Earnings Call Transcript - JKHY Q4 2024

Operator, Operator

Good morning, and welcome to the Jack Henry Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead.

Vance Sherard, Vice President, Investor Relations

Thank you, Drew. Good morning, and thank you for joining us for the Jack Henry fourth quarter and full year 2024 earnings call. Joining me on the call today is President and CEO, Greg Adelson; and Mimi Carsley, CFO and Treasurer. After my opening remarks, I will turn the call over to Greg for his comments on our fourth quarter results and observations related to our business and the industry. Mimi will then provide commentary around the financial results and fiscal '25 guidance included in the press release issued yesterday, that is available from the Investor Relations section of the Jack Henry website. We will then open the lines for Q&A. As a reminder, this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results. Like any statement about the future, these are subject to multiple factors that could cause actual results or events to differ materially from those which we anticipate due to multiple risks and uncertainties. The company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled Risk Factors and Forward-looking Statements. On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for non-GAAP financial measures are in yesterday's press release. I will now turn the call over to Greg.

Greg Adelson, President and CEO

Thank you, Vance, and hello, everyone. I appreciate all of you joining this morning's call. We are very pleased to report strong sales and financial performance in the fourth quarter and for all of fiscal 2024. I want to especially thank all of our associates for your hard work, dedication and unwavering commitment that significantly contributed to these outstanding results. I will begin with a summary of what I believe are the three main takeaways and then provide additional detail on all areas of our business. We produced record revenue and operating income for fiscal '24 with $2.2 billion in revenue and $489.4 million in operating income. Our sales team set an all-time record for sales bookings for both the fourth quarter and the fiscal year that included 22 competitive core wins in the quarter and 57 for the fiscal year. We signed 15 new core contracts this fiscal year, with financial institutions that have over $1 billion in assets compared to only five in fiscal 2023. This was a direct result of our technology modernization strategy and execution, One Jack Henry initiative, and several new innovative solutions. Now for more detail on each of these takeaways. For the fourth quarter, total revenue increased by 5% and increased 6% on a non-GAAP basis. For the fiscal year, total revenue increased 7% on a GAAP and non-GAAP basis. Operating income increased 1% for the quarter and increased 5% on a non-GAAP basis. For the fiscal year, operating income increased 2% and increased 10% on a non-GAAP basis. As I mentioned, the fourth quarter was the highest quarter for sales bookings in the history of the company, and we set a new record for sales bookings for the fiscal year. I am very proud of the remarkable year by our sales team. The 15 core clients signed with over $1 billion in assets also is a new fiscal year record. Of those clients, 10 are banks and five are credit unions. Over the past four years, we have continued to see an increase in the average asset size of our core clients. Average assets for our bank clients have increased to $1.35 billion, a 27% increase over the past four years. Average assets for our credit union clients have increased to $1.27 billion, a 34% increase over the past four years. In addition to the 22 competitive core takeaways in the quarter, we re-signed one long-term client with about $6 billion in assets that had provided the termination notice to us a little more than two years ago. That client never de-converted to the competing core platform. They've now re-signed with us for multiple years and multiple new solutions. While this contract is not in our new core win numbers, it is noteworthy that they decided their best choice was to stay with Jack Henry for multiple more years. For the quarter, we also signed 15 contracts to move existing in-house core clients to our private cloud environment. We finished fiscal '24 with 44 existing clients agreeing to move to our private cloud. We now host 73% of our core clients in our private cloud. Several of our complementary and payment solutions also experienced extremely high demand, with our digital suite leading the way. For the quarter, we signed 45 new clients to our Banno Retail platform as well as 50 new Banno Business deals. For the fiscal year, we closed 179 new Banno Retail contracts and 164 new Banno Business contracts. Banno continues to experience exceptional growth. We currently have 12.2 million registered Banno users as compared to 3.2 million at the same time in 2020. We have 924 Banno Retail clients, and of those, 147 are live with Banno Business and another 81 are in various stages of implementation. We also continued to see increasing success with our card processing solution, signing 21 new card processing clients this quarter and 56 for the fiscal year. We received 16 new Financial Crimes Defender contracts in Q4 and 52 for the fiscal year. In addition, we signed 53 new contracts for the Financial Crimes Defender faster payment fraud module for the quarter and 134 for the fiscal year. This real-time solution is designed to help mitigate fraud in Zelle, FedNow and real-time payment transactions. As of June 30, we have 52 Financial Crimes installations completed and another 115 in various stages of implementation. We also have 22 faster payment modules installed and 154 in various stages of implementation. I am asked regularly why I believe we continue to see significantly more new competitive core wins than our competition. While I believe there are many reasons, I’ve tried to boil it down to three primary themes. First, our associates. We have a happy and engaged workforce and we believe that leads to having a 'do whatever it takes' attitude with our clients. Our associate engagement scores are well above the industry benchmark and we consistently win Best Workplace awards each year. We are pleased to recently receive recognition in three national publications: U.S. News & World Report's Best Companies to Work For, TIME Magazine's Best Mid-Sized Companies, and Newsweek's Greatest Workplaces. Second, our service quality, which is a direct result of our engaged and dedicated associates. We have long been known for providing exceptional customer service, and this year was no exception. In fiscal year 2024, our client satisfaction score when rating the engagement with a client service representative averaged 4.74 per month on a five-point scale. On that scale, a meets expectation is 3.0 and extremely satisfied is 5.0. You have to have a lot of fives to average a 4.74. The third theme is technology innovation. We continue to invest in technology to help our clients remain vibrant financial institutions in the markets they serve. We are executing our technology modernization strategy, while bringing new leading-edge solutions to the market before our competition. A couple of final items. We are looking forward to our annual client conference, Jack Henry Connect, in October. This is a great opportunity every year for us to meet with prospects, clients and partners. Last year, 17 of our new core wins were with prospects who attended the conference. As I reflect back on fiscal 2024, I want to again thank Dave Foss for his outstanding leadership as CEO for the past eight years. I am honored and humbled to take over as CEO and excited along with our entire leadership team about the opportunities ahead. We are executing on our strategy and our associate engagement and client satisfaction scores are consistently strong. Technology spending by financial institution remains robust and there's clear demand for our differentiated and innovative technology, as validated by our strong quarter and fiscal year. We are very well-positioned for future success. I look forward to seeing and speaking with many of you at our Investor Day in Dallas on September 5. We have an exciting agenda and we'll have several of our new business leaders available for a meet and greet as well. With that, I will turn it over to Mimi for more specifics on our financials.

