. In addition to the 22 competitive core takeaways in the quarter, we re-signed one long-term client with about $6 billion in assets that had provided the termination notice to us a little more than two years ago. That client never deconverted to the competing core platform. They've now re-signed with us for multiple years and multiple new solutions. While this contract is not in our new core win numbers, It is noteworthy that they decided their best choice was to stay with Jack Henry for multiple more years. For the quarter, we also signed 15 contracts to move existing in-house core clients to our private cloud environment. We finished fiscal 24 with 44 existing clients agreeing to move to our private cloud. We now host 73% of our core clients in our private cloud. Several of our complementary and payment solutions also experience extremely high demand, with our digital suite leading the way. For the quarter, we signed 45 new clients to our Bano retail platform, as well as 50 new Bano business deals. For the fiscal year, we closed 179 new Bano retail contracts and 164 new Bano business contracts. Bano continues to experience exceptional growth. We currently have 12.2 million registered Bano users as compared to 3.2 million at the same time in 2020. We have 924 Bano retail clients, and of those, 147 are live with Bano Business, and another 81 are in various stages of implementation. We also continue to see increasing success with our card processing solution, signing 21 new card processing clients this quarter and 56 for the fiscal year. We received 16 new financial crimes defender contracts in Q4 and 52 for the fiscal year. In addition, we signed 53 new contracts for the financial crimes defender faster payment fraud module for the quarter and 134 for the fiscal year. This real-time solution is designed to help mitigate fraud in Zelle, FedNow, and real-time payment transactions. As of June 30th, we have 52 financial crime installations completed and another 115 in various stages of implementation. We also have 22 faster payment modules installed and 154 in various stages of implementation. I am asked regularly why I believe we continue to see significantly more new competitive core wins than our competition. While I believe there are many reasons, I've tried to boil it down to three primary themes. First, our associates. We have a happy and engaged workforce, and we believe that leads to having a do-whatever-it-takes attitude with our clients. Our associate engagement scores are well above the industry benchmark, and we consistently win best workplace awards each year. We are pleased to recently receive recognition in three national publications, U.S. News & World's Report's Best Companies to Work For, Time Magazine's Best Midsize Companies, and Newsweek's greatest workplace. Second, our service quality, which is a direct result of our engaged and dedicated associates. We have long been known for providing exceptional customer service, and this year was no exception. In fiscal year 2024, our client satisfaction score when rating the engagement with a client service representative averaged 4.74 per month on a five-point scale. On that scale, a meets expectation is 3.0 and extremely satisfied is 5.0. You have to have a lot of fives to average a 4.74. The third theme is technology innovation. We continue to invest in technology to help our clients remain vibrant financial institutions in the markets they serve. We are executing our technology modernization strategy while bringing new leading edge solutions to the market before our competition. A couple of final items. We are looking forward to our annual client conference, Jack Henry Connect, in October. This is a great opportunity every year for us to meet with prospects, clients, and partners. Last year, 17 of our new core wins were with prospects who attended the conference. As I reflect back on fiscal 2024, I want to again thank Dave Voss for his outstanding leadership as CEO for the past eight years. I am honored and humbled to take over as CEO and excited, along with our entire leadership team, about the opportunities ahead. We are executing on our strategy, and our associate engagement and client satisfaction scores are consistently strong. Technology spending by financial institution remains robust, and there's clear demand for our differentiated and innovative technology as validated by our strong quarter and fiscal year. We are very well positioned for future success. I look forward to seeing and speaking with many of you at our Investor Day in Dallas on September 5th. We have an exciting agenda and we'll have several of our new business leaders available for a meet and greet as well. With that, I will turn it over to Mimi for more specifics on our financials.
spk38: Thank you, Greg, and good morning, everyone. Our continued focus on serving our community and regional financial institution clients and delivering shareholder values led to another quarter of solid revenue and earnings growth. I will start with the details driving our fourth quarter and full year results, then conclude with the fiscal 25 guidance. Q4 gap revenue increased 5% and non-gap revenue increased 6%, a continuation of the consistently solid performance. Full year growth was 7% on both a gap and non-gap basis. Fourth quarter deconversion revenue of approximately $7 million, which we pre-released, was down approximately $8 million, reflecting minimal financial institution consolidation of our clients. Full-year deconversion revenue of $17 million, $15 million less than the prior year, was consistent with guidance. Now let's look more closely at the details. GAS services and support revenue increased 2%, while non-GAS increased 4%. For the year, the increase was a healthy 5% for GAS, and 6% on a non-GAAP basis. Services and support growth during the quarter was the result of volume increases in data processing and hosting revenue and consulting revenue, partly offset by decreases in deconversion, implementation, and maintenance fee revenue. We continue to experience impressive growth in our private and public cloud offerings, which increased 11% in the quarter, 10% for the year. This reoccurring revenue contributor is 31% of our total revenue and has long been a key double-digit growth engine. Difting to processing revenue, which is 42% of total revenue and another key component of our long-term growth model, we saw robust performance with 9% growth on both a GAAP and non-GAAP basis for the quarter and for the year. Consistent with recent results, Quarterly drivers included increased card, digital, and payment processing revenue. Completing commentary on revenue, I would highlight the total recurring revenue exceeded 91%. Next, moving to expenses. Beginning with the cost of revenue, which increased 6% on both the GAAP and non-GAAP basis for the quarter, and 7% for GAAP versus 6% for non-GAAP for the full fiscal year. Drivers for the quarter included higher direct costs, higher personnel costs, and increased internal licenses and fees. Next, R&D expense increased 4% on both a GAAP and non-GAAP basis for the quarter. The quarterly increase was primarily due to increased consulting and other professional services, net capitalization, and a higher cloud consumption cost net of capitalization. For the year, R&D expense increased 4% on GAAP basis and 3% for non-GAAP. Ending with SG&A expense for the quarter on a GAAP basis, it increased 6% and 13% on a non-GAAP basis. The quarter GAAP increase was due to higher personnel costs and increased professional services. The non-GAAP quarterly increase was impacted by the one-time expense from the write-off of capitalized software development related to internal software tools. Without this one-time expense, the quarter increase would have been 8%. Full-year SG&A expense increased 18% on a GAAP basis and 10% non-GAAP. The primary GAAP impacts were the $16 million in one-time costs related to the Voluntary Early Departure Incentive Program, DGIP, and a prior period $5 million gain on asset sales. The non-GAAP increase is driven primarily by higher personnel costs. We remain focused on generating compounding margin expansion. While the quarter results delivered 22 basis points decrease in non-GAAP margins to 22%, full-year margin expansion was 60 basis points on a non-GAAP margin of 23%. Non-GAAP margin benefited from the focused process improvement and disciplined management of our workforce. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.38, up 3%. Fiscal 24 fully diluted EPS was $5.23, up 4%. facing a 37-cent headwind from previously mentioned VDIP, a gain on asset disposal the prior year, and lower deconversion rates. Breaking down the results into the three operating segments, we are pleased to see positive performance across the board. Our core segment revenue increased 4% to the quarter on a non-GAAP basis against PubCom. Non-GAAP operating margin increased 171 basis points, CORE continues to benefit from private cloud trends and strong cost control. Full-year non-GAAP revenue was 7%, and the associated margin increased 135 basis points. Payment segment quarterly revenue increased 8% on a non-GAAP basis. The segment had impressive non-GAAP operating margin growth of 183 basis points. Revenue growth was due to continuing growth in our EPS business, and strong card growth from fraud and card-related services, with lever growth consistent with U.S. consumer spending trends. Margin benefited from focused cost management, and for the full year, non-GAAP revenue growth was 7 percent, with 124 basis points of margin expansion. Finally, complementary segment, quarterly non-GAAP revenue increased 6 percent, with 75 basis points of margin contraction. Margin contraction was due to direct support costs, amortization, and licenses and fees. Fiscal year non-debt revenue increased 8% with two basis points of margin expansion. Full year growth continued to reflect digital solution demand and beneficial overall product mix. Now let's turn to our view of cash flow and capital allocation. Fiscal 24 operating cash flow was $568 million. $186 million increase over the prior period. Excluding proceeds from sale of assets, free cash flow was $336 million, significantly more than the $175 million generated last year. Free cash flow conversion was 88%. Our commentary entering this year included an elevated level of cash tax payments based on the negative Section 174 impact. Based on legislative clarity and internal efforts, we were able to meaningfully lessen the impact. The net result was lower cash taxes, equating to an approximate $29 million overpayment last fiscal year. Our consistent dedication to value creation resulted in a trailing 12 months return on invested capital of 20%. Additionally, I would highlight other notable return on capital metrics for the year, including $28 million in share repurchases, more than offsetting annual deletion, $125 million in debt reduction, and $156 million in dividends. Heading into a new fiscal year, I will conclude with guidance. As you are aware, yesterday's press release included fiscal 2025 full-year gas guidance, along with an enhanced transparency reconciliation non-gas guidance metric. While the press release also includes a fiscal 25 non-GAAP ETF metric, this is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers, for example, current acquisition year-over-year comparison. And it should be noted that a 24% tax rate is used. Deconversion guidance will continue to follow the methodology introduced in fiscal 24, And for fiscal 25, deconversion revenue guidance is $16 million. Full-year GAAP and non-GAAP revenue guidance is 7% to 8%. Based on the above revenue growth that generates sustainable accretive sources of margin, we're guiding to an annual non-GAAP margin expansion of 25 to 40 basis points. All of the above are aligned with our near-term targets as the business operates operations remain healthy and consistent. Full year tax rate estimate for fiscal 25 is 24%. The above guidance metric results in a full year guidance for GAAP EPS of $5.78 to $5.87 per share, a growth of 11 to 12%. Fiscal 23 has lower than expected free cash flow conversion due to a cash tax overpayment which resulted in fiscal 24 having a better-than-expected conversion metric. Absent further legislative action, fiscal 25 will be a reversion to the expected trend line resulting from the expiration tax benefits in Section 174. As such, our full-year expectation for free cash flow conversion is 65% to 75%. Our current view has a cadence of fiscal 25 non-GAAP revenue and margin increasing sequentially throughout the year. This increasing cadence will result in a strong second half that will be more pronounced than typical. Consequently, Q1 is expected expectation for non-GAAP revenue growth is approximately 5.25% and non-GAAP margin to contract approximately 100%. This is due to slower growth rates on on-premise annual maintenance and card processing. An additional factor is several long-term software usage contracts closing in Q1 of the prior year, which delivered significant allocation of license fees in that same quarter. The rest of the year improved strongly with limited risk, resulting in the full-year guidance remaining consistent with our near-term targets. As a reminder, we see fluctuations in quarterly results relating to software usage license components, along with the timing of implementation. Therefore, the correct performance indicator for our business is the consistently strong fiscal year financial results. In conclusion, Q4 and full year results reflect strong performance and achievement of our targeted goal. We entered fiscal 25 with positive momentum, and expect to drive impressive revenue growth and margin expansion. We remain exceptionally positive about demand for our solution and the strength of our clients, resulting in superior shareholder value creation. We appreciate the contributions of our dedicated associates that drove these strong results and our investors for their ongoing confidence. Drew, please open the line for questions.
