Q1 2025 Earnings Summary
- The company's modern core modular platform strategy is resonating with clients and prospects, particularly larger financial institutions, leading to competitive wins, including a recent $7 billion asset bank win. This focus on technology modernization and open philosophy is attracting institutions seeking innovation and flexibility. ,
- The partnership with Moov is progressing well, with significant advancements since its announcement. The company demonstrated this solution at their client conference, receiving positive feedback. They are on track to deliver this unique solution to early adopter clients in May 2025, indicating strong future growth potential.
- Despite increased competition, the company continues to win new business and renew contracts with larger clients. They are proactively preparing for industry consolidation by adding conversion and migration teams, and they have several acquisitions lined up for the second half of fiscal 2025, positioning them well to capitalize on M&A activity. ,
- Interest income may decrease if interest rates fall, as it has been elevated due to recent negotiations and is correlated with interest rates, potentially impacting earnings.
- Increased competition in core processing, with competitors winning deals in Jack Henry's focus area, including a bank with less than $10 billion in assets, suggesting potential market share loss.
- Potential revenue impact from M&A and consolidation, as higher deconversion revenue indicates client loss due to mergers, which could negatively affect revenue growth if not offset by new sales.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Ongoing migration to the private cloud | Discussed every quarter with consistent progress: 73% adoption in Q4 2024 , strong progress in Q3 , double-digit growth in Q2 | 73% of clients are on the private cloud, pace expected to continue for 3–5 years; some customers won’t move | Consistent recurring topic (no major sentiment change) |
Accelerating M&A activity and deconversion revenue | Highlighted slowdown in Q4 2024 , noted regulatory delays in Q3 , remained slow in Q2 | Several acquisitions lined up for the second half of FY25, deconversion revenue still hard to predict | Shift from slowed to potential pickup in H2 FY25 |
Growth in faster payment solutions (Zelle, RTP, FedNow) | Over 300 institutions on all 3 rails in Q4 , strong interest in Q3 , continued adoption in Q2 | 324 Zelle, 326 RTP, 290 FedNow clients; 26 new Financial Crimes Defender contracts | Consistently growing (positive sentiment) |
Expanding market share among larger financial institutions | 15 new $1B+ core contracts in Q4 , multiple multibillion-dollar institutions in Q3 , growing recognition in Q2 | 6 competitive core wins in Q1, including one $7B institution, multiple large renewals | Continued upmarket momentum |
Robust sales pipeline and record sales bookings | Record Q4 bookings (57 core wins) , best Q3 ever , record Q2 as well | Pipeline at all-time high, record Q1 bookings with 6 competitive core wins | Ongoing record sales (sentiment remains strong) |
Margin expansion targets vs. near-term cost pressures | FY24 margin +60 bps, guiding 25–40 bps in FY25 ; Q3 +45–50 bps ; Q2 +35–40 bps | Reaffirmed 25–40 bps FY margin expansion; Q1 margin contracted 89 bps but beat forecast | Stable margin focus despite short-term headwinds |
Deceleration in card processing revenue growth | Q4 had resolved card production issues , slower debit transactions in Q3 , lower card production in Q2 but 8% processing growth | Growth slowed to 5% (was 8%) driven by modest bill pay | Continued mild slowdown in card growth |
Extended core product implementation timelines | Typically 12–18 months in Q4 , phased approach in Q3 , dependent on client readiness in Q2 | Up to 6 months for some solutions; tied to core completion | Consistent complexity (no major shift) |
Competition in core processing affecting pricing and market share | Environment unchanged in Q4 , fintech entrants not significantly shifting market in Q3 , no major change in Q2 | Won a $7B deal; sees “no concerns” about competitive pressure | Stable (Jack Henry remains confident) |
Return on invested capital (ROIC) concerns | Q4 at 20%, slightly affected by Payrailz debt , 19% in Q3 , 20% in Q2 | TTM ROIC at 20%; no specific concerns voiced | Stable high ROIC (no negative sentiment) |
Transaction volume fluctuations in the payments segment | No specific Q4 mention, slower debit transactions in Q3 , mirrored Visa/Mastercard trends in Q2 | Transaction volume in line; faster payments ramping, modest bill pay | Mentioned consistently (minor consumer-driven shifts) |
Hardware sales and software usage contract renewals impacting revenue | Strong hardware sales in FY24; wave of renewals closed in prior year , no Q3/Q2 mention | Hardware sales dragged revenue by $7M; tough YOY comps on software usage | Highlighted this period (recent impact) |
Potential regulatory shifts influencing M&A and future growth | No Q4 mention; Q3 noted 5–6-month regulatory delays in deal approvals , no Q2 mention | Hopeful that regulatory hurdles may ease under current administration, additional M&A in H2 FY25 | Continuing caution with regulatory impact on M&A |
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Second Half Revenue Growth Outlook
Q: What drives confidence in second-half revenue acceleration?