Mimi Carsley, CFO and Treasurer

Thank you, Greg, and good morning, everyone. Our ongoing commitment to our community and regional financial institution clients, along with our focus on delivering shareholder value, has resulted in another quarter of substantial revenue and earnings growth. I'll begin by discussing the factors influencing our fourth quarter and full year results, and then I'll provide guidance for fiscal '25. In Q4, GAAP revenue rose by 5%, and non-GAAP revenue went up by 6%, reflecting our consistent performance. For the full year, we achieved a 7% growth on both GAAP and non-GAAP metrics. Our fourth quarter deconversion revenue, which we pre-announced, was about $7 million and decreased by $8 million, indicating minimal consolidation among our financial institution clients. Deconversion revenue for the full year was $17 million, down $15 million from the previous year, aligning with our guidance. Now, let's delve into the specifics. GAAP services and support revenue grew by 2%, while non-GAAP services and support increased by 4%. For the year, the growth rates were a healthy 5% for GAAP and 6% for non-GAAP. The increase in services and support during the quarter was driven by higher volumes in data processing, hosting, and consulting revenues, partially offset by declines in deconversion, implementation, and maintenance fees. We continue to see impressive growth in our private and public cloud offerings, which grew by 11% in the quarter and 10% for the year. This recurring revenue stream now represents 31% of our total revenue and has consistently been a key driver of double-digit growth. Regarding processing revenue, which makes up 42% of our total revenue, we experienced strong performance with 9% growth on both GAAP and non-GAAP bases for the quarter and the year. The drivers of this growth included increases in card, digital, and payment processing revenues. In terms of total recurring revenue, I would like to emphasize that it exceeded 91%. Moving on to expenses, let's start with the cost of revenue, which rose by 6% on both GAAP and non-GAAP metrics for the quarter, and by 7% for GAAP and 6% for non-GAAP for the full fiscal year. Key drivers for the quarter included increased direct costs, personnel expenses, and higher internal licenses and fees. R&D expenses increased by 4% on both GAAP and non-GAAP bases for the quarter, primarily due to higher consulting and professional services costs, net of capitalization, as well as increased cloud consumption costs. For the year, R&D expenses also rose by 4% on a GAAP basis and by 3% on a non-GAAP basis. Concerning SG&A expenses, for the quarter, GAAP expenses increased by 6%, while non-GAAP expenses rose by 13%. The GAAP increase was due to higher personnel costs and increased professional services. The non-GAAP quarterly increase was influenced by a one-time expense from the write-off of internal software development costs. Without this one-time charge, the quarterly increase would have been 8%. For the full year, SG&A expenses rose by 18% on a GAAP basis and by 10% on a non-GAAP basis, primarily due to $16 million in one-time costs related to a voluntary early departure incentive program and a previous year's $5 million gain from asset sales. Higher personnel costs primarily drove the non-GAAP increase. We remain committed to generating compounding margin expansion. While the quarterly results reflected a 22 basis point decrease in non-GAAP margin to 22%, the full year margin expanded by 60 basis points to a non-GAAP margin of 23%. This improvement was supported by focused process enhancements and disciplined workforce management. Our strong quarterly results resulted in a fully diluted GAAP earnings per share of $1.38, reflecting a 3% increase. For fiscal '24, our fully diluted EPS was $5.23, a 4% rise, despite facing a $0.37 headwind from the previously mentioned voluntary early departure incentive program, a gain on prior asset disposal, and lower deconversion rates. Analyzing our performance across three operating segments, we observed positive outcomes throughout. Our core segment revenue climbed by 4% for the quarter on a non-GAAP basis, despite a challenging comparison. The non-GAAP operating margin also rose by 171 basis points. The core segment continues to benefit from trends in private cloud and strong cost management. Full year non-GAAP revenue for this segment grew by 7%, with a 135 basis point increase in margin. The payments segment saw an 8% rise in quarterly revenue on a non-GAAP basis, coupled with impressive non-GAAP operating margin growth of 183 basis points. This revenue increase was due to ongoing growth in our EPS business and robust card growth driven by fraud prevention and card-related services, although growth was lower in line with consumer spending trends in the US. Margin improvements were achieved through effective cost management. For the full year, non-GAAP revenue growth for this segment was also 7%, with a 124 basis point margin expansion. Lastly, in the complementary segment, quarterly non-GAAP revenue increased by 6%, though we saw a contraction of 75 basis points in margin, primarily due to direct support costs, amortization, and licenses and fees. For the fiscal year, non-GAAP revenue grew by 8%, with a slight margin expansion of 2 basis points. The overall full year