spk33: Certainly. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Andrew Schmidt with Citi. Please go ahead.
spk27: Hi, Greg. Hey, Mimi. Thanks for taking my questions.
spk25: I guess just to drill down on the fourth quarter for complimentary 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 some of the things you called out for the fiscal year? you know, first quarter that impacted results, or was it, you know, truly kind of tough comps? Thank you very much.
spk38: Morning, Andrew. I appreciate the question, although I would reiterate, just as you just mentioned, the importance of looking at our year on a year-long basis rather than the quarters. I don't see any trends that I think structurally will continue that we would call out. I think it was mostly just You always have to look at what is the installation queue, what's going on, what's going on with that shift from on-premise to outsourcing. And so I think it was just a matter of this quarter playing out in that pattern.
spk27: Got it. Appreciate that.
spk25: And maybe I could ask a question on just the new wind side, you know, step up in new core signed above 1 billion in assets. It's pretty bright spot. What, Obviously, there's multiple factors that drive that, but is it possible to distill that down? Is it product? 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 we'd love to get some more color there. Thank you very much.
spk30: Sure. Andrew, this is Greg. So, yeah, thanks for the questions. I think, you know, as I tried to reference a little bit in the script, but, you know, more importantly, it is about our level of execution. We're hearing this on a regular basis that, you know, I think you know this and most people do, that we do provide to our clients what our roadmaps are, and we show what we're going to be doing and when we're going to be doing it. And I think there's a level of trust and belief. And so the more that we're executing, the more that our technology innovation getting out there and they're seeing the results and it's providing a really an opportunity for us to get in front of these larger customers first of all and then second of all you know as we mentioned our associates and our client service reputation continues to truly shine especially at a time when when maybe it's not in the rest of the industry so those have been big And then, you know, I think we've also hired some really good and talented sales individuals that have come with experience in selling into these larger institutions, and that's continued to help us as well. But I think it's a combination of all those things that are coming to fruition and allowing us to be successful.
spk26: Got it. Thank you very much, Greg. Appreciate the comments. Sure.
spk33: The next question comes from Vasu. Goville with KBW. Please go ahead.
spk35: Hi, thanks for taking my question. First one for you, Greg, just as you have taken over the reins, any sort of strategic changes that you were envisioning for the company that the company might need and where are you focusing more of your efforts at this point?
spk30: Yeah, no, I mean, fortunately I took over for an individual that did a pretty good job. So, yeah, nothing significant. I mean, we've been able to really make a very, what I would say, a very smooth transition. And so, you know, we're focused on some things that I've talked about. You know, obviously the execution of the tech modernization strategy and what we've been doing with One Jack Henry continues. I've talked a little bit, and we'll talk a lot more at the investor day about our SMB strategy and where we're going with that. So there's a lot of excitement behind that that we'll be unveiling. And then there's a couple of things that we've talked around product rationalization and really looking at things primarily in the complementary group that maybe aren't growing at the same pace as the rest of our company or have the margins and looking at what we want to do with those particular things. A lot of them are very small. But again, just making sure we stay focused on the things that really do move the needle. But I wouldn't say anything else really outside of that. and just staying true to who we are as a company and our leadership team.
spk35: That's a very helpful color. And then a quick one for you, Mimi. Just on the payment 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 define a 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.
spk38: Yeah, the payments is segmented at 8.4% growth for Q4, and more importantly, the 6.7% growth for the full year. It was a big year for payments, especially given, you know, throughout the year some economic uncertainty around the strength of the U.S. consumer. We're seeing the trends from that, you know, being in line with our expectations. still healthy but not over exuberant from a spending perspective. The nice thing about our payments business is not just ours. We have other businesses. We have the EPS business. We have the pay center business. Those are doing quite well. We're seeing a lot of demand, especially as the continuation of real-time payments excitement, the fraud solutions that are helping people feel more comfortable in going to these newer solutions. So those two businesses are doing quite well from a processing and the remit business overall has been healthy. Within CARD, as you mentioned, we do have a whole portfolio of complementary services that surround the CARD transaction, and we're continuing to see nice demand for those services. So that's really helping us from a total portfolio perspective.
spk36: Thank you very much. You're welcome.
spk33: The next question comes from Jason Kupferberg with Bank of America. Please go ahead.
spk29: Good morning, guys. I just wanted to start on the margin side. I know that you 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 to about 100 basis points in Q1, but just wanted to get a little bit more color on the margin outlook, please.
spk38: I appreciate you bringing up that important point. Margin expansion is, you know, one of the key elements that we are focused on as a management team. We're quite disciplined as we think about the cost of the organization and yet building for a scale of future success. I would say there's a couple of things. I don't think it's an excessive I think that's what we feel confident that the market and the model generate. But there are some headwinds as we leave FY24 into 25 that helped us in 24. Things like the slowing backfields of the VDIP departures. Particularly, that's part of the reason why you'll see the guide for Q1 a little bit weaker is that really helped us in Q1 of FY24. as well as we had a one-time shift in the timing of our annual merit increase cycle. So those are some issues that create just kind of a grow-over challenge next year. But in general, we feel quite confident that the model continues to produce margin expansion at a nice clip. So we're excited about your guidance, and we always aim and strive for more, but we want to put a number out there that we feel confident in our ability to deliver.
spk29: Okay, that's helpful. Just to follow up on the payment segment, I wanted to hone in on card production a little bit. I know on the issuer processing side, 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 S-25 on the card production side?
spk38: Yeah, I think that was more of a one-time issue that we've worked through. It was not an issue in Q4. We don't expect it to be an issue going forward. It's resolved itself.
spk13: Excellent. Thank you, Mimi. You're welcome.
spk33: The next question comes from John Davis with Raymond James. Please go ahead.
spk21: Hey, good morning, guys. Greg, I wanted to circle back to CORE wins. I think you called out 15 wins. We're greater than a billion in assets versus five just a year ago. Just curious where that stacks up historically. Is 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?
spk30: Yeah, for sure. So I appreciate the question, JD. So I'll start with the first one. So Yeah, 15 is by far a historical number for us. So five last year was more on the average. So we would typically be in the four to six ranges, something like that on an average year. So 15 is a big step up for us. And again, I think a lot of it is what I had mentioned earlier on, I believe it was Andrew's question and was around just kind of what we've been doing on our level of execution. and showing the innovation that we have. I really truly believe that we are now viewed in the industry as the innovative leader, especially when it comes to core processors in this space. So I think that has helped us a lot. To your second question, yeah, I think I had referenced over four years, I can't tell you over five, but over four we had grown our banking assets by 27% and our credit union assets by 34%. and those were over the last four years. So that is an aggregation of a few things. One, the continued growth of our customers and what we've been able to do to help them grow, deposit growth. Obviously, some things, you know, may have been helped through PPP at the time, but the reality is their assets continue to grow. Some of the products that we provide, you know, Bano and products like that definitely have a really big impact on deposit growth. And then, of course, some of it is the wins that we've had as well.
