Jack Henry & Associates Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2021

Key Takeaways

  • Jack Henry reported Q1 GAAP revenue growth of 8% (9% non-GAAP) and a 16% increase in EPS to $1.38, driving operating margin expansion of 170 basis points.
  • Updated FY2022 guidance calls for GAAP revenue growth of 8.6–9.1%, non-GAAP growth of 7.5–8.0%, and EPS of $4.64–4.73, assuming continued economic improvement.
  • Adoption of the Banno digital suite remains strong with 35 new contracts in Q1, surpassing 6 million registered users and growing by 125 000 users per month while maintaining top App Store ratings.
  • Ten additional core clients moved from on-premise to Jack Henry’s private cloud in Q1, which on average doubles per-customer revenue with minimal incremental cost.
  • Banking M&A activity has filled all conversion slots for the remainder of the fiscal year, prompting evaluation of new conversion teams, and deconversion fees are forecast at $42–43 million, weighted to Q2 and Q3.
AI Generated. May Contain Errors.
Earnings Conference Call
Jack Henry & Associates Q1 2022
00:00 / 00:00

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Jack Henry and Associates First Quarter FY 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, Kevin Williams, CFO and Treasurer.

Operator

You may begin, sir.

Speaker 1

Thanks, Brian. Good morning. Thank you for joining us for the Jack Henry and Associates Q1 fiscal 2022 earnings call. I am Kevin Williams, CFO and Treasurer. And on the call with me today is David Foss, Board Chair, President and CEO of Jack Henry.

Speaker 1

In just a minute, I'll I'll turn the call over to Dave to provide some of his thoughts about the state of our business, financial and sales performance for the quarter, comments Regarding the industry in general and some other key initiatives that we have in place. Then after Dave concludes his comments, I will provide some additional thoughts and comments regarding the press release we put out yesterday after market close and also provide some comments regarding our updated guidance for our fiscal year 2022 provided in the release yesterday. And then we will open lines up for Q and A. First, I need to remind you that 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 a number of factors that could cause actual results or events to differ materially from those which we anticipate due to a number of risks and uncertainties.

Speaker 1

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 ks entitled Risk Factors and Forward Looking Statements. On this call, we will also discuss certain non GAAP financial measures, including non GAAP revenue and non GAAP operating income. The reconciliations for historical non GAAP financial measures can be found in yesterday's press release. With that, I'll now turn the call over to Dave.

Speaker 2

Thank you, Kevin. Good morning, everyone. We're pleased to report another strong quarter of revenue and operating income growth. As always, I'd like to begin today by thanking our associates For all the hard work and commitment that went into producing those results for our 1st fiscal quarter, particularly in light of the challenges posed by the ongoing pandemic. We continue to operate with well over 90% of our employees working full time remote and continue to evaluate options regarding an appropriate return to office target With that, let's shift our focus to look at our performance for the quarter we completed in September.

Speaker 2

For the Q1 of fiscal 2022, total revenue increased 8% for the quarter and increased 9% on a non GAAP basis. Deconversion fees were down more than $2,000,000 over the prior year quarter. Turning to the segments. We had another solid quarter in the core segment of our business. Revenue increased by 8% for the quarter and increased by 9% on a non GAAP basis.

Speaker 2

Our Payments segment again performed well and also posted 8% increase in revenue this quarter and a 9% increase

Speaker 1

on a

Speaker 2

non GAAP basis. We also had another strong quarter in our complementary solutions businesses With a 9% increase in revenue this quarter and a 9% increase on a non GAAP basis. Traditionally, our Q1 has been our lightest Sales bookings quarter because our Q4 tends to be extremely strong and the sales pipeline is depleted as a result. As you may recall, The June quarter was the strongest sales quarter in the history of the company, so we certainly expected this historical trend to hold true. What we experienced, however, was just the opposite.

