The operator welcomes participants to the Jack Henry First Quarter 2024 Earnings Conference Call, where the company's CEO, CFO, and President will discuss the state of the business and provide updates on new solutions and financial results. The call includes forward-looking statements and non-GAAP financial measures, and the company will not update or revise these statements. Listeners can refer to the press release and 10-K for more information on risk factors and forward-looking statements.

The company reported strong revenue and operating income growth for the first quarter of fiscal 2024, with a 8% increase in total revenue on both a GAAP and non-GAAP basis. The core segment had a solid quarter with an 8% increase in revenue, while the payments segment and complementary solutions businesses also performed well with a 7% and 9% increase in revenue, respectively. The company's sales pipeline was the largest ever entering a new fiscal year, resulting in 10 competitive core takeaways and 10 deals to move existing customers to their private cloud environment. This strong start leaves the company confident in achieving 50 to 55 competitive takeaways this fiscal year.

The company has seen success in signing new clients for their card processing and digital suite services, with a 27% increase in registered users over the past year. This is consistent with results from a Bank Director Technology Survey, which showed that most banks have increased their technology budgets and are prioritizing investments in digital business capabilities. However, only 18% of banks feel they have the necessary technology to effectively serve Gen Zers.

The younger generations prefer to conduct banking services digitally and this trend is expected to continue. Jack Henry's digital suite and other innovative solutions were discussed at their annual client conference, which had a record number of attendees including financial institution prospects and third-party fintechs. The conference generated new sales leads and showcased Jack Henry's technology modernization strategy, including their single public cloud-native platform. The CEO forum at the conference was attended by nearly 150 client CEOs.

The company received positive feedback from attendees at their meeting, with a focus on investing in technology and being recognized in national workplace rankings. They will be conducting their Annual Shareholder Meeting in person, with an option for remote observation. The company remains optimistic about their sales pipeline and is committed to their disciplined approach. They also announced the general availability of new solutions and made progress on their technology modernization strategy and development of their cloud-native platform.

The company will provide an update on their beta platform components in February. The Banno Business solution for small and medium-sized businesses is now available for SilverLake banking clients and has received a positive response. The Financial Crimes Defender platform for fraud and anti-money laundering compliance is now generally available for SilverLake banking clients and has a faster payment module for Zelle. Additional modules for FedNow and RTP networks will be released in 2023 and 2024. The platform is also set to launch for credit union clients in December. The company was one of the first to support live transactions on the new FedNow instant payment network and currently has over 40 clients live with 150 contracts in the implementation queue.

The company expects to have around 150 customers on their network by 2024, with an increasing demand for send capabilities. They have seen significant transaction growth from their RTP clients and have successfully integrated their recent acquisition of Payrailz. They are working on building a single payment platform that will include features from both iPay and Payrailz, and have over 100 clients live and more in the implementation process. The company plans to sell their innovative solutions to non-Jack Henry clients in the future.

The company has finalized its strategy to sell its solutions and components to targeted competitive cores. They are focused on being the easiest core provider to work with and have received validation for their efforts. Their work aligns with the objectives outlined by the American Bankers Association Core Platforms Committee. Clients and prospects have praised their technology modernization strategy and focus on road map execution and service excellence.

In the paragraph, Mimi Carsley thanks the associates for their contribution to the company's success and hands over to Mimi for a detailed report on the financial numbers. She highlights the company's focus on serving clients, growth, and delivering shareholder value, leading to a solid first quarter with 8% revenue and earnings growth. Deconversion revenue was down due to financial institutional consolidation, but the recent acquisition of Payrailz is expected to positively impact future results. Services and support revenue increased by 7%, driven by growth in data processing, hosting, and cloud offerings. Processing revenue also saw strong growth of 10%. Expenses were also mentioned.