growth reflected strong demand for digital solutions and an advantageous product mix. Next, let’s review cash flow and capital allocation. For fiscal '24, operating cash flow reached $568 million, an increase of $186 million compared to the previous period. Excluding asset sales proceeds, free cash flow amounted to $336 million, a significant rise from the $175 million generated last year, leading to an 88% conversion rate of free cash flow. Our commentary at the start of this year noted elevated cash tax payments due to the negative impact of Section 174. However, through legislative clarity and internal efforts, we reduced the effect significantly. The result was lower cash taxes, equating to about a $29 million overpayment last fiscal year. Our commitment to value creation has resulted in a trailing 12-month return on invested capital of 20%. Additionally, I want to highlight other significant return metrics for the year, including $28 million in share repurchases, effectively countering annual dilution, $125 million in debt reduction, and $156 million in dividends. Moving into a new fiscal year, I will wrap up with our guidance. Yesterday's press release included GAAP guidance for fiscal 2025, along with a clearer reconciliation to non-GAAP guidance metrics. It’s important to note that while we provide a fiscal '25 non-GAAP EPS metric, this should not be seen as a new guidance metric but rather as a tool for clarity on our numbers, such as year-over-year comparisons for current acquisitions. A 24% tax rate was applied. The guidance for deconversion revenue continues in line with the methodology introduced in fiscal '24, with a forecast of $16 million for fiscal '25. We anticipate full year GAAP and non-GAAP revenue growth of 7% to 8%. Based on this anticipated revenue growth, which generates sustainable sources of margin, we expect annual non-GAAP margin expansion between 25 basis points and 40 basis points. All of these factors align with our near-term targets as our business operations remain healthy and consistent. The projected full year tax rate for fiscal '25 is 24%. This guidance results in an expected full year GAAP EPS of between $5.78 and $5.87 per share, representing growth of 11% to 12%. Fiscal '23 had lower-than-expected free cash flow conversion largely due to an overpayment in cash taxes, which resulted in better-than-expected conversion in fiscal '24. Absent further legislative changes, fiscal '25 is expected to revert to trend lines due to the expiration of tax benefits under Section 174. As a result, we estimate free cash flow conversion for the full year to be between 65% and 75%. We currently expect to see a sequential increase in fiscal '25 non-GAAP revenue and margin throughout the year. This upward trend will lead to a strong second half that may be more pronounced than typical. Consequently, our Q1 projection for non-GAAP revenue growth is approximately 5.25%, with non-GAAP margin expected to contract by around 100 basis points due to slower growth in on-premise annual maintenance and card processing. Additionally, we are experiencing the effects of several long-term software contracts from the prior year closing in Q1, which generated significant licensing fee allocations in that quarter. However, we expect the remainder of the year to show strong improvement with minimal risk, ensuring full year guidance remains aligned with our short-term objectives. As a reminder, we anticipate fluctuations in quarterly results linked to software usage licenses and implementation timing. Thus, the best performance indicator for our business is a consistently strong annual financial result. In conclusion, our Q4 and full year results demonstrate solid performance and achievement of our targets. We enter fiscal '25 with positive momentum and expect to see impressive revenue growth and margin expansion. We are very optimistic about the demand for our solutions and the strength of our clients, which will lead to substantial shareholder value creation. We deeply appreciate the efforts of our dedicated employees in achieving these strong results and thank our investors for their ongoing confidence.

Operator, Operator

Certainly. We will now begin the question-and-answer session. The first question comes from Andrew Schmidt with Citi. Please go ahead.

Andrew Schmidt, Analyst

Hi, Greg and Mimi. Thanks for taking my questions. I guess just to drill down on the fourth quarter core and complementary performance. And I know you're right, fiscal year metrics are the best way to look at the business, but was there anything for the fourth quarter that affected revenues there, timing shifts or perhaps some of the things you called out for the fiscal first quarter that impacted results, or was it truly tough comps? Thank you very much.

Mimi Carsley, CFO and Treasurer

Good morning, Andrew. I appreciate the question. Although I would reiterate, just as you just mentioned, the importance of looking at our year-on-a-year basis rather than the quarters. I don't see any trends that I think structurally will continue that we would call out. I think it was mostly just, you always have to look at what is the installation queue, what's going on, what's going on with that shift from on-premise to outsourcing. And so, I think it was just a matter of this quarter playing out in that pattern.

