• Non-GAAP Revenue Growth: 6.1% in Q2, slightly ahead of the anticipated 6%.
• Non-GAAP Operating Margin: 21.5%, slightly better than expected.
• GAAP Revenue Increase: 5% for Q2.
• Non-GAAP Revenue Increase: 6% for Q2.
• Deconversion Revenue: Approximately $100,000, down $5 million compared to the same period last year.
• Private and Public Cloud Offerings Growth: 11% increase in Q2.
• Processing Revenue Growth: 7% on both GAAP and non-GAAP basis for Q2.
• Recurring Revenue: 92% of total revenue, excluding deconversion revenue.
• Cost of Revenue Increase: 4% on both GAAP and non-GAAP basis for Q2.
• R&D Expense Increase: 16% on both GAAP and non-GAAP basis for Q2.
• SG&A Expense Increase: 9% for Q2 on both GAAP and non-GAAP basis.
• Non-GAAP Margin: 22% for Q2, a 25 basis points increase.
• GAAP Earnings Per Share: $1.34, up 6% for Q2.
• Operating Cash Flow: $90 million for Q2, an $8 million increase over the prior year period.
• Free Cash Flow: $296 million trailing 12-month, with a 73% conversion rate.
• Return on Invested Capital: 20% trailing 12-month.
• Share Repurchase: $17 million of Jack Henry shares in Q2.

• Warning! GuruFocus has detected 8 Warning Signs with BDN.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Jack Henry & Associates Inc (NASDAQ:JKHY) exceeded their second-quarter outlook with a non-GAAP revenue growth of 6.1%, slightly ahead of the anticipated 6%.
• The company set a sales record in Q2 for the second consecutive year, with 11 competitive core wins, including significant wins from financial institutions over $1 billion in assets.
• Jack Henry & Associates Inc (NASDAQ:JKHY) achieved a high core retention rate of over 99%, excluding mergers and acquisitions, reflecting strong client confidence.
• The company received prestigious national workplace awards, including Forbes' Most Trusted Companies in America and Newsweek's Greatest Workplaces for Diversity.
• The Banno digital platform saw significant growth, with a 20% increase in registered users over the past 12 months, reaching 13.2 million users.

Negative Points

• Quarterly deconversion revenue was down $5 million compared to the same period last year, reflecting minimal consolidation of clients.
• Hardware revenue decreased by $2 million for the quarter and $7 million year to date, creating headwinds for services and support revenue.
• R&D expenses increased by 16% for the quarter, primarily due to higher personnel costs.
• The company faces potential price compression during client renewals, which could impact revenue if not offset by additional product sales.
• There is a potential for greater impact from industry consolidation in fiscal 2026, which could affect future revenue streams.

Q & A Highlights

Q: Could you talk about what gives you confidence in the back half of revenue acceleration and the key drivers? A: The confidence stems from our solid first-half results and consistent growth drivers like cloud expansion, card ramp-up, and new product installations such as Financial Crimes Defender. We're also past hardware headwinds, and cloud growth will benefit from lower comps in the back half. (Mimi Carsley, CFO)

Q: Are you seeing increased competition at the low end of the market from a large competitor, and is there any pricing pressure? A: We haven't observed significant changes in competition or pricing pressure. Our renewals and competitive wins, including large institutions, indicate strong client confidence in our offerings. (Gregory Adelson, CEO)

Q: Can you discuss the current operating environment for your customers and any regulatory impacts? A: Customers remain optimistic, with no major concerns raised. The demand environment is strong, and clients are focused on products that enhance deposits, loans, and efficiency. Regulatory scrutiny hasn't significantly impacted us or our clients. (Gregory Adelson, CEO)

Q: What are the underlying factors that could accelerate demand for your products among banks and credit unions? A: Demand is driven by innovation, execution, and timing of contracts. Our solutions align with client priorities like deposits, loans, and efficiency. The administration's focus could further increase demand for digital and payment solutions. (Gregory Adelson, CEO; Mimi Carsley, CFO)

Q: How is the trend of private cloud adoption within Core progressing, and does it impact margins? A: We have 75% of core clients on private cloud, with steady growth. We expect to reach 90-95% adoption, with some clients waiting for public cloud. This trend supports our margin profile and aligns with our long-term strategy. (Gregory Adelson, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.