Jack Henry(JKHY) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4, non-GAAP revenue increased by 7.5%, and non-GAAP operating margin was 23.2%, reflecting a margin expansion of 146 basis points compared to the previous year [7][8] - For the fiscal year, non-GAAP revenue reached $2.3 billion, and non-GAAP operating income was $541.1 million, marking record revenue and operating income [8][24] - GAAP revenue for Q4 increased by 10%, while full-year growth was 7% on a GAAP basis and 6% on a non-GAAP basis [24][25] Business Line Data and Key Metrics Changes - Core non-GAAP segment revenue increased by 7% for Q4, with operating margin increasing by 274 basis points [31] - Payments non-GAAP segment revenue grew by 6% for both Q4 and the full year, with non-GAAP margin expansion of 99 basis points [33] - Complementary segment non-GAAP quarterly revenue increased by 11%, with a margin expansion of 155 basis points [34] Market Data and Key Metrics Changes - The company signed 51 new core deals in fiscal year 2025, including 31 banks and 20 credit unions, indicating strong market demand [10] - The company now hosts 77% of its core clients in its private cloud environment, reflecting a shift towards cloud solutions [10] - Total recurring revenue exceeded 91%, showcasing the stability of the revenue model [28] Company Strategy and Development Direction - The company is focused on technology innovation and execution to drive sales and maintain a competitive edge in the market [8][22] - A strategic phased approach to stablecoin solutions is being adopted, ensuring compliance with upcoming regulations while leveraging existing infrastructure [20][21] - The company aims to increase share repurchases and remain open to M&A opportunities, supported by a strong balance sheet with zero debt [34][107] Management's Comments on Operating Environment and Future Outlook - Management anticipates slight revenue headwinds due to industry consolidation, renewal pricing pressure, and macroeconomic uncertainty, but remains optimistic about margin expansion and free cash flow [8][39] - The company expects to generate sustainable, accretive sources of margin, with guidance for annual non-GAAP margin expansion of 20 to 40 basis points [38][39] - Management emphasized that the long-term growth opportunities remain intact despite short-term headwinds from bank M&A activity [66][67] Other Important Information - The company achieved a record operating cash flow of $642 million for fiscal year 2025, with free cash flow conversion at an impressive 90% [34] - The company received recognition in multiple publications for its workplace culture, reflecting its commitment to employee satisfaction [12] - The successful migration of Fedwire funds to ISO 20022 was highlighted as a significant achievement, enhancing capabilities in fraud detection and data sharing [13] Q&A Session Summary Question: Aggregate demand environment and implementation cycles - Management noted improvements in consulting engagements and implementation cycles, with some delays from the previous quarter now resolved [46][48] Question: Revenue guidance range - The wider revenue guidance range was introduced to provide more operational flexibility in light of macroeconomic variables [50][51] Question: Fiscal 2026 revenue outlook by segment - Core segment is expected to remain solid, while payments may experience slight headwinds, and complementary segment is anticipated to grow at the higher end of the growth range [55][57] Question: Impact of bank M&A on revenue outlook - Management indicated that while there are short-term revenue headwinds from bank M&A, the long-term growth opportunities remain solid [60][66] Question: Pricing pressure on renewals - Pricing pressure is observed in both renewals and new contracts, but management is implementing strategies to manage this effectively [77][80] Question: Progress of partnership with Move - The partnership has exceeded expectations, with significant interest and excitement from Visa and MasterCard regarding the rapid certification process [82][84] Question: Key levers for margin expansion - Key components for margin expansion include process improvement, efficiency in headcount management, and migration to cloud solutions [88][91]