spk21: Okay, that's super helpful. And 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 overpayment 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.
spk38: Yeah, happy to, JD. Free cash flow is one of my favorite topics. So let me give you a little bit more of the walk, Carla, there. Because I think there's two major components. If you take the 88% that we just released for the full year versus the prior year of 55%, There's two components that overstated the FY24 conversion. One is, as we just talked about, that $29 million of essentially an overpayment in FY23 taxes. The other thing is the collection timing of our annual maintenance in this year. As you know, those invoices go out in the late spring, early summer. We start collecting on them in the June-July timeframe. And just depending on in any given year how many people pay them, you know, as soon as they get them versus, you know, in July, sometimes in a given year that shifts the timing of that collection impacting free cash flow. So, this year I would say there was probably about $60 million of timing collection related benefits to the free cash flow conversion in FY24. So if you inject both of those, you're roughly talking probably a 65% free cash flow conversion, which is, you know, in line with where we think for FY25, hopefully a little better than that as we get in our guidance range. But that is the math.
spk04: Okay. No, very helpful. Thanks, guys.
spk17: Thank you.
spk33: The next question comes from Will Nance with Goldman Sachs. Please go ahead.
spk24: 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 kind of just touched on that. But I think you also referenced processing on the payment side. So maybe can you just drill down on sort of expectations, I guess, maybe stripping out the annual license impact? You know, what are the kind of embedded assumptions around the payment segment? And in one queue, can we expect that kind of 8% level to continue into next year? And then maybe just talk about, you know, drivers of the acceleration of the course of the year outside of some of the annual fees that you just said on.
spk38: Yeah, Will, I appreciate the question. And I would say this year we gave probably a little bit more color than we have in past years. only because of the way we think the pattern will play out. We don't die to a quarterly. We manage the business on an annual basis, but in an effort to make sure that people weren't surprised by the way the Q1 might play out, we wanted to give a little bit more specificity there. I think if you look at some of the drivers, We expect a modest Q1 from a payments perspective, but that's coming off. Payments usually grows throughout the year, so that's usually just your typical restart from an annual basis. The other thing to look at is we have very strong tap in hardware this past year in FY24, so that's from just the nature of the cycle of hardware sales, our clients, the new hardware that comes out. We think that probably FY25 may not be as robust as the very strong first half of FY24. So I think that's some of the things. And then, as you mentioned, that very important software usage contrast, and particularly the software licensing part of that. As we see more people over time, you know, those renewals and how that reseller works. Last year, we just saw a wave of first half renewals that we think the pattern this year will be a little less than the first half. So we wanted to call that out.
spk24: Yep, that's all super helpful. And then maybe just more big picture on the payment segment. Got a lot of questions on just what the building blocks for growth there are. you know, knowing that actual processing is a big part of that business and there's been a lot of discussion around, you know, the kind of domestic debit transaction trends kind of more broadly and just what the growth angle is there. I guess in a world where debit transactions are growing six, you know, what do you see as kind of the most important driver for growing more in line with sort of how you frame long-term targets in the segment? You called out enterprise payments, I believe, today, just, you know, what in your mind are kind of the big building blocks to get to the segment targets there?
spk30: Sure. Hey, Will, this is Greg. I'll take that one. So, I think there's a couple of things. I think EPS has, you know, there's some things that we're doing in that product base that could have some additional growth, but I think the most of it is going to come from really the other two payment groups. So, as you know, what we're doing with our bill pay and turning that into more of a bill management solution with the payrolls acquisition and what we've done to combine the back end of the I-PAY solution and the front end of the payroll solution and kind of rolling that out in what we call Journey to One. And that will be, you know, is continuing to get completed and executed on time. We'll have that done by the end of the fiscal year. But the reality is that we've already seen some nice uptake there with clients that are very interested in what we're doing and how we're going about that. And so there's some opportunities there. And the other big one comes from the pay center application. And what we've done today on the receive side, we have roughly over 300 institutions on all three of those faster payment rails today, including the FedNow which is roughly about 40% of the RTP clients that are live and roughly about 30% of the FedNow clients. But we're working with our clients today because of the fraud modules that we've been able to create with Financial Crimes Defender, and I referenced a lot of those sales. We're working with our clients on the use cases to be able to do SEND. And once the SEND capabilities get out and we get some more leverage for that and some things that get changed, I think, with a few of the use cases in particular, I think there's some real upside in that particular group as well. So, as Mimi referenced, it isn't all about CART. Obviously, CART is the biggest driver, but there's a few of the ancillary solutions within payments that I think have some upside over the next couple of years.
spk24: Got it. Great, Keller. Appreciate you taking the questions this morning.
spk33: The next question comes from Chris Kennedy with William Blair. Please go ahead.
spk22: 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?
spk32: No, Chris, I'll take that. This is great.
spk30: So, no, I mean, typical, and just as a reminder really for everybody that Typically when we win these new core deals, it's usually a 12 to 18 month process. So depending on who that institution is, really what the timeliness is of their existing contract. Some clients like to get out ahead of their termination window, and so there's negotiations and things that take place. And then there's a kind of a wait and see period for, not wait and see, but wait period for that implementation. we're still in that 12 to 18 month typical window for the, for those implementations. So really anything that we just sold those 22, you know, aren't going to see for the most part, aren't going to see any real revenue for Jack Henry in this fiscal year. Obviously the ones we sold last year and Mimi referenced an increasing opportunity for us in our quarters over time. And some of that is a by-product of the timing of some of those implementations, but again, But we're not seeing anything today that has extended beyond what we had typically seen in the past.
spk22: 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.
spk38: Great. Yeah, part of being a disciplined capital allocator, we're being really thoughtful around that. I think the ROIC, well, 20% is an enviable number and something we're quite proud of. It has come down a little bit just based on the math as we had to take on the debts for the payrolls acquisition. We're now paying that down. We've paid down that substantially this past year. So as we continue to pay down the debt and have the flexibility to do more in the form of repurchases or more in the form of other activities, that will drive ROIC. So it's just the very tail end of working through that process. So we expect that to continue on a positive trend and an upward trend.
spk22: Great.
spk33: Thank you.
spk37: You're welcome.
spk33: The next question comes from Kartik Mehta with North Coast Research. Please go ahead.
spk19: Good morning, Greg. Greg, I wanted to just get your perspective on the core business. I know the poker should be the year, but after saying that, I'm going to talk about the quarter, so I apologize for that. Fourth quarter may be a little bit lower than expectations, 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?
spk32: Yeah, thanks for the question. For sure.
spk30: I mean, I think, you know, as we have articulated throughout, I mean, it's a full year of business for us and how we manage the business. You know, it was a little tougher comp, you know, from last year compared to this particular one. But there is no concern on what we're doing, where we're going with that particular business. And so the significance of the core wins, the significance of the products that we're bringing in there, the significance of what we're doing in technology modernization in general. So, you know, I mean, the short answer to your question, Cardick, is it just is a full-year game for us. That's really what it is.
spk38: And, Cardick, this is Mimi. If I could just add on. You know, the tremendous fourth quarter that Greg talked about, the staff said for the sales, I mean, that's at the very end of our year. So if you think about that cycle for readiness for implementation on the client side, when you'll start to see that revenue, you know, is not an FY25 picture for the core.
spk19: Makes sense. 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?
spk32: I'll take that. Yeah, I mean, not necessarily.
spk30: I think our competition has continued to kind of do what they typically do and kind of how they, quote, go to battle. And so we haven't seen anything significantly change there. You know, some of their stories are changing and some of their approaches are changing. But in reality, it is really about what have you done for me? And so, you know, as you can imagine, within 22 competitive core wins, a lot of those came from, you know, the normal players out there that you would know. And so it's really about our ability to execute, our ability to service, our reputation for doing that, our consistency of how we go about things, the consistency of our team. Our turnover rate is very low at the company, and so you just get a consistency with that. Again, the short answer for you, Cardick, is I don't feel – that there's anything significantly changing out in the marketplace other than, you know, some of the stories that go with it.
spk19: Perfect. Thank you both. I really appreciate it.
spk32: Sure.
spk33: The next question comes from Peter Heckman with DA Davidson. Please go ahead.
spk18: Hey, good morning. I wanted to follow up on Bano a little bit and just – See, I mean, 927 on Bano 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 Bano once you've substantially upgraded most of your clients from the older systems?
