The operator introduces the Jack Henry Fourth Quarter 2024 Earnings Conference Call and turns it over to Vance Sherard, Vice President of Investor Relations. President and CEO Greg Adelson and CFO Mimi Carsley will provide commentary on the company's fourth quarter results and fiscal '25 guidance. The call will include forward-looking statements and non-GAAP financial measures, and the company will not update or revise these statements. The operator then turns the call over to Greg.

The speaker expresses gratitude for the strong sales and financial performance in the fourth quarter and fiscal year, attributing it to the hard work and dedication of their associates. They highlight three main takeaways, including record revenue and operating income, an increase in sales bookings and new core contracts with larger financial institutions. They provide more detail on the increase in revenue and operating income, as well as the success of the sales team in signing new clients. They also mention the trend of an increase in average asset size of their core clients over the past four years.

The average assets for bank and credit union clients have increased significantly over the past four years, with one long-term client choosing to stay with Jack Henry for multiple years and multiple new solutions. The company also signed 15 contracts to move existing in-house core clients to their private cloud, now hosting 73% of core clients in the cloud. The Banno digital suite and card processing solutions saw high demand, with 45 new Banno Retail and 50 new Banno Business contracts signed in the quarter. The company also saw success with their Financial Crimes Defender solution, signing 16 contracts in Q4 and 52 for the fiscal year.

The company has signed new contracts for their real-time solution designed to prevent fraud in various payment transactions. They have a high number of installations and implementations in progress. The CEO attributes the company's success to their happy and engaged workforce, exceptional customer service, and investment in technology innovation. The company has received recognition for their workplace culture and is focused on modernizing their technology and staying ahead of the competition.

The company is excited for their annual client conference in October and grateful for their CEO's leadership. They are confident in their strategy and have strong engagement and satisfaction scores. The company's revenue and earnings continue to grow, and they have provided guidance for fiscal year 2025. Deconversion revenue was down due to minimal consolidation of clients.

In the full fiscal year, the company's deconversion revenue was $17 million, which was $15 million less than the previous year. GAAP services and support revenue increased by 2%, while non-GAAP increased by 4%. The company saw a healthy 5% increase in services and support revenue for the year. Private and public cloud offerings, which contribute to 31% of total revenue, saw an 11% increase in the quarter and a 10% increase for the year. Processing revenue, which makes up 42% of total revenue, had a strong performance with 9% growth in both GAAP and non-GAAP for the quarter and the year. Total recurring revenue accounted for more than 91% of total revenue. Expenses also increased, with cost of revenue increasing by 6% and R&D expense increasing by 4% for the quarter. For the full fiscal year, cost of revenue increased by 7% on a GAAP basis and 6% on a non-GAAP basis, while R&D expense increased by 4% on a GAAP basis and 3% on a non-GAAP basis.

In the quarter, SG&A expenses increased 6% on a GAAP basis and 13% on a non-GAAP basis due to higher personnel costs and one-time expenses. Full year SG&A expenses increased 18% on a GAAP basis and 10% on a non-GAAP basis, with the primary impacts being one-time costs and a gain on asset sales. The company remains focused on margin expansion and saw a decrease in non-GAAP margin for the quarter but an overall increase for the full year. Fully-diluted GAAP earnings per share increased 3% for the quarter and 4% for the full year. The three operating segments all saw positive performance, with the core segment's revenue increasing 4% and non-GAAP operating margin increasing 171 basis points for the quarter. The payments segment had a strong quarter with an 8% increase in non-GAAP revenue and a 183 basis point increase in non-GAAP operating margin.

The company experienced revenue growth and margin expansion in the EPS and card-related services business, but margin contraction in the complementary segment due to direct support costs. Operating cash flow and free cash flow significantly increased compared to the previous year, with a return on invested capital of 20%. The company also made share repurchases, reduced debt, and paid dividends. The company provided GAAP guidance for fiscal 2025 and an enhanced transparency reconciliation to non-GAAP metrics.

The press release includes a non-GAAP EPS metric for fiscal '25, but it is not intended to be new guidance. Deconversion guidance will follow the methodology introduced in fiscal '24. Revenue guidance for fiscal '25 is $16 million, with a full year GAAP and non-GAAP revenue growth of 7% to 8%. The company is guiding for an annual non-GAAP margin expansion of 25 to 40 basis points. The full year tax rate estimate for fiscal '25 is 24%. The guidance results in a full year GAAP EPS of $5.78 to $5.87 per share, a growth of 11% to 12%. The company expects a free cash flow conversion of 65% to 75% for fiscal '25. Non-GAAP revenue and margin are expected to increase sequentially throughout the year, resulting in a strong second half. Q1 is expected to have a non-GAAP revenue growth of approximately 5.25% and a non-GAAP margin contraction of approximately 100 bps due to slower growth rates in on-premise annual maintenance and card processing.

The paragraph discusses the factors that affected the fourth quarter and full year results of a company, including long-term software usage contracts closing in the previous year and fluctuations in quarterly results. Despite a strong performance and achievement of targeted goals, the company expects to drive revenue growth and margin expansion in the upcoming fiscal year. The company's management expresses confidence in the demand for their solutions and thanks their employees and investors for their contributions. The first question in the Q&A session asks about the fourth quarter core and complementary performance and whether there were any factors that affected revenues or if it was due to tough comparisons.

The speaker emphasizes the importance of looking at the company's performance on a year-long basis rather than just quarterly. They do not see any long-term trends that need to be addressed. The increase in new core signed above $1 billion in assets is attributed to the company's execution and reputation for technology innovation and client service.