Andrew Schmidt, Analyst

Got it. Appreciate that. And then, maybe I could ask a question on just the new wins side. The step-up in new core signed above $1 billion in assets is a pretty bright spot. Obviously, there are multiple factors that drive that, but is it possible to spill that down? Is it products? Is it go-to-market focus? What's driving the move up market? I know that's been a theme in the past several years, but it seems like you're making faster progress towards shifting towards higher asset size institutions. So, I would love to get some more color there. Thank you very much.

Greg Adelson, President and CEO

Thank you for the question, Andrew. As I mentioned earlier, our focus has been on our execution. We're consistently communicating our plans and timelines to our clients, which fosters trust and confidence. Our ongoing execution and technological innovations are being well-received, giving us the chance to engage with larger customers. Additionally, our client service reputation has stood out, particularly in a challenging industry environment. We've also brought on board experienced sales professionals who have proven successful in working with larger institutions. All these factors are contributing to our success.

Andrew Schmidt, Analyst

Got it. Thank you very much, Greg. Appreciate the comments.

Operator, Operator

The next question comes from Vasu Govil with KBW. Please go ahead.

Vasu Govil, Analyst

Hi. Thanks for taking my question. First one for you, Greg. Just as you've taken over the reins, any sort of strategic changes that you're envisioning for the company that the company might need? And where are you focusing more of your efforts at this point?

Greg Adelson, President and CEO

Fortunately, I succeeded an individual who performed well, making the transition straightforward. We are concentrating on several initiatives I have mentioned, particularly the execution of our tech modernization strategy and the progress with One Jack Henry. I will discuss our SMB strategy in more detail at Investor Day, where there is significant anticipation for what we will reveal. Additionally, we are examining product rationalization, specifically looking at areas within the complementary group that may not be growing as quickly as the rest of the company or do not have favorable margins, and assessing our plans for those. While many of these products are small, we are committed to focusing on what truly impacts our performance. Beyond that, we remain steadfast in our identity as a company and the leadership approach we take.

Vasu Govil, Analyst

That's very helpful color. And then, a quick one for you, Mimi. Just on the payments segment, it was good to see the acceleration in revenue growth there. I know you called out fraud-related services. I guess just maybe if you could put a finer point on whether all of the acceleration was these value-added services, because I think the debit numbers we saw from Visa, MasterCard were pretty consistent sequentially?

Mimi Carsley, CFO and Treasurer

Yeah. The payments segment had 8.4% growth for Q4, and more importantly, the 6.7% growth for the full year. It was a big year for payments, especially given throughout the year some economic uncertainty around the strength of the US consumer. We're seeing the trends from that being in line with our expectations, still healthy, but not over-exuberant from a spending perspective. The nice thing about our payments business is not just ours; we have other businesses. We have the EPS business, we have the PayCenter business, those are doing quite well. We're seeing a lot of demand, especially as the continuation of real-time payments excitement, the fraud solutions that are helping people feel more comfortable in going to these newer solutions. So, those two businesses are doing quite well from a processing, and the remit business overall has been healthy. Within card, as you mentioned, we do have a whole portfolio of complementary services that surround the card transaction and we're continuing to see nice demand for those services. So, that's really helping us from a total portfolio perspective.

Vasu Govil, Analyst

Thank you very much.

Operator, Operator

The next question comes from Jason Kupferberg with Bank of America. Please go ahead.

Jason Kupferberg, Analyst

Good morning, guys. I just wanted to start on the margin side. I know that you've comfortably beat your initial fiscal '24 guidance on the margin line. The initial fiscal '25 guide calls for less margin expansion than in 2024. So, is this reflective of some ongoing conservatism, or were there some transitory tailwinds last year you don't expect to recur? I know you're starting off the year down about 100 basis points in Q1, but just wanted to get a little bit more color on the margin outlook, please.

Mimi Carsley, CFO and Treasurer

I appreciate you bringing up that important point. Margin expansion is one of the key elements that we are focused on as a management team. We're quite disciplined as we think about the cost of the organization and yet, building for a scale of future success. I would say there's a couple of things. I don't think it's an excessive conservatism. I think that's what we feel confident that the market and the model generate. But there are some headwinds as we leave FY '24 into '25 that helped us in '24; things like the slowing back-fills of the VEDIP departures, particularly that's part of the reason why you'll see the guide for Q1 a little bit weaker, is that really helped us in Q1 of FY '24, as well as we had a one-time shift in the timing of our annual merit increase cycle. So, those are some issues that create just kind of a grow-over challenge next year. But in general, we feel quite confident that the model continues to produce margin expansion at a nice clip. So, we're excited about the year guidance and we always aim and strive for more, but we want to put a number out there that we feel confident in our ability to deliver.

Jason Kupferberg, Analyst

Okay. That's helpful. Just a follow-up on the payments segment. I wanted to hone in on card production a little bit. I know on the issuer processing side, it sounds like things are pretty stable, but there had been some softness in card production earlier in the year. Did you see some reversal of that? What are you expecting for F '25 on the card production side?