In the tenth paragraph, the company discusses the increase in cost of revenue, R&D expense, and SG&A for the quarter. The increase in cost of revenue was due to higher direct costs, personnel and benefit costs, and internal licenses and fees. R&D expense increased to support solution innovation and technology modernization. The rise in SG&A was primarily due to a one-time cost related to a voluntary early departure program. However, when adjusted for this cost and last year's gain from real estate divestures, SG&A decreased. The company remains committed to cost control and saw a 121 basis points increase in non-GAAP margin. The quarter also saw a solid performance from all three operating segments, with core segment revenue increasing 8% and non-GAAP operating margin increasing five basis points. The payments segment also saw a 7% increase in revenue on a GAAP basis and 6% on a non-GAAP basis.

In the first quarter, the company saw a significant increase in non-GAAP operating margin, driven by growth in card transaction and related revenues and the EPS business. The recent announcement by the Fed to decrease debit card interchange will not have a major impact on the company's revenue model. The complementary segment also saw strong growth due to a diverse mix of solutions and the addition of a new fraud solution. The company's dedication to value creation resulted in a 20% return on invested capital and notable returns of capital, including share repurchases, debt reduction, and dividends. The company has updated its fiscal 2024 full year guidance.

In the current fiscal year, the company has revised its approach for deconversion guidance and expects minimal financial institution consolidations in the first half of fiscal 2024. They are maintaining their full year deconversion revenue guidance of $16 million and have seen positive results in Q1, leading to an increase in non-GAAP revenue growth and GAAP revenue guidance. They also expect an increase in annual non-GAAP margin expansion and have revised their full year GAAP EPS guidance upward. The company also provided some modeling commentary, mentioning their recent customer conference and the impact it will have on next quarter's financials. They believe this has led to a slightly higher consensus Q2 EPS estimate.

The company is pleased with their strong quarterly results and remains confident in their ability to deliver innovation and value to clients. They attribute their successful growth to the contributions of their hardworking associates and their focus on execution, growth accelerators, and shareholder value creation. The first quarter of their fiscal year was a strong start and they thank their investors for their continued confidence. During the question and answer session, they address the growth in the corporate and complementary product areas, driven by the success of the Banno product line. However, payments growth was slightly lower than expected and the company's CFO will address this in more detail.

The paragraph discusses the performance metrics of the Banno platform, specifically the addition of new customers and registered users. The impact of Financial Crimes Defender on the P&L will not be seen until next quarter. Other solutions, such as treasury and complementary solutions, have also been successful in driving revenue. The payments side has been affected by the pandemic, with less growth in remote deposit capture and debit card usage. The overall margins of the company are also discussed.

The speaker is discussing the company's margins and revenue growth in the previous quarter. They note that margins came in higher than expected, leading to a raise in full-year projections. They also mention the impact of a conference on margins. When asked about the company's subsidiary, Payrailz, they state that it is on track with previous guidance. The speaker is then asked about the pace of competitive takeaways in the quarter, which fell from the previous quarter. The speaker does not see this as a negative, but rather a natural fluctuation.

The speaker is pleased with the company's performance in the first quarter, with 10 new wins compared to 6 in the previous year. They are confident in achieving 50-55 new wins this year based on their pipeline. The disruption in the industry due to competitors creates opportunities for the company. Moving upmarket to bigger banks has been a focus and the success of treasury management is part of this effort. The company has had a few banks in the $15-$30 billion range at their client conference and they are making progress in this area.

The speaker talks about the success of the company's client conference and the increasing interest from larger institutions due to their tech modernization. They cannot predict when they will sign a larger institution as a new client, but they are confident that there will be significant wins in the future. The next question is about the payments segment and the speaker mentions that Q1 trends were in line with the full year and they are optimistic about its strength. They also mention expanding ancillary revenues to derisk exposure to transactional revenues. The questioner asks if this trend will continue for the rest of the year and the speaker responds that it is likely.

In this paragraph, the speakers discuss the success of Banno, a digital banking solution, within Jack Henry's client base. They mention that it has been a growth driver for several years and is well-penetrated in the existing client base, but there is still potential for growth on the credit union side. They also mention that they do not provide revenue guidance for individual products but have given user counts for modeling purposes.