Speaker 2

The performance of the sales organization was again very strong with a number of notable wins. In the quarter, we booked 6 competitive core takeaways and 10 deals to move existing in house customers to our private cloud environment. Although our rate of 6 takeaways is light as compared to our normal run rate, it is clear to me that a number of deals fell into the month of October because we booked 6 more core takeaways in October alone. As we've discussed on prior calls, our convertmerge back is a good indicator for us of what to expect with coming mergers and acquisitions within our base of customers. We can now see that M and A in the banking will be very active this year because almost all of our conversion slots for acquired banks are full for the year.

Speaker 2

We are working to evaluate whether or not we need to add more conversion teams to keep up with the activity. You should expect to see a corresponding increase in deconversion revenue as We continue to see good success with our new card processing solution, signing 6 new debit processing clients this quarter and one new credit client. We also continue to see great success signing clients to our Vanno digital suite with 35 new contracts in Q1. Speaking of our digital suite, we are continuing to implement new financial institution clients on the Banno platform at a similar pace to recent quarters. At the end of Q1, we surpassed 6,000,000 registered users on the platform and that number is growing at about 125,000 users per month.

Speaker 2

At the same time, our Banno platform continues to hold 1 of the highest consumer ratings in the App Store. The Banno digital suite is well down the path becoming the industry leading digital banking solution. The continued success we've seen with sales and adoption of our digital suite is consistent with the Expectations coming out of the Bank Director Technology Survey published in August. As they do every year, Bank Director surveyed 100 of their subscribers during June July regarding a variety of technology prioritization and spending topics. More than 50% of the responses they received were from bank CEOs and or board members with almost 80% of the responded banks greater than $500,000,000 in assets.

Speaker 2

This year's survey showed an interesting shift As more than 70% of the responding banks had moved efficiency of operation to the top of their priority list, An improved customer experience and an improved digital experience followed closely behind. To further the point regarding an improved digital experience, This year, 54% of the respondents indicated that their customers prefer to interact with their bank using a digital channel rather than in branch or over the phone. The survey also indicated that the median increase in expected technology spending for the coming year was 10% as compared to the prior year. All of this bodes well for the future of our digital suite as well as the other solutions offered by Jack Henry, which helped facilitate an improved customer experience and an opportunity to enhance efficiency in the financial institution. As many of you know, we normally conduct our 2 largest client conferences in the fall each year.

Speaker 2

This year, we combined those into one event and again hosted the sessions virtually. We had hoped to be in person this year, but because of the size of the event, We decided that wasn't prudent. As we saw last year, attendance was much larger than our in person conferences because nobody had to incur any travel expense and They were able to readily drop into virtual sessions. We were pleased to be able to successfully interact in a virtual setting with many of our existing clients and prospects. Last week, we announced 2 pending retirements from our leadership team.

Speaker 2

Our longtime CFO and Treasurer, Kevin Williams and our CTO, Ted Bilke, have both announced their intent to retire next summer. As we shared in the press release, we already have a search in process to find Kevin's replacement And we'll be considering both internal and external candidates. Kevin will be with us until we identify the right person and have them fully prepared to take the reins. Ted will transition out of his role in January when Ben Metz, our current Head of Digital Solutions, will become our Chief Digital and Technology Officer. Ted will stay for several months after that to help Ben with the transition.

Speaker 2

Of course, we have many months before each of them actually retire, so I have lots of time to thank them for Many years of service to our associates, customers and shareholders, but I would be remiss if I didn't acknowledge how much I've enjoyed working with each of them and how much I appreciate the approach each of them has taken to executing these much deserved retirements. Next week, we will conduct our Annual Shareholder Meeting. We will be hosting this meeting in person in Monnet, but will abide by strict COVID protocols to ensure a safe event for all attendees. We are excited to be able to meet with our shareholders in person again, but we are also very aware of the ongoing pandemic related concerns that arise when you assemble a group of people. We will start an hour earlier than in past years.

Speaker 2

We'll require all attendees to be masked and we won't be serving a lunch following the meeting. With these changes, I'm confident we will have a productive and safe meeting. In our ongoing attempt overview of Jack Henry's ESG commitments and material environmental and social topics. Additionally, it points readers toward other related policies Like our human rights policy, we've also published an environmental policy that highlights our commitment to sustainability and proper environmental management practices. Both documents can be found on our new corporate responsibility website via Investor Relations.