Mimi Carsley, CFO and Treasurer

Yeah. I think that was more of a one-time issue that we've worked through. It was not an issue in Q4. We don't expect it to be an issue going forward. It's resolved itself.

Jason Kupferberg, Analyst

Excellent. Thank you, Mimi.

Mimi Carsley, CFO and Treasurer

You're welcome.

Operator, Operator

The next question comes from John Davis with Raymond James. Please go ahead.

John Davis, Analyst

Hey, good morning, guys. Greg, I wanted to circle back to core wins. I think you called out 15 of greater than $1 billion in assets versus five just a year ago. Just curious where that stacks up historically? Has it always kind of been in the low- to mid-single digits and now we had a big step up? And then, also you called out that your average client is larger today. Any context behind that, like, it's X percent bigger than it was five years ago, or any color to help us contextualize the kind of moving up-market?

Greg Adelson, President and CEO

Yeah, for sure. So, I appreciate the question, JD. So, I'll start with your first one. So, yeah, 15 is by far a historical number for us. So, five last year was more on the average. So, we would typically be in the four to six ranges, something like that on an average year. So, 15 is a big step up for us. And again, I think, a lot of it is, what I had mentioned earlier on, I believe, it was Andrew's question, was around just kind of what we've been doing on our level of execution and showing the innovation that we have. I really truly believe that we are now viewed in the industry as the innovative leader, especially when it comes to core processors in this space. So, I think that has helped us a lot. To your second question, yeah, I think, I had referenced over four years, I can't tell you over five, but over four, we have grown our banking assets by 27% and our credit union assets by 34%, and those were over the last four years. So, that is an aggregation of a few things. One, the continued growth of our customers and what we've been able to do to help them grow deposit growth. Obviously, some things may have been helped through PPP at the time, but the reality is their assets continue to grow. Some of the products that we provide, Banno and products like that, definitely have a really big impact on deposit growth. And then, of course, some of it is the wins that we've had as well.

John Davis, Analyst

Okay. And that's super helpful. And then, Mimi, I want to drill in on free cash flow a little bit. Obviously, much better in the fourth quarter, I think, at least we expected and for the full year relative to your initial outlook. But if I adjust out the $29 million of over-payment in '23 that, I guess, you got back in '24, I still get free cash flow conversion around 80%. So, maybe just help me kind of walk from the 80% to the, call it, midpoint of 70% that you're talking about for we're expecting in fiscal '25?

Mimi Carsley, CFO and Treasurer

Sure, happy to provide that information. Free cash flow is an important topic for me. Let me explain it further, as there are two main components to consider. The 88% we reported for the full year, compared to last year's 55%, has two factors that inflated the FY '24 conversion. First, there was a $29 million over-payment in FY '23 taxes. Second, the timing of our annual maintenance collections this year also played a role. As you know, we send out invoices in late spring or early summer and start receiving payments around June and July. Depending on how quickly customers pay, the timing of these collections can impact free cash flow in any given year. This year, I estimate there was about $60 million of benefits related to collection timing that contributed to the free cash flow conversion in FY '24. When you adjust for these factors, you're looking at a free cash flow conversion of approximately 65%, which aligns with our expectations for FY '25, and we hope it may improve slightly within our guidance range.

John Davis, Analyst

Okay. No, very helpful. Thanks guys.

Greg Adelson, President and CEO

Thank you.

Operator, Operator

The next question comes from Will Nance with Goldman Sachs. Please go ahead.

Will Nance, Analyst

Thank you for taking my question. I wanted to follow up on the first quarter guidance and the expected trajectory for the year. I understand there are seasonal impacts that typically affect the first quarter due to annual maintenance, and I believe you mentioned that. You also referenced processing in the payments area. Could you provide more details on your expectations, particularly excluding the annual license impacts? What assumptions are embedded in the payments segment for the first quarter? Should we anticipate that level to persist into next year? Additionally, could you discuss the drivers of growth throughout the year, aside from the annual fees you've mentioned?

Mimi Carsley, CFO and Treasurer

I appreciate the question, Will. This year, we provided a bit more detail than in previous years due to our expectations for how things will unfold. We do not provide quarterly guidance since we manage on an annual basis. However, to avoid any surprises regarding Q1, we felt it necessary to be more specific. We anticipate a modest Q1 for payments, which is typical as payments tend to grow throughout the year. Additionally, we experienced a strong first half in hardware during FY '24. Given the nature of hardware sales and the release of new products, we believe FY '25 may not match the robust performance of the first half of FY '24. It's also important to note the software and usage contracts, particularly software licensing. As we gain more clients over time, the renewals, especially in the first half last year, will likely be less this year. We wanted to highlight that as well.

Will Nance, Analyst

That's all very helpful. Looking at the bigger picture of the payments segment, I have many questions about the growth fundamentals, especially since issuer processing plays a significant role. There has been extensive discussion regarding domestic debit transaction trends and the overall growth algorithm. In a scenario where debit transactions are increasing by 6%, what do you consider the most crucial factor for achieving growth that aligns with your long-term targets in this segment? You mentioned enterprise payments earlier. What do you view as the key components needed to reach the targets in this segment?