spk30: Yeah, it's a great question, Pete. So not to get, you know, in the minutia, but just 924, just want to make sure we have our numbers right. So 924. And so, you know, that continues to be a huge opportunity for us, you know, and there's a lot of runway still in the credit union space, right? So, and the banking space, but really in the credit union space where, We have been attacking that part of our core business. So there's still a lot of upside. When you think about that, we have roughly 1,700 core clients. So there's still a lot of runway within our own base. But, of course, we're working on outside the base strategy as well. And so we're working with some of our competitors to get what we need to make that successful. Sometimes not as easy as we had hoped. to make that happen, but the reality is we're making a lot of progress, and we still expect to do what we said we were going to do, which is get that out the latter part of this fiscal year or the second half of the calendar year. So that's still on point. To answer your question around NetTeller, I don't know exactly, but, you know, it's roughly a couple of hundred left on the NetTeller platform.
spk18: 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, 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 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?
spk30: Yeah, I think you hit on all of them. I think it is a combination of much of what you described. We continue to look at opportunities that make sense. The difference is that really our approach hasn't changed, just what we're looking for has changed. So when you think about our tech modernization strategy, we're really looking first and foremost at what is already public cloud native. And so we don't have to rewrite the technology once an acquisition takes place. Obviously, Payrails was one of those examples where it was already public cloud native. Looking to your point about gaps, we don't have the gaps that we had many years ago. And again, maybe the opposite of where we want to focus, which is about that product rationalization, where we're looking at things that just don't make sense as they once did maybe 10 years ago. And so we're looking at that. But I think when you look at the opportunities in front of us, public cloud native, number one. Number two is, do they help us accelerate some of the things that we're looking at in payments or in the SMB strategy that we'll be talking about more or in some of the things that we're doing to roll out in our, I would say, the key products of digital enterprise account opening fraud, things along that line. Those are really where our focus would be.
spk16: Okay, good stuff. I'll look forward to seeing you in a few weeks. Okay, thanks, Steve.
spk33: The next question comes from Charles Nuthunt with Stevens. Please go ahead.
spk15: Good morning, and thank you for taking my question. You had mentioned that roughly 73% of your clients are now in the public cloud, and I think that's up from 69% at the investor day last year. My question is, how much runway is left 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, you know, two times revenue uplift in the past from additional cross-sell as well as, you know, some margin benefits as well. Any commentary around that would be helpful.
spk30: Sure, Chuck. I'll take it. Mimi can add some commentary. Yeah, I think so it is up from where we were. I don't know if you remember, but it was 69%, but definitely up from where we are. So roughly, you know, we don't expect to get 100% of movement there. You know, I would say that, you know, the 93%, 95% range is probably a reasonable number for us to think through. The other thing is that as we've kind of moved and as we've moved to the type of clients that are left in there, which tend to be, you know, a lot of the larger ones, You know, that number actually has kind of gone down. So it's more about 1.75% now than it was at the 2%, you know, through the years. And so still significant, but, you know, down a little bit. But we're continuing to stay focused. We still have several years of runway on that. So if you think about it, you know, there's a couple of hundred left really on each side. You know, and so if we're averaging somewhere between 40 and 45 a year, you got, you know, three, four, five years left based on that to get kind of to our numbers. But that will continue to be a focus and an opportunity. And I think there'll be other opportunities to move from the private cloud to the public cloud over time too. So, you know, we can't just focus only on what will be moving to the private cloud because at the same time we're winding that down we'll have opportunities to move customers from the private cloud to the public cloud around the same time frame.
spk15: Got it. I'm sorry if I cut you off, but my follow-up was around sort of a follow-up to Carter'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 and maintenance, which I think flows through core. Could we expect more of a normalized annual cadence of revenue growth next year, you know, more with core coming in the 6% to 7% range and payment complementary in the 8% to 9% range?
spk38: Yes, Chuck, this is Mimi. I think... Our intention for the growth algorithm is to have an indicator. It's not a precision. And so I do think, you know, the beauty of it is we have a whole portfolio. And so sometimes they counterbalance each other in different ways. So the great year, this year, CORE had higher than the growth algorithm, right, that somewhat compensated for the lower complementary payments. you had the question of what happens with the economy and geopolitical and election and a lot of other issues. I think in general, we still expect that the growth algorithm holds, but it's illustrative on any given year. They could plus and minus a little bit and offset each other.
spk14: Got it. Thank you. You're welcome.
spk33: The next question comes from Dave Koning with Baird. Please go ahead.
spk10: Yeah. Hey, thanks, guys. And I guess my question is a little similar just on, you know, 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, you know, 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?
spk38: Yeah, Dave. I would say in general, and we're not going to get color quarter by quarter at this point as we live into the year. We think that we want to call out something, a trend we're seeing will certainly be transparent on that. I agree with your math that we expect it to sequentially grow throughout the year. with the second half being stronger than the first half. So I think Q1 is more pronounced. That's why we gave the color with more specificity. But I would say Q2 overall is going to be a higher growth than Q1. And I think that is pretty fair to say across the board, across all of the segments.
spk10: 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.
spk38: Good question, Dave. So how we get that interest income and the impact it has on net interest, as you did call out, we do have the debt. We've been paying it down, you know, pretty significantly this year in a pay down, and we expect that to continue for 2025. But we do have, we administer cash settlement balances, and as part of that administrative services, we get some of the revenue from those cash settlement accounts. Through negotiations we've had with partners and the like, we've been able to increase the yield in those accounts. Now, that does have some correlation to interest rate environments, depending on what the Fed does in 2025. But overall, I would say that it's sustainable. It is subject to some interest rate sensitivity, but it is sustainable.
spk10: Gotcha. Thanks, guys.
spk38: Happy to. Thank you.
spk33: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
spk07: Hey, good morning. Thanks for the time this morning. I 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?
spk30: Yeah, that's a great question, James. And so I have a couple of different reference points for you, too. So I know North Coast Research did their own survey, and then, of course, we do our annual benchmark survey that we have. Both of them kind of showed the priorities being fairly the same as far as deposit growth being number one. The one thing that I will reference from our benchmark survey is this, which is that in 2023, growing deposits was 43%. It's still number one, but 43% of the CEOs named that as their number one. This year, it was 54%. So significant growth in both of those numbers. But again, same as a priority. The other two, just since you asked, have really kind of stayed fairly consistent, which is improvement operational efficiency and growing loans. But both of those have gone up slightly from 2023 to 2024. But again, those are typically the top three. And you can throw fraud as a really close number four for priorities.
spk07: Great, appreciate that. And Greg, I wanted to follow up on a comment you made in terms of implementation cues and wondering how those are trending broadly. And how are you thinking about the puts and takes between the margin expansion you're delivering right now versus potential for additional resource allocation to speed up those implementations broadly?
spk30: No, that's a great question, one that we address on a regular basis with our team. So we work through that on a regular basis. So there's a lot of short business cases that we do, but the reality is if we can implement the revenue faster, we absolutely find ways to do that. Sometimes it is a reflection on the actual product. Sometimes it's a reflection of The complimentary or payment product that was sold with the core, and so sometimes those don't get implemented until the core is implemented. So you have some of those timing delays. Core in particular is, as I described, it's a 12- to 18-month process. Most times maybe a little longer on a couple, but most of the time than that. But for our other products, so let's just take Financial Crimes Defender, we've already increased our resources on that. this year to kind of work through our installation queues and get that down into smaller numbers to ensure that we continue to keep our customers happy.
spk06: That's great. Thank you so much.
spk33: Sure. This concludes our question and answer session. I would like to turn the conference back over to Vance Girard for any closing remarks.
spk31: Thank you, Drew. Please don't forget that our Investor Day is fast approaching. It will take place on Thursday, September 5th in Dallas, starting at 1 p.m. Central Time. You can join us via webcast, or if you'd like to attend in person, please let us know, and we will get you the specifics. In addition to Investor Day, during the coming weeks, we will be traveling to attend various investor events in the U.S. and Europe. We'd like to take this opportunity to thank all Jack Henry associates for their hard work and dedication, which has led to our outstanding results. Thank you for joining us today, and Drew, will you please provide the replay number?
spk33: Yes, sir. The replay number for today's call is 877-344-7529, and the access code is 719-2153.
spk23: That will be available in about one hour.
spk33: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you. Thank you. Bye. Bye. Thank you. Thank you. Thank you. We'll be right back. Good morning and welcome to the Jack Henry Fourth Quarter 2024 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 Vance Sherrard, Vice President, Investor Relations. Please go ahead.
spk32: Thank you, Drew.
spk31: Good morning, and thank you for joining us for the January 4th quarter and full year 2024 earnings call. Joining me on the call today is President and CEO Greg Adelson and Mimi Cartley, CFO and Treasurer. After my opening remarks, I will turn the call over to Greg for his comments on our fourth quarter results and observations related to our business and the industry. Mimi will then provide commentary around the financial results and fiscal 25 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 can 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 Greg.