A: Management expects a robust second half, with revenue growth accelerating due to multiple factors, including easing hardware drag, continued cloud revenue growth, strong faster payments adoption, and the ramp-up of new products like Defender. They also anticipate increased implementation of prior year sales and higher digital adoption, giving them confidence in second-half performance. -
Core Wins and Pipeline Confidence
Q: Is the target of 50-55 core wins this fiscal year achievable?
A: Yes, management is confident in achieving their normal numbers. They are tracking well, having already secured three core wins in Q1, including a significant $7 billion deal. The sales pipeline is at an all-time high, even after record quarters, reinforcing their confidence. -
Margin Expansion and Outlook
Q: Can margins expand beyond the 25-40 basis point target?
A: While it's too early to say definitively, there could be upside if the economy and consumer sentiment remain strong. Management feels comfortable with the full-year margin expansion guidance, expecting challenges in the first half but aligning with revenue growth in the second half to achieve the 25 to 40 basis points target. -
Impact of M&A on Revenue Growth
Q: How will M&A activity affect revenue growth?
A: Consolidation is expected to lead to higher deconversion revenue, particularly in the next fiscal year. Several acquisitions are already lined up for the second half of fiscal '25, baked into the numbers. Regulatory challenges may lessen with the new administration, potentially accelerating M&A approvals. -
Cloud Migration and Growth Runway
Q: How sustainable is cloud revenue growth?
A: With 73% of clients on the private cloud, management sees several years of runway for double-digit cloud revenue growth. They anticipate reaching low to mid-90% adoption, acknowledging some clients may not move. Larger customers are now migrating, and as clients grow, so does Jack Henry's cloud revenue. Public cloud traction is expected with the upcoming deposit-only core in 2026. -
Deemphasizing Low-Growth Businesses
Q: Is there a change in pace of deemphasizing less profitable businesses?
A: Management is focused on this area, exploring divestitures and sunsetting certain products, which typically takes two years. While it's doubtful there will be significant immediate impact, over time this strategy should reduce the drag on performance and aid in margin expansion and cost containment. -
Product Developments (Banno, Moov, Loan Origination)
Q: What's the progress on new product initiatives like Banno and Moov?
A: Banno user growth is driven mainly by the retail platform, with a 20% year-over-year increase. Banno Business contributes but is not yet a significant driver. The Moov partnership is progressing well, with a full demo showcased at the client conference, and is on track for early adopter release in May 2025. The loan origination platform, now called Enterprise Account Opening, combines consumer and commercial capabilities and will enter early adoption in January 2025. -
Competition in Core Processing
Q: Are you seeing increased competition in core processing?
A: Management is not seeing increased competitive pressure. While they don't win every deal, they continue to be very successful, including recent significant wins and renewals among larger clients. The competitive win mentioned by a rival involved a significant price difference, but overall, they feel confident in their position. -
Capital Allocation Priorities
Q: What are your capital allocation priorities in the current environment?
A: The company remains steadfast in investing in future growth through innovation, supporting their dividend policy, and paying down debt. As they build a more positive cash flow position post-debt repayment, they will consider share repurchases. M&A is always on the table, but they've seen limited opportunities recently. -
Implementation Queues and Resource Allocation
Q: How are you balancing implementation queues with margin expansion?
A: Management evaluates this monthly, balancing the need to expedite revenue flow with operating margins. They have added resources where needed, such as in the Financial Crimes Defender group. Some implementation delays are due to factors like core implementation timing, not just resource constraints.
Research analysts covering JACK HENRY & ASSOCIATES.