Speaker 2

We created this website to house our And provide a centralized location for Jack Henry's ESG information. Speaking of sustainability reports, our next sustainability report Covering calendar year 2021 will be published in March. We have continued to make major advances across our environmental, social and governance initiatives And the Board has established a quarterly cadence to discuss ESG matters. As we move forward, I'm very optimistic regarding our levels of sales And customer responses to solutions we're delivering and the strategies we are executing. We will continue with our disciplined approach to running the company and we expect that approach

Speaker 1

Thanks, Dave. Service and support revenue increased 6% in the Q1 of FY 2022 compared to same quarter a year ago. As Dave mentioned, our deconversion fees were actually down $2,000,000 compared to last year or 37% for the quarter. License revenue was down slightly compared to the prior year and our hardware revenue was down $4,000,000 or 39% compared to Q1 a year ago. This is due to our customers continue to choose our private cloud delivery and therefore not purchasing hardware.

Speaker 1

Service and support line of revenue Primary revenue drivers were our software subscription revenue and our data processing hosting feeds and our private and public cloud offerings, which combined continued to show strong growth in the quarter compared to the previous year, growing combined by 10% for the quarter. However, the growth in this line was slowed significantly due to the product builder and services revenue, which includes the previously mentioned deconversion fees, License and hardware along with implementation and convert merge revenue, which combined were down by a total of 9% compared to the prior year quarter. Therefore, total support and services net grew 6% for the quarter. Our processing revenue increased 12% in the Q1 FY 2022 compared to the same quarter last fiscal year. This increase is primarily driven by higher card volumes with new customers installed last year and increased debit card uses from existing customers.

Speaker 1

Our Jack Henry digital revenue continues to show strong growth as demand for our Banno digital platform continues to be very As Dave mentioned, total revenue is up 8% for the quarter compared to last year on a GAAP basis and 9% on a non GAAP basis. Our cost of revenue was up 5% compared to last year's Q1. The increase is primarily due to higher costs Expense increased 3% for the quarter of FY 2022 compared to last year. This increased primarily due to personnel costs. And our SG and A expense increased 13% in the Q1 compared to the same quarter in previous year and this increase was due primarily to increased personnel costs and travel related costs compared to last year as travel increased significantly in Q1 compared to last year.

Speaker 1

Our reported consolidated operating margins increased from 26% last year to 27.4% in the current year or 140 bp increase. And on a non GAAP basis, operating margins expanded from 25.2 percent last year to 26.9% this year for 170 bps expansion. We had margin expansion in all three of our reporting operating segments on both a GAAP and non GAAP basis. The effective tax rate for the Q1 of fiscal 2022 increased Our net income grew 12 percent to $102,100,000 for the 1st fiscal quarter compared to $91,200,000 last year with earnings per share of $1.38 for the quarter compared to $1.19 last year for a $0.19 or 16% increase year over year. For cash flow, our total amortization increased 2% for the quarter compared to last year due to capitalized software projects being placed into service.

Speaker 1

Included in total amortization is the amortization of intangibles related to acquisitions, which decreased to $4,300,000 this year compared to $4,400,000 last year's quarter. Our depreciation was down 2% compared to the prior fiscal year. And during the quarter, we paid dividends of $34,000,000 Our operating cash flow was $106,500,000 for the year, which was down from $114,500,000 last year, which decreased primarily due to the timing and change of various operating assets and liabilities Considering in the calculation of operating cash flow, we invested $46,500,000 back into our company through CapEx and capitalized software. Our free cash flow, which is operating cash flow less CapEx and Cap Software and adding back net proceeds from disposal assets was $60,100,000 for the quarter. Our cash position at September 30 was $44,300,000 compared to $195,300,000 a year ago, primarily due to the significant stock repurchases we did last year.