spk30: Thank you, Vance, and hello, everyone. I appreciate all of you joining this morning's call. We are very pleased to report strong sales and financial performance in the fourth quarter and for all of fiscal 2024. I want to especially thank all of our associates for your hard work, dedication, and unwavering commitment that significantly contributed to these outstanding results. I will begin with a summary of what I believe are the three main takeaways and then provide additional detail on all areas of our business. We produce record revenue and operating income for fiscal 24 with $2.2 billion in revenue and $489.4 million in operating income. Our sales team set an all-time record for sales bookings for both the fourth quarter and the fiscal year that included 22 competitive core wins in the quarter and 57 for the fiscal year. We signed 15 new core contracts this fiscal year with financial institutions that have over $1 billion in assets compared to only five in fiscal 2023. This was a direct result of our technology modernization strategy and execution, one Jack Henry initiative, and several new innovative solutions. Now for more detail on each of these takeaways. For the fourth quarter, total revenue increased 5% and increased 6% on a non-GAAP basis. For the fiscal year, total revenue increased 7% on a GAAP and non-GAAP basis. Operating income increased 1% for the quarter and increased 5% on a non-GAAP basis. For the fiscal year, operating income increased 2% and increased 10% on a non-GAAP basis. As I mentioned, the fourth quarter was the highest quarter for sales bookings in the history of the company, and we set a new record for sales bookings for the fiscal year. I am very proud of the remarkable year by our sales team. The 15 core clients signed with over $1 billion in assets also was a new fiscal year record. Of those clients, 10 are banks and five are credit unions. Over the past four years, we have continued to see an increase in the average asset size of our core clients. Average assets for our bank clients have increased to $1.35 billion, a 27% increase over the past four years. Average assets for our credit union clients have increased to $1.27 billion, a 34% increase over the past four years. In addition to the 22 competitive core takeaways in the quarter, we re-signed one long-term client with about $6 billion in assets that had provided the termination notice to us a little more than two years ago. That client never deconverted to the competing core platform. They've now re-signed with us for multiple years and multiple new solutions. While this contract is not in our new core win numbers, It is noteworthy that they decided their best choice was to stay with Jack Henry for multiple more years. For the quarter, we also signed 15 contracts to move existing in-house core clients to our private cloud environment. We finished fiscal 24 with 44 existing clients agreeing to move to our private cloud. We now host 73% of our core clients in our private cloud. Several of our complementary and payment solutions also experience extremely high demand, with our digital suite leading the way. For the quarter, we signed 45 new clients to our Bano retail platform, as well as 50 new Bano business deals. For the fiscal year, we closed 179 new Bano retail contracts and 164 new Bano business contracts. Bano continues to experience exceptional growth. We currently have 12.2 million registered Bano users as compared to 3.2 million at the same time in 2020. We have 924 Bano retail clients, and of those, 147 are live with Bano Business, and another 81 are in various stages of implementation. We also continue to see increasing success with our card processing solution, signing 21 new card processing clients this quarter and 56 for the fiscal year. We received 16 new financial crimes defender contracts in Q4 and 52 for the fiscal year. In addition, we signed 53 new contracts for the financial crimes defender faster payment fraud module for the quarter and 134 for the fiscal year. This real-time solution is designed to help mitigate fraud in Zelle, FedNow, and real-time payment transactions. As of June 30th, we have 52 financial crime installations completed and another 115 in various stages of implementation. We also have 22 faster payment modules installed and 154 in various stages of implementation. I am asked regularly why I believe we continue to see significantly more new competitive core wins than our competition. While I believe there are many reasons, I've tried to boil it down to three primary things. First, our associates. We have a happy and engaged workforce, and we believe that leads to having a do-whatever-it-takes attitude with our clients. Our associate engagement scores are well above the industry benchmark, and we consistently win best workplace awards each year. We are pleased to recently receive recognition in three national publications, U.S. News & World's Report's Best Companies to Work For, Time Magazine's Best Midsize Companies, and Newsweek's greatest workplace. Second, our service quality, which is a direct result of our engaged and dedicated associates. We have long been known for providing exceptional customer service, and this year was no exception. In fiscal year 2024, our client satisfaction score when rating the engagement with a client service representative averaged 4.74 per month on a five-point scale. On that scale, a meets expectation is 3.0 and extremely satisfied is 5.0. You have to have a lot of fives to average a 4.74. The third theme is technology innovation. We continue to invest in technology to help our clients remain vibrant financial institutions in the markets they serve. We are executing our technology modernization strategy while bringing new leading edge solutions to the market before our competition. A couple of final items. We are looking forward to our annual client conference, Jack Henry Connect, in October. This is a great opportunity every year for us to meet with prospects, clients, and partners. Last year, 17 of our new core wins were with prospects who attended the conference. As I reflect back on fiscal 2024, I want to again thank Dave Foss for his outstanding leadership as CEO for the past eight years. I am honored and humbled to take over as CEO and excited, along with our entire leadership team, about the opportunities ahead. We are executing on our strategy, and our associate engagement and client satisfaction scores are consistently strong. Technology spending by financial institution remains robust, and there's clear demand for our differentiated and innovative technology as validated by our strong quarter and fiscal year. We are very well positioned for future success. I look forward to seeing and speaking with many of you at our Investor Day in Dallas on September 5th. We have an exciting agenda and we'll have several of our new business leaders available for a meet and greet as well. With that, I will turn it over to Mimi for more specifics on our financials.
spk38: Thank you, Greg, and good morning, everyone. Our continued focus on serving our community and regional financial institution clients and delivering shareholder values led to another quarter of solid revenue and earnings growth. I will start with the details driving our fourth quarter and full year results, then conclude with the fiscal 25 guidance. Q4 gap revenue increased 5% and non-gap revenue increased 6%, a continuation of the consistently solid performance. Full year growth was 7% on both a gap and non-gap basis. Fourth quarter deconversion revenue of approximately $7 million, which we pre-released, was down approximately $8 million, reflecting minimal financial institution consolidation of our clients. Full-year deconversion revenue of $17 million, $15 million less than the prior year, was consistent with guidance. Now let's look more closely at the details. GAP services and support revenue increased 2%, while non-GAPs increased 4%. For the year, the increase was a healthy 5% for GAPs, and 6% on a non-GAAP basis. Services and support growth during the quarter was the result of volume increases in data processing and hosting revenue and consulting revenue, partly offset by decreases in deconversion, implementation, and maintenance fee revenue. We continue to experience impressive growth in our private and public cloud offerings, which increased 11% in the quarter, 10% for the year. This reoccurring revenue contributor is 31% of our total revenue and has long been a key double-digit growth engine. Shifting to processing revenue, which is 42% of total revenue and another key component of our long-term growth model, we saw robust performance with 9% growth on both a GAAP and non-GAAP basis for the quarter and for the year. Consistent with recent results, Quarterly drivers included increased card, digital, and payment processing revenue. Completing commentary on revenue, I would highlight the total recurring revenue exceeded 91%. Next, moving to expenses. Beginning with the cost of revenue, which increased 6% on both the GAAP and non-GAAP basis for the quarter, and 7% for GAAP versus 6% for non-GAAP for the full fiscal year. Drivers for the quarter included higher direct costs, higher personnel costs, and increased internal licenses and fees. Next, R&D expense increased 4% on both a GAAP and non-GAAP basis for the quarter. The quarterly increase was primarily due to increased consulting and other professional services, net of capitalization, and a higher cloud consumption cost net of capitalization. For the year, R&D expense increased 4% on GAAP basis and 3% for non-GAAP. Ending with SG&A expense for the quarter on a GAAP basis, it increased 6% and 13% on a non-GAAP basis. The quarter GAAP increase was due to higher personnel costs and increased professional services. The non-GAAP quarterly increase was impacted by the one-time expense from the write-off of capitalized software development related to internal software tools. Without this one-time expense, the quarter increase would have been 8%. Full-year SG&A expense increased 18% on a GAAP basis and 10% non-GAAP. The primary GAAP impacts were the $16 million in one-time costs related to the Voluntary Early Departure Incentive Program, EGIP, and a prior period $5 million gain on asset sales. The non-GAAP increase is driven primarily by higher personnel costs. We remain focused on generating compounding margin expansion. While the quarter results delivered 22 basis points decrease in non-GAAP margins to 22%, full-year margin expansion was 60 basis points on a non-GAAP margin of 23%. Non-GAAP margin benefited from the focused process improvement and disciplined management of our workforce. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.38, up 3%. Fiscal 24 fully diluted EPS was $5.23, up 4%. facing a 37-cent headwind from previously mentioned VDIP, a gain on asset disposal the prior year, and lower DQ version revenue. Breaking down the results into the three operating segments, we are pleased to see positive performance across the board. Our core segment revenue increased 4% to the quarter on a non-GAAP basis against PubCom. Non-GAAP operating margin increased 171 basis points, CORE continues to benefit from private cloud trends and strong cost control. Full-year non-GAAP revenue was 7%, and the associated margin increased 135 basis points. Payment segment quarterly revenue increased 8% on a non-GAAP basis. The segment had impressive non-GAAP operating margin growth of 183 basis points. Revenue growth was due to continuing growth in their EPS business, and strong card growth from fraud and card-related services, with lever growth consistent with U.S. consumer spending trends. Margin benefited from focused cost management, and for the full year, non-GAAP revenue growth was 7%, with 124 basis points of margin expansion. Finally, complementary segment, quarterly non-GAAP revenue increased 6%, with 75 basis points of margin contraction. Margin contraction was due to direct support costs, amortization, and licenses and fees. Fiscal year non-debt revenue increased 8% with two basis points of margin expansion. Full year growth continued to reflect digital solution demands and beneficial overall product. Now let's turn to our view of cash flow and capital allocation. Fiscal 24 operating cash flow was $568 million. $186 million increase over the prior period. Excluding proceeds from sale of assets, free cash flow was $336 million, significantly more than the $175 million generated last year. Free cash flow conversion was 88%. Our commentary entering this year included an elevated level of cash tax payments based on the negative Section 174 impact. Based on legislative clarity and internal efforts, we were able to meaningfully lessen the impact. The net result was lower cash taxes, quaking to an approximate $29 million overpayment last fiscal year. Our consistent dedication to value creation resulted in a trailing 12 months return on invested capital of 20%. Additionally, I would highlight other notable return on capital metrics for the year, including $28 million in share repurchases, more than offsetting annual dilution, $125 million in debt reduction, and $156 million in dividends. Heading into a new fiscal year, I will conclude with guidance. As you are aware, yesterday's press release included fiscal 2025 full-year gas guidance, along with an enhanced transparency reconciliation to non-gas guidance metric. While the press release also includes a fiscal 25 non-GAAP ETF metric, this is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers, for example, current acquisition year-over-year comparison. And it should be noted that a 24% tax rate is used. Deconversion guidance will continue to follow the methodology introduced in fiscal 24, And for fiscal 25, deconversion revenue guidance is $16 million. Full-year GAAP and non-GAAP revenue guidance is 7% to 8%. Based on the above revenue growth that generates sustainable accretive sources and margins, we're guiding to an annual non-GAAP margin expansion of 25 to 40 basis points. All of the above are aligned with our near-term targets as the business operates operations remain healthy and consistent. Full year tax rate estimate for fiscal 25 is 24%. The above guidance metric results in a full year guidance for GAAP EPS of $5.78 to $5.87 per share, a growth of 11 to 12%. Fiscal 23 has lower than expected free cash flow conversion due to a cash tax overpayment which resulted in fiscal 24 having a better-than-expected conversion metric. Absent further legislative action, fiscal 25 will be a reversion to the expected trend line resulting from the expiration tax benefits in Section 174. As such, our full-year expectation for free cash flow conversion is 65% to 75%. Our current view has a cadence of fiscal 25 non-GAAP revenue and margin increasing sequentially throughout the year. This increasing cadence will result in a strong second half that will be more pronounced than typical. Consequently, Q1 is expected expectation for non-GAAP revenue growth is approximately 5.25% and non-GAAP margin to contract approximately 105%. This is due to slower growth rates on on-premise annual maintenance and card processing. An additional factor is several long-term software usage contracts closing in Q1 of the prior year, which delivered significant allocation of license fees in that same quarter. The rest of the year improved strongly with limited risk, resulting in the full-year guidance remaining consistent with our near-term targets. As a reminder, we see fluctuations in quarterly results relating to software usage license components, along with the timing of implementation. Therefore, the correct performance indicator for our business is the consistently strong fiscal year financial results. In conclusion, Q4 and full year results reflect strong performance and achievement of our targeted goal. We entered fiscal 25 with positive momentum, and expect to drive impressive revenue growth and margin expansion. We remain exceptionally positive about demand for our solution and the strength of our clients, resulting in superior shareholder value creation. We appreciate the contributions of our dedicated associates that drove these strong results and our investors for their ongoing confidence. Drew, please open the line for questions.
spk33: Certainly. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Andrew Schmidt with Citi. Please go ahead.
spk27: Hi, Greg. Hey, Mimi. Thanks for taking my questions.
spk25: I guess just to drill down on the fourth quarter for complimentary 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 some of the things you called out for the fiscal year? first quarter that impacted results, or was it truly tough comps? Thank you very much.
spk38: Morning, Andrew. I appreciate the question, although I would reiterate, just as you just mentioned, the importance of looking at our year on a year-long basis rather than the quarters. I don't see any trends that I think structurally will continue that we would call out. I think it was mostly just You always have to look at what is the installation queue, what's going on, what's going on with that shift from on-premise to outsourcing. And so I think it was just a matter of this quarter playing out in that pattern.
spk27: Got it. Appreciate that.
spk25: And maybe I could ask a question on just the new wind side, you know, step up in new core signed above 1 billion in assets. It's pretty bright spot. What, Obviously, there's multiple factors that drive that, but is it possible to distill that down? Is it product? 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 we'd love to get some more color there. Thank you very much.
spk30: Sure. Andrew, this is Greg. So, yeah, thanks for the questions. I think, you know, as I tried to reference a little bit in the script, but, you know, more importantly, it is about our level of execution. We're hearing this on a regular basis that, you know, I think you know this and most people do, that we do provide to our clients what our roadmaps are, and we show what we're going to be doing and when we're going to be doing it. And I think there's a level of trust and belief. And so the more that we're executing, the more that our technology innovation getting out there and they're seeing the results and it's providing a really an opportunity for us to get in front of these larger customers first of all and then second of all you know as we mentioned our associates and our client service reputation continues to truly shine especially at a time when when maybe it's not in the rest of the industry so those have been big And then, you know, I think we've also hired some really good and talented sales individuals that have come with experience in selling into these larger institutions, and that's continued to help us as well. But I think it's a combination of all those things that are coming to fruition and allowing us to be successful.
spk26: Got it. Thank you very much, Greg. Appreciate the comments. Sure.
spk33: The next question comes from Vasu. Goville with KBW. Please go ahead.
spk35: Hi, thanks for taking my question. First one for you, Greg, just as you have taken over the reins, any sort of strategic changes that you were envisioning for the company that the company might need and where are you focusing more of your efforts at this point?
spk30: Yeah, no, I mean, fortunately, I took over for an individual that did a pretty good job. So, yeah, nothing significant. I mean, we've been able to really make a very, what I would say, a very smooth transition. And so, you know, we're focused on some things that I've talked about. You know, obviously the execution of the tech modernization strategy and what we've been doing with OneJack Henry continues. I've talked a little bit, and we'll talk a lot more at the investor day about our SMB strategy and where we're going with that. So there's a lot of excitement behind that that we'll be unveiling. And then there's a couple of things that we've talked around product rationalization and really looking at things primarily in the complementary group that maybe aren't growing at the same pace as the rest of our company or have the margins and looking at what we want to do with those particular things. A lot of them are very small. But again, just making sure we stay focused on the things that really do move the needle. But I wouldn't say anything else really outside of that. and just staying true to who we are as a company and our leadership team.
spk35: That's a very helpful color. And then a quick one for you, Mimi. Just on the payment 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 define a 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.
spk38: Yeah, the payments is segmented at 8.4% growth for Q4, and more importantly, the 6.7% growth for the full year. It was a big year for payments, especially given throughout the year some economic uncertainty around the strength of the U.S. consumer. We're seeing the trends from that being in line with our expectations. still healthy but not over exuberant from a spending perspective. The nice thing about our payments business is not just ours. We have other businesses. We have the EPS business. We have the pay center business. Those are doing quite well. We're seeing a lot of demand, especially as the continuation of real-time payments excitement, the fraud solutions that are helping people feel more comfortable in going to these newer solutions. So those two businesses are doing quite well from a processing and the remit business overall has been healthy. Within CARD, as you mentioned, we do have a whole portfolio of complementary services that surround the CARD transaction, and we're continuing to see nice demand for those services. So that's really helping us from a total portfolio perspective.
spk36: Thank you very much. You're welcome.
spk33: The next question comes from Jason Kupferberg with Bank of America. Please go ahead.
spk29: Good morning, guys. I just wanted to start on the margin side. I know that you 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 to about 100 basis points in Q1, but just wanted to get a little bit more color on the margin outlook, please.
spk38: I appreciate you bringing up that important point. Margin expansion is, you know, one of the key elements that we are focused on as a management team. We're quite disciplined as we think about the cost of the organization and yet building for a scale of future success. I would say there's a couple of things. I don't think it's an excessive... I think that's what we feel confident that the market and the model generates. But there are some headwinds as we leave FY24 into 25 that helped us in 24. Things like the slowing backfields of the ZDIF departures. Particularly, that's part of the reason why you'll see the dive for Q1 a little bit weaker is that really helped us in Q1 of FY24. as well as we had a one-time shift in the timing of our annual merit increase cycle. So those are some issues that create just kind of a grow-over challenge next year. But in general, we feel quite confident that the model continues to produce margin expansion at a nice clip. So we're excited about your guidance, and we always aim and strive for more, but we want to put a number out there that we feel confident in our ability to deliver.
spk29: Okay, that's helpful. Just to follow up on the payment segment, I wanted to hone in on card production a little bit. I know on the issuer processing side, 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 S-25 on the card production side?
