Q2 2025 Earnings Summary
- Strong demand and customer optimism: Despite the current operating environment, customers remain very optimistic, and the demand for Jack Henry's products remains strong. Clients continue to invest in products that help increase deposits, loans, and efficiency. There is nothing inhibiting success other than time, and the company is receiving positive messaging from clients and consultants. ,
- Acceleration in Payments segment due to new products: The Payments segment is experiencing significant growth, not just from card volumes, but from other products like PayCenter, which is becoming very meaningful. This shift is driving opportunities and potential acceleration beyond historical trends. The company expects acceleration throughout the year, with Q4 higher than Q3. ,
- Winning larger deals and expanding market share: Jack Henry is continuing to win larger deals, including an almost $8 billion win for the second quarter in a row. They have seven clients over $1 billion already this year, indicating success in capturing larger clients and expanding market share. They are still tracking to their traditional 50-ish wins and remain confident about affirming the guidance. ,
- Jack Henry's full-year guidance depends on significant revenue acceleration in the second half of the year, particularly in the fourth quarter. This reliance poses a risk if the expected growth does not materialize, potentially impacting their ability to meet growth targets.
- Revenue contribution from key partnerships, such as with Moov, is not anticipated until fiscal year 2026. This delay means that these initiatives may not provide meaningful near-term growth, limiting the company's ability to benefit from them in the current fiscal year.
- Potential increased competition at the lower end of the market from large competitors could lead to pricing pressure and market share losses. Although management asserts that they are not seeing significant impact, this competition could affect future growth and profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +5.2% | The increase was primarily driven by growth in data processing and hosting revenues, plus higher adoption of digital solutions, including Banno. Additional card transaction volumes also supported revenue growth. These trends reflect ongoing client migrations to private cloud and the company’s successful digital expansion, positioning JKHY for continued revenue momentum. |
Core | +4.6% | The Core segment benefited from new customer wins migrating to JKHY’s private cloud environment, as well as increased processing volumes among existing clients. Ongoing investments in platform enhancements and market share gains further supported Core’s steady growth, although higher personnel costs partially offset incremental revenue. |
Payments | +5.4% | Payments revenue rose on the back of higher card transaction volumes and increased remote capture and ACH usage. This was bolstered by strong demand for Electronic Payment Services (EPS) and risk management solutions. Continued pricing optimization and new product rollouts also contributed to segment growth. |
Complementary | +5.6% | The Complementary segment’s YoY increase was driven by higher Jack Henry Digital revenue, reflecting rising active users and expanded product adoption. Hosting revenues also grew as more institutions migrated away from on-premise deployments. However, these gains were partly offset by increased direct costs tied to product enhancements. |
SG&A | +9.4% | The larger YoY change in SG&A was influenced by ongoing cost pressures, including wage inflation, increased benefits expenses, and higher spend on corporate initiatives. While last year’s period included certain one-time items, this year’s recurring personnel and strategic costs drove SG&A higher, underscoring the company’s focus on long-term infrastructure. |
Net Income | +6.4% | Net Income rose due to steady top-line growth across all segments and efficiency improvements that partially offset higher SG&A. Improved operating income also benefited from interest income gains, reflecting the higher interest rate environment. These factors collectively boosted profitability despite elevated cost pressures. |
Diluted EPS | +6.3% | The EPS increase mirrored Net Income growth, with relatively stable share count ensuring that improved profitability flowed through. This reflects a combination of revenue expansion, controlled cost escalation, and favorable interest income trends, all of which position JKHY well for future earnings potential. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Non-GAAP Revenue Growth | FY 2025 | 7% to 8% | 7% to 8% | no change |
Non-GAAP Margin | FY 2025 | 100 bps contraction | 100 bps contraction | no change |
Free Cash Flow Conversion | FY 2025 | 65% to 75% | 65% to 75% | no change |
Deconversion Fees | FY 2025 | no prior guidance | $16 million | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Non-GAAP Revenue Growth | Q2 2025 | 6% | 5.15% year-over-year (from 545,701 to 573,847) | Missed |
Non-GAAP Margins | Q2 2025 | Flat to slightly down | 21.82% → 21.44% year-over-year (operating margin) | Met |
Free Cash Flow Conversion (TTM) | Q2 2025 | 65% to 75% | 72% | Met |
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Back-Half Revenue Growth Acceleration
Q: Is the strong back-half revenue growth guidance achievable, and what drives it?