Speaker 1

We had $65,000,000 drawn on our revolver at the end of the quarter And we had no other long term debt on our balance sheet other than leases. Return on our average assets for a trailing 12 months is 13.7%. Our return on invested capital for the trailing 12 months is 21.5% and return on equity for the trailing 12 months was 21.9%, which are all Very strong. For FY 2022 guidance, we provided both GAAP and non GAAP updated revenue guidance in the press release yesterday for fiscal 2022. We also provided a reconciliation of GAAP to non GAAP revenue in the release immediately following the segment information in the release yesterday.

Speaker 1

However, just to be clear, this guidance continues to assume that the country continues to open and the economy continues to improve. And if things were to go differently, obviously, this guidance will be revised. For GAAP revenue growth for fiscal 2022 based on the amounts in the release yesterday, Our revenue guidance is a range of 8.6% to 9.1% approximately over previous year. We now anticipate deconversion revenue To be approximately $42,000,000 to $43,000,000 for the entire fiscal year with significant percentage of that being in Q2 and Q3. For non GAAP revenue growth, we continue to guide to a range of 7.5% to 8% growth for the fiscal year.

Speaker 1

Obviously, these will be updated during the year. We continue to anticipate GAAP and non GAAP operating margins to improve in FY 2022 compared to last year as we should have very nice margin expansion in our payments segment and anticipate higher deconversion fees. However, I continue to be somewhat cautious on guiding to too much of an operating margin expansion As we will continue to have headwinds on license and hardware revenue as we continue to move core customers from on premise to our private cloud And also travel costs will continue to increase significantly compared to the prior year. Our effective tax rate for FY 2022 continues to be projected slightly higher Approximately 23% compared to the prior year. Obviously, significant changes in corporate tax structure could change this guidance.

Speaker 1

And our FY 2022 GAAP EPS guidance is a range of $4.64 to $4.73 which is an increase from the prior guidance of

Operator

Question with KBW.

Speaker 3

Hi, thanks for And I wanted to congratulate Kevin on announcement of your retirement. We'll be sad to see you go, but now we have a couple of more quarters to talk with you. I guess my first question is on the Synwort merger comment that I think, David, you made, that you were seeing strength there. I know Last quarter, you kind of had said that you expected to be better this year, but it didn't seem like you were really including much in the guide. So just want to get a Stands of what you're including in the guide versus what could be sort of upside based on what you're seeing?

Speaker 4

Thanks. So

Speaker 2

I think as I said in my comments, The convert merge slots and just to make sure everybody is clear, when we reference convert merge, it happens when one of our institutions is acquiring another institution. They notify us well ahead of time, well before the conversion actually or the acquisition actually happens. They notify us that they will need our help to convert the acquired institution onto the Jack Henry platform. And so we hold those slots. And So in the past several weeks here that volume has increased significantly of customers contacting us to hold To hold conversion slots and essentially sign contracts to lock those in.

Speaker 2

And so that's why what I said in my comments was every conversion slot now on the banking side of our business is filled for convertmerge activity through the remainder of the fiscal year, and we are evaluating whether or not We need to add more teams. And the reason for that evaluation is we have to keep an eye on does a deal fall through since they notify us well ahead of time and ask to hold a slot and they will get we'll sort of contract in front of them, but does that deal fall through? We have a we've been doing this for a long time. We're very good at predicting what's going to Actually happened and what's not, but everything that we have today that is known, that is booked is worked into the guidance Kevin provided to you. But there is more potential opportunity out there.

Speaker 2

We may stand up if demand Justifies it, we may stand up an additional conversion team or even 2 conversion teams. We've done that in the past. And so we'll just kind of have to follow that as it goes. But what we know today is included in the guidance that Kevin has shared with you, But there is still potentially more opportunity there based on what happens with our customers. The key messaging there was just for you all to know That convert merge or M and A is back in the banking space.

Speaker 2

And so that not only is a real positive for us and that we Customers acquiring other customers and we generally are paid on account volume and transaction volume. So that's good for us when they get merged in. But then also for you to be aware that deconversion revenue will probably go up because we know that some of our customers will also be acquired away from as M and A continues to grow.