Greg Adelson, President and CEO

Sure. I think there's a couple of key points to consider. I believe that earnings per share will see growth driven mostly by our other two payment groups. As you know, we are enhancing our bill pay solutions into a more comprehensive bill management offering through the Payrailz acquisition. We're integrating the backend of the iPay solution with the frontend of the Payrailz system, which is part of our Journey to One initiative. This process is progressing well and is on track for completion by the end of the fiscal year. We've already noticed a positive response from clients who are interested in these developments. Another significant opportunity lies with the PayCenter application. Currently, we have over 300 institutions utilizing faster payment methods, including FedNow, representing about 40% of RTP clients and approximately 30% of FedNow clients. We are collaborating with these clients to enhance use cases, especially with the fraud prevention tools we've introduced. Once we roll out the send capabilities and refine certain use cases, I anticipate considerable growth potential in this area. While card transactions are indeed the largest contributor, there are several ancillary payment solutions that could also see significant growth in the coming years.

Will Nance, Analyst

Got it. It's great color. Appreciate you taking the questions this morning.

Greg Adelson, President and CEO

Sure.

Operator, Operator

The next question comes from Chris Kennedy with William Blair. Please go ahead.

Chris Kennedy, Analyst

Good morning. Thanks for taking the question. Clearly, new sales activity has been very strong, but you're going with larger institutions. Is there any impact on kind of the timeline to implementation of some of these newer wins?

Greg Adelson, President and CEO

No, typically when we win these new core deals, it is usually a 12- to 18-month process. The timing depends on the institution and their existing contract. Some clients prefer to exit before their termination window, which involves negotiations and preparation for implementation. However, we're still within that 12 to 18 month typical timeframe for these implementations. Therefore, the 22 new sales will not generate significant revenue for Jack Henry in this fiscal year. The ones we sold last year are expected to provide increasing opportunities over the quarters, and some of that is due to the timing of those implementations. Currently, we are not experiencing any delays beyond what we have seen in the past.

Chris Kennedy, Analyst

Great. Thanks for that. And then, just a quick one on return on invested capital. Obviously, it's very high, but it has come down over the last couple of years. Any thoughts on kind of the long-term opportunity with that metric? Thank you.

Mimi Carsley, CFO and Treasurer

Okay. Yeah, part of being a disciplined capital allocator, we're being really thoughtful around that. I think the ROIC, while 20% is an enviable number and something we're quite proud of, it has come down a little bit just based on the math of as we had to take on the debt for the Payrailz acquisition. We're now paying that down. We paid down that substantially this past year. So, as we continue to pay down the debt and have the flexibility to do more in the form of repurchases or more in the form of other activities, that will drive ROIC. So, it's just the very tail end of working through that process. So, we expect that to continue on a positive trend and an upward trend.

Chris Kennedy, Analyst

Great. Thank you.

Mimi Carsley, CFO and Treasurer

You're welcome.

Operator, Operator

The next question comes from Kartik Mehta with Northcoast Research. Please go ahead.

Kartik Mehta, Analyst

Hey, good morning, Greg. Greg, I wanted to just get your perspective on the core business. I know the focus should be the year, but after saying that I'm going to talk about the quarter, so I apologize for that. Fourth quarter maybe a little bit lower than expectation. But I'm wondering, as you look at FY '25, considering all the core wins you've had, is that a business that you think segment that continues to grow kind of in line with the overall revenue growth of the company?

Greg Adelson, President and CEO

Yeah. Hey, Kartik. Yeah, thanks for the question. For sure, I mean, I think as we have articulated throughout, I mean, it is a full year business for us and how we manage the business. It was a little tougher comp from last year compared to this particular one. But there is no concern on what we're doing, where we're going with that particular business. And so, the significance of the core wins, the significance of the products that we're bringing in there, the significance of what we're doing in technology modernization in general. So, I mean, the short answer to your question, Kartik, is, it just is a full year game for us. That's really what it is.

Mimi Carsley, CFO and Treasurer

And Kartik, this is Mimi. If I could just add on, the tremendous fourth quarter that Greg talked about the sales, I mean, that's at the very end of our year. So, if you think about that cycle for readiness for implementation on the client side, when you'll start to see that revenue, is not in FY '25 picture for the core.

Kartik Mehta, Analyst

Makes sense. And then, just on pricing, I know this is always a competitive industry and whenever you have renewals, pricing gets competitive. But just in general, any change in the environment in the last three, six months that you've noticed?

Greg Adelson, President and CEO

I'll take that. Yeah, I mean, not necessarily. I think our competition has continued to kind of do what they typically do and kind of how they go to battle. And so, we haven't seen anything significantly change there. Some of their stories are changing and some of their approaches are changing, but in reality, it is really about what have you done for me. And so, as you can imagine, in 22 competitive core wins, a lot of those came from the normal players out there that you would know. And so, it's really about our ability to execute, our ability to service our reputation for doing that, our consistency of how we go about things, the consistency of our team. Our turnover rates is very low at the company, and so you just get a consistency with that. So again, the short answer for you, Kartik, is I don't feel that there's anything significantly changing out in the marketplace other than some of the stories that go with it.