spk38: Yeah, I think that was more of a one-time issue that we've worked through. It was not an issue in Q4. We don't expect it to be an issue going forward. It's resolved itself.
spk13: Excellent. Thank you, Mimi. You're welcome.
spk33: The next question comes from John Davis with Raymond James. Please go ahead.
spk21: Hey, good morning, guys. Greg, I want to circle back to CORE wins. I think you called out 15 wins. We're greater than a 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?
spk30: Yeah, for sure. So, I appreciate the question, JD. So, I'll start with your first one. So, Yeah, 15 is by far a historical number for us. So five last year was more on the average. So we would typically be in the four to six ranges, something like that on an average year. So 15 is a big step up for us. And again, I think a lot of it is what I had mentioned earlier on, I believe it was Andrew's question and was around just kind of what we've been doing on our level of execution. and showing the innovation that we have. I really truly believe that we are now viewed in the industry as the innovative leader, especially when it comes to core processors in this space. So I think that has helped us a lot. To your second question, yeah, I think I had referenced over four years, I can't tell you over five, but over four we had grown our banking assets by 27% and our credit union assets by 34%. and those were over the last four years. So that is an aggregation of a few things. One, the continued growth of our customers and what we've been able to do to help them grow, deposit growth. Obviously, some things, you know, may have been helped through PPP at the time, but the reality is their assets continue to grow. Some of the products that we provide, you know, Bano and products like that definitely have a really big impact on deposit growth. And then, of course, some of it is the wins that we've had as well.
spk21: Okay, that's super helpful. And 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 overpayment 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 more expecting and fiscal 25.
spk38: Yeah, happy to, J.D. Free cash flow is one of my favorite topics. So let me give you a little bit more of the walk color there. Because I think there's two major components. If you take the 88% that we just released for the full year versus the prior year of 55%, There's two components that overstated the FY24 conversion. One is, as we just talked about, that $29 million of essentially an overpayment in FY23 taxes. The other thing is the collection timing of our annual maintenance in this year. As you know, those invoices go out in the late spring, early summer. We start collecting on them in the June-July timeframe. And just depending on in any given year how many people pay them as soon as they get them versus in July, sometimes in a given year that shifts the timing of that collection impacting free cash flow. So this year I would say there was probably about $60 million of timing collection related benefits to the free cash flow conversion in FY24. So if you adjust both of those, you're roughly talking probably a 65% free cash flow conversion, which is, you know, in line with where we think for FY25, hopefully a little better than that as we get in our guidance range. But that is the math.
spk04: Okay, no, very helpful. Thanks, guys.
spk33: Thank you. The next question comes from Will Nance with Goldman Sachs. Please go ahead.
spk24: 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 kind of just touched on that. But I think you also referenced processing on the payment side. So maybe can you just drill down on sort of expectations, I guess, maybe stripping out the annual license impact? you know, what are the kind of embedded assumptions around the payment segment in one queue? Should we expect that kind of 8% level to continue into next year? And then maybe just talk about, you know, drivers of the acceleration of the course of the year outside of some of the annual fees that you just said on.
spk38: Yeah, Will, I appreciate the question. And I would say this year we gave probably a little bit more color than we have in past years. only because of the way we think the pattern will play out. We don't die to a quarterly. We manage the business on an annual basis, but in an effort to make sure that people weren't surprised by the way the T1 might play out, we wanted to give a little bit more specificity there. I think if you look at some of the drivers, We expect a modest Q1 from a payments perspective, but that's coming off. Payments usually grows throughout the year. So that's usually just your typical restart from an annual basis. The other thing to look at is we have very strong tap in hardware this past year in FY24. So that's from just the nature of the cycle of hardware sales, the appliance, the new hardware that comes out. We think that probably FY25 may not be as robust as the very strong first half of FY24. So I think that's some of the things. And then as you mentioned, that very important software usage contrast, and particularly the software licensing part of that. As we see more people over time, you know, those renewals and how that reseller works. Last year, we just saw a wave of first half renewals that we think the pattern this year will be a little less than the first half. So we wanted to call that out.
spk24: Yep, that's all super helpful. And then maybe just more big picture on the payment segment. Got a lot of questions on just what the building blocks for growth there are. you know, knowing that issuer processing is a big part of that business and there's been a lot of discussion around, you know, the kind of domestic debit transaction trends kind of more broadly and just what the growth angle is there. I guess in a world where debit transactions are growing six, you know, what do you see as kind of the most important driver for growing more in line with sort of how you frame long-term targets in the segment? You called out enterprise payments, I believe, today, just, you know, what in your mind are kind of the big building blocks to get to the segment targets there?
spk30: Sure. Hey, Will, this is Greg. I'll take that one. So I think there's a couple of things. I think EPS has, you know, there's some things that we're doing in that product base that could have some additional growth. But I think the most of it is going to come from really the other two payment groups. So as you know, what we're doing with our bill pay and turning that into more of a bill management solution with the payrolls acquisition and what we've done to combine the back end of the I-PAY solution and the front end of the payroll solution and kind of rolling that out in what we call Journey to One. And that will be, you know, it's continuing to get completed and executed on time. We'll have that done by the end of the fiscal year. But the reality is that we've already seen some nice uptake there with clients that are very interested in what we're doing and how we're going about that. And so there's some opportunities there. And the other big one comes from the pay center application. And what we've done today on the receive side where, you know, we have roughly over 300 institutions on all three of those faster payment rails today, including the FedNow, which is roughly about 40%. of the RTP clients that are live and roughly about 30% of the FedNow clients. But we're working with our clients today because of the fraud modules that we've been able to create with Financial Crimes Defender, and I referenced a lot of those sales. We're working with our clients on the use cases to be able to do SEND. And once the SEND capabilities get out and we get some more leverage for that and some things that get changed, I think with a few of the use cases in particular, I think there's some real upside in that particular group as well. So as Mimi referenced, it isn't all about CART. Obviously, CART is the biggest driver, but there's a few of the ancillary solutions within payments that I think have some upside over the next couple of years.
spk24: Got it. Great, Keller. Appreciate you taking the questions this morning.
spk33: Sure. The next question comes from Chris Kennedy with William Blair. Please go ahead.
spk22: 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?
spk32: No, Chris, I'll take that. This is great.
spk30: So, no, I mean, typical, and just as a reminder really for everybody that Typically when we win these new core deals, it's usually a 12 to 18 month process. So depending on who that institution is, really what the timeliness is of their existing contract. Some clients like to get out ahead of their termination window, and so there's negotiations and things that take place. And then there's a kind of a wait and see period for, not wait and see, but wait period for that implementation. we're still in that 12 to 18 month typical window for the, for those implementations. So really anything that we just sold those 22, you know, aren't going to see for the most part, aren't going to see any real revenue for Jack Henry in this fiscal year. Obviously the ones we sold last year and Mimi referenced an increasing opportunity for us in our quarters over time. And some of that is a by-product of the timing of some of those implementations, but again, But we're not seeing anything today that has extended beyond what we had typically seen in the past.
spk22: 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.
spk38: Great. Yeah, part of being a disciplined capital allocator, we're being really thoughtful around that. I think the ROIC, well, 20% is an enviable number and something we're quite proud of. It has come down a little bit just based on the math as we had to take on the debts for the payrolls acquisition. We're now paying that down. We've paid down that substantially this past year. So as we continue to pay down the debt and have the flexibility to do more in the form of repurchases or more in the form of other activities, that will drive ROIC. So it's just the very tail end of working through that process.
spk37: So we expect that to continue on a positive trend and an upward trend.
spk22: Great. Thank you.
spk37: You're welcome.
spk33: The next question comes from Kartik Mehta with North Coast Research. Please go ahead.
spk19: 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 may be a little bit lower than expectations, 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?
spk32: Yeah, thanks for the question.
spk41: For sure.
spk30: I mean, I think, you know, as we have articulated throughout, I mean, it's a full year of business for us and how we manage the business. You know, it was a little tougher comp, you know, from last year compared to this particular one. But there is no concern on what we're doing, where we're going with that particular business. And so the significance of the core wins, the significance of the products that we're bringing in there, the significance of what we're doing in technology modernization in general. So, you know, I mean, the short answer to your question, Cardick, is it just is a full-year game for us. That's really what it is.
spk38: And, Cardick, this is Mimi. If I could just add on. You know, the tremendous fourth quarter that Greg talked about, the staff said for the sales, I mean, that's at the very end of our year. So if you think about that cycle for readiness for implementation on the client side, when you'll start to see that revenue, you know, is not an FY25 picture for the core.
spk19: 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?
spk32: I'll take that. Yeah, I mean, not necessarily.