Speaker 3

That's very helpful color. Thank you. And just a follow-up I had was on the Payment segment. It has seemed to me coming to the quarter that 1Q would probably be the high watermark and then kind of level off from there. I I think just the revenues in the quarter were a tad lighter than what we were modeling.

Speaker 3

I just I'm curious to see where they came in relative to your internal expectations. And I know debit volume sort of rolled off a bit. Is that probably impactful to your payment segment? And then if you could also comment on what's going on in the bill pay business. I know Softer trends across the peer group, but if you could just comment on if you have any insights on is that just more competition from digital wallets or something else, which is driving Bill pay revenues to be flattish.

Speaker 2

Yes. So there's a lot in the on the payments line, of course, 3 and you kind of highlighted there. So 3 primary components in the payments line for Payments segment for us, there's bill pay revenue, there's card revenue, debit and credit and then there is what we refer to as EPS, Enterprise Payments Solutions. The Bill Pay line or the Bill Pay business continues to be relatively flat. I mean there's some growth, but as we Talked about on the call before, anybody who needs a Bill Pay solution has a Bill Pay solution.

Speaker 2

Volumes aren't really fluctuating that much. So it's relatively flat in the Bill Pay business. The card business is continuing to grow. We're seeing nice growth, not only because we're adding customers, but because Now as the pandemic numbers have dropped again here in the early fall, transaction We've seen a definite correlation between transaction volumes increasing as infections have reported infections have dropped and so that's a key part. The Enterprise Payments business is continuing to grow very nicely.

Speaker 2

It's the smallest piece of that segment, but the fastest growing piece of that segment. And that is driven by remote deposit capture, but also by ACH originations. And so we have a number of customers who have signed with that platform recently and some that we'll announce next year, I think, as they come live, that we'll be continuing to drive Big volumes through that platform. So it's the combination of those things, that I think are driving the payments revenue and all of those Our position well for continued growth in the coming year.

Speaker 3

Thank you very much.

Operator

Thank you. Next, we have Kartik Mehta with Northcoast.

Speaker 5

Hey, good morning, Dave and Kevin. Dave, I wanted to maybe get a little bit more On your sales pipeline question, I think when you spoke last earnings call, you thought that FY 2022 pipeline would be up 3% to 5 And if I remember my numbers right, and I'm wondering what your expectations are? It sounds like things are going well, but It would be interesting what your expectations are for the growth in the pipeline for this fiscal year.

Speaker 2

Yes, it's a good question. I have no hesitation about reaffirming 3% to 5%. Can it be greater than 5%. It's a little early Probably for me to commit to that, but I will again say with no hesitation 3% to 5% and impact on the high I'd easily sign up for 5% based on what we're seeing right now. The core it's been interesting watching core deals as we've come out of The real trough of the pandemic and obviously the pandemic isn't over, but board deals are really lumpy right now, but there is a tremendous amount of activity as far as side of the business.

Speaker 2

And then if you look at the rest of the suite at Jack Henry, the forecasts are looking or the pipelines are looking Very, very strong right now. So I'm like I say, very comfortable signing up for the high end of that And it could be even higher, but I think we need a little more time under our belt here to make sure that I'm not overextending.

Speaker 5

And Kevin, I know you talked about just margins and you want to be a little bit cautious, but you had an excellent quarter this quarter. Seems like margins are probably better than you thought. I'm wondering maybe your reluctance to think it will be better than the 50 basis points you talked about last Fiscal year, is it just too early in your opinion? Or are there other things that might impact margins that we should be aware of? Yes.

Speaker 1

I mean, Kartik, there's so many moving parts this year that are coming back that weren't there last year. So I mean deconversion fees obviously are going to be higher. As Dave mentioned, convert merge, I mean, M and A activity just drives so many different moving parts within our financials. I mean, so obviously, travel is going to be a lot higher. There's other costs there.

Speaker 1

Our sales people are getting out and traveling more. So just the travel expense is going to be higher. Is it possible that our total margin expansion will be higher? Yes. Obviously, the Q1 margins are probably the highest of the year because of all the software subscription revenue that We recognized in Q1 for all the software that's been delivered in the previous years.