Greg Adelson, the new CEO, discusses the success of the company and credits it to a combination of factors, including hiring talented sales individuals and executing a tech modernization strategy. He also mentions a focus on the SMB market and potentially making changes to product offerings. However, he emphasizes staying true to the company's core values. Mimi asks about any strategic changes under Greg's leadership.

The company saw a 8.4% growth in their payments segment for Q4 and a 6.7% growth for the full year, which was a big year for payments despite economic uncertainty. The EPS and PayCenter businesses are also doing well, thanks to the demand for real-time payments and fraud solutions. The company has a portfolio of complementary services that are also seeing strong demand. On the margin side, the company has beat their initial fiscal '24 guidance and their fiscal '25 guide calls for less margin expansion than in 2024.

The speaker discusses the company's margin outlook and mentions that there may have been some transitory tailwinds last year that won't recur. They also mention that there are some headwinds in the upcoming year, but overall, they feel confident in the company's ability to produce margin expansion. The speaker also addresses a potential decline in card production earlier in the year, stating that it was a one-time issue and is not expected to continue in the future.

The speaker, Greg Adelson, responds to a question about the increase in core wins and the average size of their clients. He mentions that there were 15 core wins of over $1 billion in assets, which is a historical number for the company. He attributes this success to their level of execution and innovation in the industry. In addition, he shares that their banking assets have grown by 27% and credit union assets by 34% over the last four years, indicating the overall growth of their customers.

The speaker discusses the impact of their products on deposit growth and free cash flow conversion. They mention that some products, like Banno, have had a significant impact on deposit growth. They also mention that there were some wins in the past that contributed to this growth. The speaker then goes on to explain the factors that affected their free cash flow conversion, including an over-payment in taxes and timing of annual maintenance collections. They estimate a 65% free cash flow conversion for the next fiscal year.

The speaker thanks the previous questioner and responds to a question about the company's first quarter guidance and trajectory for the year. They mention seasonal impacts and the expected performance of the payments segment. They also explain that they manage the business on an annual basis and give some insight into the drivers of growth for the year, including a strong first half in hardware sales in the previous year.

The speaker discusses the growth of the payments segment and mentions that there were a lot of first half renewals last year. They expect this year's renewals to be less than the first half. They also mention the importance of software licensing contracts and resellers. The speaker then talks about the building blocks for growth in the payments segment, including enterprise payments and the acquisition of Payrailz. They believe that most of the growth will come from the other two payment groups and the implementation of their Journey to One strategy.

The company expects to complete their goals by the end of the fiscal year, and they have already seen success with their new clients. They are also focusing on other payment solutions, such as PayCenter and Financial Crimes Defender, which could lead to further growth in the future. The company's new sales activity has been strong, but it may take 12-18 months for them to fully implement these new wins with larger institutions.

The speaker discusses the implementation of new contracts with clients and the typical 12 to 18 month timeline for these implementations. They mention that any new contracts sold will not see revenue for the current fiscal year. They also mention that the return on invested capital has come down slightly due to taking on debt for an acquisition, but they expect it to improve as they pay down the debt.

Kartik Mehta asks Greg Adelson about the core business and its growth potential, specifically in FY '25. Adelson confirms that the core business is a full year game and there is no concern about its growth. Mimi Carsley adds that the recent fourth quarter sales will not impact FY '25 revenue for the core business. Mehta also asks about pricing and Adelson responds that there have been no significant changes in the competitive environment.

The company has not seen any significant changes in the market and their competitive core wins have mostly come from regular players. The company's success is attributed to their ability to execute, provide good service, maintain consistency, and low turnover rates. The company's digital banking product, Banno, has been performing well and there is still room for growth within their existing client base. They are also working on expanding outside of their base.

The company is working with competitors to make their upcoming project successful, but it has been more difficult than expected. They still plan to release it in the second half of the year. There are only a couple hundred customers left on the NetTeller platform. The pace of M&A has slowed due to the company's suite of solutions being mostly filled out and changes in the industry, such as less fragmentation and higher valuations. The company's approach to M&A has not changed, but they are now looking for public cloud native solutions and addressing product gaps.

The company's client base in the public cloud has increased to 73%, up from 69% last year. They expect to reach around 93-95% of clients in the cloud, which could result in a 1.75% revenue uplift. The focus remains on moving the remaining clients to the cloud, which will take several more years.

The company expects to continue focusing on moving customers from private to public cloud, which will take a few more years. The growth algorithm for different segments may vary slightly each year, but overall the company expects the algorithm to hold true.

Dave Koning from Baird asks a question about the normalized growth for the year and if any segments will have accelerated growth. Mimi Carsley, the operator, states that they will not give specific numbers for each quarter but expect overall growth to increase throughout the year, with the second half being stronger than the first. Koning also asks about the positive net interest income, despite the company having a debt position, and Carsley explains that it is due to their administration of cash settlement accounts.

The speaker discusses how they have been able to increase the yield in accounts through negotiations with partners, but it is subject to interest rate sensitivity. They also mention that the top priorities for customers remain deposit growth, improving operational efficiency, and growing loans, with deposit growth remaining the number one priority for CEOs.

In this paragraph, two individuals, James Faucette and Greg Adelson, discuss the priorities of the company, including fraud prevention, and the implementation of new products. Adelson mentions that they regularly assess their implementation queues and try to speed up the process when possible. He also mentions that they have increased resources for their Financial Crimes Defender product to keep customers happy. The paragraph ends with a reminder about the upcoming Investor Day.

The company will be attending investor events in the US and Europe and thanks their employees for their hard work. The replay number for the call is provided and the conference has ended.

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