spk30: I think, you know, our competition has continued to kind of do what they typically do and kind of how they, quote, go to battle. And so we haven't seen anything significantly change there. You know, some of their stories are changing and some of their approaches are changing. But in reality, it is really about what have you done for me? And so, you know, as you can imagine, within 22 competitive core wins, a lot of those came from, you know, the normal players out there that you would know. And so it's really about our ability to execute, our ability to service, our reputation for doing that, our consistency of how we go about things, the consistency of our team. Our turnover rate is very low at the company, and so you just get a consistency with that. Again, the short answer for you, Cardick, is I don't feel – that there's anything significantly changing out in the marketplace other than, you know, some of the stories that go with it.
spk19: Perfect. Thank you both. I really appreciate it. Sure.
spk33: The next question comes from Peter Heckman with DA Davidson. Please go ahead.
spk18: Hey, good morning. I wanted to follow up on Bano a little bit and just – See, I mean, 927 on Bano 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 Bano once you've substantially upgraded most of your clients from the older systems?
spk30: Yeah, it's a great question, Pete. So, not to get, you know, in the minutia, but just 924, just want to make sure we have our numbers right. So, 924. And so, you know, that continues to be a huge opportunity for us, you know, and there's a lot of runway still in the credit union space, right? So, and the banking space, but really in the credit union space where We have been attacking that part of our core business. So there's still a lot of upside. When you think about that we have roughly 1,700 core clients, so there's still a lot of runway within our own base. But, of course, we're working on outside the base strategy as well. And so we're working with some of our competitors to get what we need to make that successful, sometimes not as easy as we had hoped. to make that happen, but the reality is we're making a lot of progress, and we still expect to do what we said we were going to do, which is get that out the latter part of this fiscal year or the second half of the calendar year. So that's still on point. To answer your question around NetTeller, I don't know exactly, but, you know, it's roughly a couple of hundred left on the NetTeller platform.
spk18: 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, 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 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?
spk30: Yeah, I think you hit on all of them. I think it is a combination of much of what you described. We continue to look at opportunities that make sense. The difference is that really our approach hasn't changed, just what we're looking for has changed. So when you think about our tech modernization strategy, we're really looking first and foremost at what is already public cloud native. And so we don't have to rewrite the technology once an acquisition takes place. Obviously, Payrails was one of those examples where it was already public cloud native. Looking to your point about gaps, we don't have the gaps that we had many years ago. And again, maybe the opposite of where we want to focus, which is about that product rationalization, where we're looking at things that just don't make sense as they once did maybe 10 years ago. And so we're looking at that. But I think when you look at the opportunities in front of us, public cloud native, number one. Number two is, do they help us accelerate some of the things that we're looking at in payments or in the SMB strategy that we'll be talking about more or in some of the things that we're doing to roll out in our, I would say, the key products of digital enterprise account opening fraud, things along that line. Those are really where our focus would be.
spk16: Okay, good stuff. I'll look forward to seeing you in a few weeks. Okay, thanks, Steve.
spk33: The next question comes from Charles Nuthunt with Stevens. Please go ahead.
spk15: Good morning, and thank you for taking my question. You had mentioned that roughly 73% of your clients are now in the public cloud, and I think that's up from 69% at the Investor Day last year. My question is, how much runway is left 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, you know, two times revenue uplift in the past from additional cross-sell as well as, you know, some margin benefits as well. Any commentary around that would be helpful.
spk30: Sure, Chuck. I'll take it. Mimi can add some commentary. Yeah, I think so it is up from where we were. I don't know if you remember, but it was 69%, but definitely up from where we are. So roughly, you know, we don't expect to get 100% of movement there. You know, I would say that, you know, the 93%, 95% range is probably a reasonable number for us to think through. The other thing is that as we've kind of moved and as we've moved to the type of clients that are left in there, which tend to be, you know, a lot of the larger ones, You know, that number actually has kind of gone down. So it's more about 1.75% now than it was at the 2%, you know, through the years. And so still significant, but, you know, down a little bit. But we're continuing to stay focused. We still have several years of runway on that. So if you think about it, you know, there's a couple of hundred left really on each side. You know, and so if we're averaging somewhere between 40 and 45 a year, you got, you know, three, four, five years left based on that to get kind of to our numbers. But that will continue to be a focus and an opportunity. And I think there'll be other opportunities to move from the private cloud to the public cloud over time too. So, you know, we can't just focus only on what will be moving to the private cloud because at the same time we're winding that down we'll have opportunities to move customers from the private cloud to the public cloud around the same time frame.
spk15: Got it. I'm sorry if I cut you off, but my follow-up was around sort of a follow-up to Carter'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 and maintenance, which I think flows through core. Could we expect more of a normalized annual cadence of revenue growth next year, you know, more with core coming in the 6% to 7% range and payment complementary in the 8% to 9% range?
spk38: Yes, Chuck, this is Mimi. I think... our intention for the growth algorithm is to have an indicator. It's not a precision. And so I do think, you know, the beauty of it is we have a whole portfolio. And so sometimes they counterbalance each other in different ways. So the great year, this year, CORE had higher than the growth algorithm, right? That's somewhat compensated for the lower complementary payments. you had the question of what happens with the economy and geopolitical and election and a lot of other issues. I think in general, we still expect that the growth algorithm holds, but it's illustrative on any given year. They could plus and minus a little bit and offset each other.
spk14: Got it. Thank you. You're welcome.
spk33: The next question comes from Dave Koning with Baird. Please go ahead.
spk10: 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?
spk38: Yeah, Dave. I would say in general, and we're not going to give color quarter by quarter at this point as we live into the year. We think that we want to call out something, a trend we're seeing will certainly be transparent on that. I agree with your math that we expect it to sequentially grow throughout the year. with the second half being stronger than the first half. So I think Q1 is more pronounced. That's why we gave the color with more specificity. But I would say Q2 overall is going to be a higher growth than Q1. And I think that is pretty fair to say across the board, across all of the segments.
spk10: 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.
spk38: Good question, Dave. So how we get that interest income and the impact it has on net interest, as you did call out, we do have the debt. We've been paying it down pretty significantly this year in a pay down, and we expect that to continue for 2025. But we do have, we administer cash settlement balances, and as part of that administrative services, we get some of the revenue from those cash settlement accounts. Through negotiations we've had with partners and the like, we've been able to increase the yield in those accounts. Now, that does have some correlation to interest rate environments, depending on what the Fed does in 2025. But overall, I would say that it's sustainable. It is subject to some interest rate sensitivity, but it is sustainable.
spk10: Gotcha. Thanks, guys.
spk38: Happy to.
spk10: Thank you.
spk33: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
spk07: Hey, good morning. Thanks for the time this morning. I 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?
spk30: Yeah, that's a great question, James. And so I have a couple of different reference points for you, too. So I know North Coast Research did their own survey, and then, of course, we do our annual benchmark survey that we have. Both of them kind of showed the priorities being fairly the same as far as deposit growth being number one. The one thing that I will reference from our benchmark survey is this, which is that in 2023, growing deposits was 43%. It's still number one, but 43% of the CEOs named that as their number one. This year, it was 54%. So significant growth in both of those numbers. But again, same as a priority. The other two, just since you asked, have really kind of stayed fairly consistent, which is improvement operational efficiency and growing loans. But both of those have gone up slightly from 2023 to 2024. But again, those are typically the top three. And you can throw fraud as a really close number four for priorities.
spk07: Great, appreciate that. And Greg, I wanted to follow up on a comment you made in terms of implementation cues and wondering how those are trending broadly. And how are you thinking about the puts and takes between the margin expansion you're delivering right now versus potential for additional resource allocation to speed up those implementations broadly?
spk30: No, that's a great question, one that we address on a regular basis with our team. So we work through that on a regular basis. So there's a lot of short business cases that we do. But the reality is, if we can implement the revenue faster, we absolutely find ways to do that. Sometimes it is a reflection on the actual product. Sometimes it's a reflection of the complimentary or payment product that was sold with the core. And so sometimes those don't get implemented until the core is implemented. So you have some of those timing delays. Core in particular is, as I described, it's a 12 to 18 month process. Most times, maybe a little longer on a couple, but most of the time than that. But for our other products, so let's just take Financial Crimes Defender. We've already increased our resources on that this year to kind of work through our installation queues and get that down into smaller numbers to ensure that we continue to keep our customers happy.
spk06: That's great. Thank you so much.
spk33: Sure. This concludes our question and answer session. I would like to turn the conference back over to Vance Girard for any closing remarks.
spk31: Thank you, Drew. Please don't forget that our investor day is fast approaching. It will take place on Thursday, September 5th in Dallas, starting at 1 p.m. Central Time. You can join us via webcast, or if you'd like to attend in person, please let us know, and we will get you the specifics. In addition to Investor Day, during the coming weeks, we will be traveling to attend various investor events in the U.S. and Europe. We'd like to take this opportunity to thank all Jack Henry Associates for their hard work and dedication, which has led to our outstanding results. Thank you for joining us today, and Drew, will you please provide the replay number?
spk33: Yes, sir. The replay number for today's call is 877-344-7529, and the access code is 719-2153.
spk23: That will be available in about one hour.
spk33: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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