Speaker 1

So this is high watermark for margins for the year. But the other thing I'll say is CardiCare Hardware was down almost 40% this quarter, which that actually helps our margins by hardware revenue being down, which I mean, Sam, it's weird, but if hardware revenue would level out and go back up a little bit for rest of the year, As I'm sure IBM will come out with additional hardware upgrades. Could that impact our margins? Yes. So I mean, I'm still very comfortable that we can hit the 50 bps.

Speaker 1

And could it be higher than that? Yes. But I'm not I'm just not ready to step out on that limb yet.

Speaker 5

No worries. Thank you, Kevin. I really appreciate it. Thanks, Dave.

Operator

Thank you. Next, we have Pete Heckmann with D. A. Davidson.

Speaker 6

How are you doing? This is John on for Pete. Just a quick question. I know you touched on it in the prepared remarks. What was the expectation for deconversion fees and how does it land in each quarter again?

Speaker 1

So we increased deconversion We think it's going to be somewhere around $42,000,000 to $43,000,000 And again, that's looking at a crystal ball because there We don't know for sure that that's what it's going to be. That's just kind of the indications that we're getting. But we think probably 80% of that will probably be in Q2 and Q3 based on what we know right now. So deconversion fees in Q2 and Q3 could be $15,000,000 or So plus in each of those quarters.

Speaker 6

Got it, got it. Thank you. And that non GAAP payment segment growth was 9%. What was the What segments would could you see that grew notably faster or slower than the segment average?

Speaker 2

I assume you're referencing my comments Earlier, John, about the 3 different pieces of the payments segment. Is that what you're asking about?

Speaker 6

Yes, exactly.

Speaker 2

So three pieces, bill pay, Our card business debit and credit and then what we refer to as EPS, Enterprise Payment Solutions, which is 1 deposit capture ACH. The Enterprise Payment Solutions business is growing the fastest, but it's the smallest of those three components. So the card business is the largest The Bill Pay business, 2nd largest. Bill Pay really relatively flat. I mean, it's growing a little bit, but like I said, most anybody who Needs bill pay, has bill pay and volumes don't change that much in that piece of the segment.

Speaker 2

But the card business is growing nicely Both because of new customers that we're adding and because of just volumes picking up again. And then the fastest is also the smallest, which is Enterprise Payments.

Speaker 1

Got it.

Speaker 6

Thank you so much.

Speaker 2

Sure.

Operator

Thank you. Next, we have David Koning with Baird.

Speaker 7

Yes. Hey, guys. Thank you. And I guess, first of all, just as we look at the market, we hear a lot about the super apps And how they're progressing. Is there much difference that a super app can do than what kind of Banno a client that's On the BANOS system, can do and do you even do some work for a lot of the super apps to help them grow as well?

Speaker 2

Well, I'm not exactly sure what you're including in the Super App bucket, Dave. I mean, there's lots of stuff going on out there. We are working. So the thing about the BANO platform is it is built to work with to be an open API based platform. So modern technology stack, open API based platform.

Speaker 2

You saw hopefully, you saw the press release we did in October where we announced the So all of those relationships are designed to provide greater functionality on this Digital platform to connect FinTech solutions to other FinTech solutions. Our goal with the platform is not only To offer the best experience for the consumer and small business through a single digital experience, but also to provide the best platform in the industry To create that interconnectivity of applications, to other applications. The other thing that we're trying to do through all of that, This is important when you compare kind of the modern technology stack like we have with Banno as compared to other things that are out there We are close to being able to eliminate screen scraping. And if you're not comfortable if you're not familiar with that term of screen scraping, that's what happens with older applications Where a consumer, let's say you're trying to consolidate all of your accounts on one in one experience, on one spot, one digital experience. Well, the old approach, which most companies out there are using widely today is screen scraping, where the consumer provides their credentials, The log on and password into some central location and that central location goes out and essentially simulates Being a consumer going on and pulling down balance information, well, you can probably imagine the security potential security and privacy issues that come along with that.