A: Management affirms the guidance, expecting acceleration through the year. Factors include increased payment volumes due to a healthy U.S. consumer, timing of new product installations like Financial Crimes Defender, and success with digital solutions like Banno. They are comfortable with the implied 9% growth in the second half. -
Payments Segment Growth
Q: What's driving the acceleration in Payments, and is it sustainable?
A: While card volumes remain consistent with U.S. debit trends, significant growth comes from PayCenter, Jack Henry's faster payments platform. PayCenter is becoming meaningful, with increased send transactions contributing to revenue growth. This shift in the Payments segment composition is expected to continue driving acceleration beyond typical seasonal patterns. -
Private Cloud Transition
Q: What's the status of Core clients moving to private cloud, and any margin impact?
A: Currently, 75% of Core clients are on private cloud, with plans to reach 90-95%. Jack Henry is on pace, migrating 40-45 clients per year. Some may wait for public cloud offerings expected in early 2026. This transition is a multi-year trend, with no significant impact on margins this fiscal year. -
Real-Time Payments and PayCenter
Q: How are real-time payment volumes and PayCenter contributing to growth?
A: PayCenter has seen meaningful growth, driven by increased send transactions with large banks. While card volumes are steady, PayCenter's contributions are significant. New use cases and reduced fraud through the financial crimes module are key factors. Management doesn't expect a near-term shift from card to real-time payments but is focusing on expanding use cases. -
Moov Partnership Impact
Q: When will the Moov partnership start impacting revenue?
A: Meaningful revenue impact from the Moov partnership is expected in fiscal year 2026. There may be small contributions in fiscal 2025, but significant growth is anticipated the following year. -
Competition and Pricing Pressure
Q: Are you seeing increased competition and pricing pressure, particularly at the low end?
A: Management is not seeing significant changes in competition or pricing pressure. Any potential price compression during renewals is typically offset by selling additional products. They haven't observed impactful moves from competitors. -
M&A Activity Impact
Q: How does M&A activity affect your revenue outlook?
A: An increased pace of consolidation is expected, with modest convert merge revenue in the back half and more impact in fiscal 2026. Winning in mergers positions Jack Henry favorably as clients plan further acquisitions. Significant M&A in banking and credit unions over the next couple of years could benefit the company. -
Regulatory Environment and Public Cloud
Q: Will regulators support your move to public cloud within your expected timeframe?
A: Management believes it's more possible now than two months ago, possibly due to changes in administration. Ongoing dialogues with regulators and experience with public cloud products like Banno position them well to gain regulatory comfort. They're optimistic about aligning public cloud migration with regulatory acceptance. -
Free Cash Flow Conversion
Q: What's the visibility on achieving free cash flow conversion targets?
A: Confident in hitting the full-year free cash flow conversion guidance of 65% to 75%. The back half should continue to show strength similar to the first two quarters. -
Product Rationalization
Q: What's the progress on rationalizing your product portfolio?
A: Actively working on divesting, sunsetting, and cash-cowing certain products. All three approaches are in progress to streamline offerings. -
Innovation and Investment Focus
Q: Which products are seeing the most investment to stay ahead?
A: Significant investments are in the digital platform, account origination, PayCenter, faster payments, lending solutions like LoanVantage, and financial crimes and fraud modules. Launching the first phase of the enterprise account origination solution this month after 2.5 years of development. AI is also a key area. -
Demand Environment
Q: What's the current operating environment and demand from clients?
A: The operating environment is optimistic, with strong demand for products focused on increasing deposits, loans, and efficiency. Timing and resources can affect implementation, but nothing is inhibiting success. The administration's focus may further increase demand for digital and payment solutions. -
Banno Penetration and Strategy
Q: How is Banno's penetration, and what's the future strategy?
A: With about 1,000 Banno Retail and 212 Banno Business clients, penetration is roughly 20%. Expecting 65-70% penetration over time. The Moov partnership and offerings to SMBs may drive numbers higher. On track to achieve feature parity with major competitors by this summer, which should boost adoption. -
Deconversion Fees Timing
Q: Should we model deconversion fees equally between Q3 and Q4?
A: Affirming full-year guidance of $16 million in deconversion fees. It's fair to assume even weighting between Q3 and Q4, though dates may shift slightly between quarters.