Kartik Mehta, Analyst

Perfect. Thank you both. I really appreciate it.

Greg Adelson, President and CEO

Sure.

Operator, Operator

The next question comes from Peter Heckmann with D.A. Davidson. Please go ahead.

Peter Heckmann, Analyst

Good morning. I wanted to follow up on Banno and see that you mentioned 927 on Banno Retail, which is really impressive. Can you share how many clients you still have on NetTeller or your mobile digital banking product? Also, how do you view the growth of Banno after you upgrade most of your clients from the older systems?

Greg Adelson, President and CEO

Yes, that's a great question, Pete. Just to clarify, we're focusing on our numbers related to 924. This remains a significant opportunity for us, particularly in the credit union space, which we've been targeting as part of our core business. There's plenty of growth potential there. With around 1,700 core clients, we still see a lot of room for expansion within our existing base. However, we're also pursuing strategies outside our current client base. We're collaborating with some competitors to ensure we can achieve our goals, though it hasn't always been as straightforward as we hoped. Nevertheless, we're making substantial progress and are still on track to meet our commitments, aiming to roll this out in the latter part of this fiscal year or the second half of the calendar year. Regarding NetTeller, I don't have exact figures, but there are still roughly a couple of hundred clients on the NetTeller platform.

Peter Heckmann, Analyst

Okay. All right. That's helpful. And then just in terms of M&A, clearly the pace of M&A has slowed. And just curious like how much of that is Jack Henry's suite of solutions is largely filled out and there's no longer any holes, but are there other effects to the extent that like the industry is less fragmented, there's not as many small players or valuation? How are all those playing into the outlook for M&A?

Greg Adelson, President and CEO

I believe you've covered all the points. It's a mix of what you've mentioned. We are still actively seeking opportunities that align with our strategy. However, our focus has shifted to what we are looking for. Regarding our technology modernization strategy, we prioritize acquisitions that are already public cloud native, so we don’t need to rework the technology afterwards. Payrailz is an example of this as it was already public cloud native. As for the gaps, we have moved past the issues we faced in previous years. In fact, we are now concentrating on product rationalization and examining offerings that may no longer hold value as they did a decade ago. In considering opportunities, our first priority is public cloud native products. Secondly, we assess whether they can help us speed up initiatives in payments or the small and medium-sized business strategy, which we will delve into further. We are also focusing on key products such as digital enterprise account opening and fraud prevention among other related areas.

Peter Heckmann, Analyst

Okay. Good stuff. I'll look forward to seeing you in a few weeks.

Greg Adelson, President and CEO

Okay. Thanks, Pete.

Operator, Operator

The next question comes from Charles Nabhan with Stephens. Please go ahead.

Charles Nabhan, Analyst

Good morning, and thank you for taking my question. You had mentioned that roughly 73% of your clients are now in the public cloud. I think that's up from 69% at the Investor Day last year. My question is how much runway is left to move your client base to the cloud? And if you could talk about what that could mean for revenue uplift? I think you had cited 2 times revenue uplift in the past from additional cross-sell as well as some margin benefits as well. Any commentary around that would be helpful.

Greg Adelson, President and CEO

Sure, Chuck. I'll take it. Mimi can add some commentary. Yes, it has increased from where we were. I don't recall if it was 69%, but it is definitely higher than before. We don’t anticipate achieving 100% movement, so I would say that a range of 93% to 95% is probably reasonable for us to consider. Another factor is that as we've transitioned to the remaining clients, which tend to be larger ones, that number has actually decreased. It is now more like 1.75% rather than the 2% we've seen over the years. It is still significant, but down slightly. We remain focused on this area and still have several years of runway. If you consider that there are a couple hundred left on each side, averaging between 40 and 45 a year suggests we have three to five years remaining to reach our targets. This will continue to be an area of focus and opportunity. Additionally, there will be chances to transition from the private cloud to the public cloud over time. We can't solely concentrate on what’s moving to the private cloud because, as we wind that down, we will also have opportunities to move customers from the private cloud to the public cloud concurrently.

Charles Nabhan, Analyst

I apologize for interrupting, but I wanted to follow up on Kartik's question regarding the segment outlook. Comparing the results for fiscal year '24 to your normalized guidance, it appears that the core performed slightly better than expected, while complementary and payments fell a bit short. Excluding the quarterly cadence, you've mentioned some weakness in maintenance, which I believe impacts core. Can we anticipate a more normalized annual revenue growth trend next year, with core growth in the 6% to 7% range and payments and complementary in the 8% to 9% range?

Mimi Carsley, CFO and Treasurer

Yeah. Chuck, this is Mimi. I think our goal for the growth algorithm is to serve as an indicator rather than a precise measure. The advantage is that we have a diverse portfolio that can sometimes balance each other out in various ways. This year, for example, our core performance exceeded the growth algorithm, which somewhat made up for the underperformance in complementary. In terms of payments, there are concerns regarding the economy, geopolitical factors, elections, and other issues. Overall, we still believe the growth algorithm remains valid, but it's important to note that in any given year, the results could vary a bit and offset each other.