Speaker 2

And so we've been working very diligently for several years to eliminate all of that in our platforms. And This integration that we've done with, Felicity, Akoya and Plaid and the other, moves that we've made with our digital platform have us Right on the cusp of eliminating all of that, well ahead of anybody else, any of our traditional competitors when it comes to offering a truly state of the art digital experience.

Speaker 7

Got you. Yes, thanks. Because it looks to us like growth in core and really the whole business, You're doing about as good or actually better like your core segment is about the best it's been in a few years in terms of growth. Like it just seems like momentum Is it strong as ever? There's no real like competitive changes in the environment?

Speaker 7

If anything, it seems like the environment is strengthening maybe for you. Is that fair to say?

Speaker 2

That is fair to say. So we are you're accurate. We're signing and I've emphasized it many times, signing core takeaways, gaining share on the core side of the business. But a lot of that is driven by all this other outstanding technology that we're delivering and the tight integration that we're doing not just with Jack Henry products to other Jack Henry products, But Jack Henry products to the other things out there in the industry that people want to be able to use, the FinTech solutions out there. We are providing that connectivity easily.

Speaker 2

In the press release, again, by referring back to the Fenicity of Coia and Plaid release, if you look at the headline, it's 0 cost, 0 lift. So we're doing all of that for our customers, 0 cost, 0 lift. Why would you do that? A, it's the right thing to do. But B, in the long run, it's less expensive for us as a provider if our customers will adopt those types of things.

Speaker 2

All of that Thought, all of that approach, all of that philosophy around delivering technology is being recognized in our industry and Jack Henry is getting credit And customers are moving to our platforms as a result.

Speaker 1

And Dave, one more thing. Just remember that one of the big drivers Our core growth is the continued movement of existing on prem customers to our private cloud because we had a nice lift Revenue removed those as Dave said in his opening comments, we signed 10 more in Q1 to make that move and we're seeing larger FIs that are on prem that are electing to make that move as well.

Speaker 7

Great, great. Well, thanks guys. Good job.

Speaker 1

You too. Thanks, Dave.

Operator

Thank you. Next, we have David Ciejovsky with Autonomous Research.

Speaker 2

Please proceed.

Speaker 4

Hi, good morning, David and Kevin. Thanks for taking the question here. I just wanted to follow-up on that last comment about The shift in a core customer from on trend to the private cloud. I mean what's maybe you can help us understand The revenue lift that you might get from that on a per customer, per unit basis?

Speaker 1

Yes. So on average, if you look at the an on prem customer day, everything that they're paying us, which would be In house maintenance could be disaster recovery, it could be hardware maintenance. There's several buckets and line items of revenue they could be paying us. But on average, when an on prem customer moves to our private cloud, the revenue that we get out of that customer essentially doubles. And there is very little cost increase because remember it's the exact same software, it's the exact same support organization.

Speaker 1

We've got the infrastructure in place with our data centers. So there's very high margin from that additional revenue when we move those From on prem to our private cloud.

Speaker 4

Okay. That's really helpful. And then maybe just a question on the Payments segment. I mean, it looks like On a non GAAP basis, the growth in this segment slowed from about 17% last quarter to 9% this quarter. I mean, what drove that Slow down.

Speaker 4

And I guess what are your expectations for that segment going forward?

Speaker 2

I don't recall the was it 17% I mean that segment is growing very well. We're very happy with happening in the segment? Well, I don't remember us reporting 17% last quarter.

Speaker 1

Well, but you also got to remember that last quarter was compared to the previous year's quarter That was what was significantly impacted by COVID. It was

Speaker 2

the death of payments.

Speaker 1

Yes, it was the death of payments in April and the 1st part of May In 2020, so it was a very easy comp for Q4 of 2021 compared to Q4 2020. So I think the 9% growth we showed this quarter is probably more an example of what you're going to see for the entire fiscal year.