Kartik Mehta from Northcoast Research asks about free cash flow for the year, wondering if the 60% estimate is conservative. Mimi Carsley responds that the quarterly cadence can be choppy, but they are still on track for 60%. Dave from JHA Connect discusses how AI was a topic of discussion at the event, with two flavors being traditional AI and generative AI. Jack Henry has been using traditional AI for many years, especially in the fraud area, and has recently started using generative AI as well.

The speaker mentioned that they showcased generative AI working on the Google platform at the Connect conference. They had one main stage session with their Chief Technology Officer, an executive from Google, and a bank CEO who is a beta customer. The bank CEO spoke about the potential impact of their generative AI solution on the operating environment for their bank. The speaker stated that they are not in production yet, but they expect to be a player in the space and help their customers using generative AI. They also mentioned that the Jack Henry Platform is written on the Google Cloud, which has the best gen AI solution in the market and guarantees protection of private information. They are optimistic about the future opportunity to use this technology to help their customers. During the Q&A, the speaker was asked about their free cash flow and stated that they hope to return to normal historical levels once they lap the non-deductibility of R&D expenses, but it ultimately depends on potential changes in legislation. They mentioned that more technology companies are discussing the negative impact of this tax rule.

The speaker discusses the company's plans for the future, including potential challenges with taxes and the company's focus on innovation. They also provide an update on Payrailz and mention that integration delays have been resolved.

The company has faced challenges in rebuilding its pipeline with a certain group, but has overcome them. They have also found operational synergies that have helped with sales delays. The company has 100 live clients, 50 in the process of implementation, and 20 new contracts signed. There has not been much M&A activity in the industry. The company will discuss balancing debt paydown and share buybacks at their upcoming Board meeting.

Dominick Gabriele from Oppenheimer asks a question about Jack Henry's recent move to sell products outside of their core offerings. He asks if this indicates that they have found a way to stop competitors from persuading customers to upgrade their core systems. CEO David Foss confirms that this is the case and explains that they have targeted specific core systems with specific messages and leveraged their Jack Henry Platform to create a strategy that will give them an advantage in these markets. COO Greg Adelson adds that they have also found successful bundles that they can sell into these markets. They plan to begin actively selling these products next summer.

The company is confident that their success rate will increase due to leveraging technology platforms and integration work. They are also pleased with their current ROIC of 20% and believe it demonstrates their commitment to shareholder value creation. However, the ROIC may dip slightly due to investments and debt paydown.

The company is focused on paying down debt and returning net income to investors, which will lead to a rebound in numbers. The growth of Payrailz, which was recently acquired, is on track and revenue is growing at a good pace. The company is confident in hitting previous guidance and is working to overcome previous barriers in selling Payrailz solutions.

The company's technology has exceeded expectations and is stronger than anticipated. The GAAP operating income guidance and GAAP EPS are expected to be affected by interest income and a tax rate of 24%. The flow-through from revenue growth is the main factor in the change in EPS. The module progression for the Jack Henry Platform is on track, with two modules currently in beta testing and a public road map shared with customers.

The company has a road map that they are executing to, and they will share more details on their progress on the next call. They are not yet selling Banno for Business outside of their core base, but it has attracted attention. They are preparing to actively sell it outside the base as part of a larger strategy. Sales may not happen until next fiscal year. The time to revenue and scaling for Payrailz implementation was also discussed.

The implementation of bill pay and payment-providing products is dependent on the customer and core deals. The company has the ability to start moving the needle with 100 customers currently on the platform, 50 in the implementation queue, and 20 recently sold. The technology is driving the longer-term strategy and will reinvigorate the payment sector, which makes up 36% of total revenue. The company is also facing competition in the market.

The speaker asks about a competitor's new product targeting banks and credit unions, but the company has been offering a similar product for a long time. They can provide a full range of services and will be hosting their Annual Shareholder Meeting next week.

The speaker thanks Vance and provides the replay number and access code for the call. They state that the conference has ended and thank the attendees for participating. They also give permission for the attendees to disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.