Charles Nabhan, Analyst

Got it. Thank you.

Mimi Carsley, CFO and Treasurer

You're welcome.

Operator, Operator

The next question comes from Dave Koning with Baird. Please go ahead.

Dave Koning, Analyst

Yeah. Hey, thanks guys. And I guess my question is a little similar just on what normalized growth is. I guess, if Q1 is 5.25%, the rest of the year has to average around 8.25% to hit the midpoint of the range. And I guess that's a little above normal. And I guess are any segments going to outsize kind of accelerate from Q1? Or is it really just getting all segments in that 8% range kind of the rest of the year?

Mimi Carsley, CFO and Treasurer

Yeah, Dave, I would say, in general, we're not going to give color quarter by quarter at this point as we live into the year. We think that we want to call out something a trend we're seeing. We'll certainly be transparent on that. I agree with your math that we expect it to sequentially grow throughout the year, with second half being stronger than the first half. So, I think, Q1 is more pronounced. That's why we gave the color with more specificity. But I would say Q2 overall is going to be a higher growth than Q1. And I think that is pretty fair to say across the board, across all of the segments.

Dave Koning, Analyst

Thank you. I have a follow-up question. Net interest income, after subtracting interest expense from interest income, was around $5 million this quarter, which is an improvement compared to previous periods. However, considering your net debt position, how are you achieving such a significant net interest income, and is this sustainable?

Mimi Carsley, CFO and Treasurer

Good question, Dave. Regarding interest income and its impact on net interest, as you mentioned, we do carry debt, which we have significantly reduced this year and plan to continue paying down in 2025. We manage cash settlement balances, and as part of those administrative services, we generate some revenue from those accounts. Through our negotiations with partners, we've been able to enhance the yield on those accounts. This is somewhat affected by the interest rate environment, depending on the Federal Reserve's actions in 2025. Overall, I would say it is sustainable. While it is influenced by interest rates, it remains sustainable.

Dave Koning, Analyst

Got you. Thanks, guys.

Mimi Carsley, CFO and Treasurer

Happy to.

Greg Adelson, President and CEO

Thank you.

Operator, Operator

The next question comes from James Faucette with Morgan Stanley. Please go ahead.

James Faucette, Analyst

Hey, good morning. Thanks for the time this morning. Wanted to just ask a quick follow-up question on a couple of points. First, on your customers and their priorities, given where we are in the deposit cycle and the prospect of a return to loan growth next year with lower interest rates et cetera, how have you seen if at all your customers change prioritization in terms of where they're looking to invest between deposit attraction and retention tools versus lending? Are we seeing any change in your customers' focus and priorities right now?

Greg Adelson, President and CEO

Yeah, that's a great question, James. And so, I have a couple of different reference points for you, too. So, I know Northcoast Research did their own survey, and then, of course, we do our annual benchmark survey that we have. Both of them kind of showed the priorities being fairly the same as far as deposit growth being number one. The one thing that I will reference from our benchmark survey is this, which is that, in 2023, growing deposits was 43%; it's still number one, but 43% of the CEOs named that as their number one. This year, it was 54%. So, significant growth in both of those numbers, but again, same as a priority. The other two, just since you asked, have really kind of stayed fairly consistent, which is improving operational efficiency and growing loans, but both of those have gone up slightly from 2023 to 2024. But again, those are typically the top three. And you can throw fraud as a really close number four for priorities.

James Faucette, Analyst

Great, I appreciate that. Greg, I wanted to follow up on your comment regarding implementation queues and how those are currently trending. How are you evaluating the balance between the margin expansion you're achieving now and the potential need for additional resource allocation to expedite those implementations?

Greg Adelson, President and CEO

No, it's a great question that we address regularly with our team. We work through it constantly, and we have many short business cases to consider. The fact is, if we can implement the revenue faster, we definitely look for ways to do so. Sometimes this depends on the actual product, and other times it relates to the complementary or payment product sold with the core offering. Occasionally, these do not get implemented until the core is in place, which can cause timing delays. The core implementation, in particular, typically takes 12 to 18 months, sometimes a bit longer for certain cases. However, for our other products, such as Financial Crimes Defender, we have already increased our resources this year to address our installation queues and reduce those numbers, ensuring that we continue to keep our customers satisfied.

James Faucette, Analyst

That's great. Thank you so much.

Greg Adelson, President and CEO

Sure.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for any closing remarks.

Vance Sherard, Vice President, Investor Relations

Thank you, Drew. Please don't forget that our Investor Day is fast approaching. It will take place on Thursday, September 5th in Dallas starting at 1:00 pm Central Time. You can join us via webcast. Or if you'd like to attend it in person, please let us know, and we will get you the specifics. In addition to Investor Day, during the coming weeks, we will be traveling to attend various investor events in the US and Europe. We'd like to take this opportunity to thank all Jack Henry associates for their hard work and dedication, which has led to our outstanding results. Thank you for joining us today. And Drew, will you please provide the replay number?

Operator, Operator

Yes, sir. The replay number for today's call is 877-344-7529, and the access code is 7192153. That will be available in about one hour. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.