Speaker 4

Okay. That's all. And then just last one for me, just on the share repurchases. I don't think you guys bought back any stock in the quarter. I think In the prior quarter, you had a larger buyback.

Speaker 4

Just I guess thoughts on overall capital allocation at this And what are your thoughts on repurchases at the current stock price?

Speaker 1

Yes. So I mean, Obviously, we're going to continue to buy back stock here and there. I will tell you that this quarter, one of the reasons that we were we didn't buy any stock Back was we were actually trying to get some tax planning in place based on what the new administration was proposing on the table Because we were going to use we were potentially using a significant amount of cash to pay upfront taxes for a number of reasons. But Now that they're changing the corporate tax structure, actually they took it totally back out to where they're not even going to change The 21%, so I mean it's a wild card right now, but I mean as the tax landscape kind of we figure out exactly It's going to be obviously we will use some of our capital to buy back more stock during the year. Okay.

Speaker 4

Thank you very much. Really appreciate it.

Speaker 1

You bet you.

Operator

Thank you. Next, we have Dominic Gabriel with Oppenheimer.

Speaker 8

Hey, great. Thank you so much for taking the question. I appreciate the commentary on Banno and the partnerships with other FinTechs. I guess what open APIs They're typically adopted with Banno across your peers. And could you just offer that functionality in house?

Speaker 8

Maybe just discuss the puts and takes why partnerships are the way to go versus just expanding the capabilities Or maybe I'm just not understanding the dynamic there. And I just have a follow-up. Thank you.

Speaker 2

Sure. Yes. So I'll try not to be I think you're misunderstanding a dynamic. So you said it yourself, and I'll just repeat that. When we use the term partnership, that doesn't mean that we're reselling somebody else's That we're exchanging revenue that there's something like that or that we're missing a piece.

Speaker 2

In this day and age with all of the new feature function that's happening with FinTechs And with the demand that our customers that bankers have from their customers, their consumers to use different Things different pieces of technology that they've come across the future for banking and the future for a provider like us Is to provide open connectivity so that the customer, our customer, the banker can choose to integrate whatever they want to integrate into our platform. What we're moving toward what consumers are moving toward is they're very sensitive to the fact that the data is their data. I'm the consumer, it's my data. It's not your data, it's my data. And so it happens to be housed at this bank, But I want access to that data.

Speaker 2

And so the bank is now more than ever very sensitive to that idea that they need to provide to that data in a secure manner to a variety of different sources that the consumer Chooses to want to use or that the bank may choose to want to use. So we are continuing to innovate on our technology. I mean, the reason that the Banno platform is so well regarded And has the highest ratings in the App Store is because we have the best functionality out there. But you can't do everything, right? Every not every idea That every fintech comes up, it's just not possible to write all of that code into one application.

Speaker 2

And so providing that platform for open connectivity It's the best of all worlds. It gives us this reputation of being open and being innovative, but it also Provides the banker the opportunity to connect whatever they want to connect into that platform and take advantage of the data for the benefit of their Whether the consumer is an individual or if it's a small business. And so what we are doing today is being recognized regularly as being really industry leading In providing that open connectivity and that opportunity for the banker to choose

Speaker 7

as opposed to us going to

Speaker 2

them and say you must use our platform whether you like it or not.

Speaker 1

And this is not new for us. We have always been extremely open. I'm back from when Jack and Jerry started the company 45 years ago. We've always been open because we started as just a core provider and we had to let them use any third party. I mean if you think about Our investor conferences that Dave referred to as opening comments, I mean, we typically have well over 100 or no over 300 Other vendors at our tech fair to show off their wear.

Speaker 1

So we've always been open. The fact that open APIs just makes it that much easier For a third party to integrate into our core solutions.

Speaker 8

Perfect. Thank you so much for all that clarification. I really appreciate it. And then as you think about the net M and A activity affecting your partners, how do you think that could change the geography of your average asset Size of your underlying banking credit union mix and where do you typically win and which size clients get taken away from the Jack Henry platform. And then perhaps sorry.

Speaker 2

Go ahead.

Speaker 8

Sorry, just a follow on on this. I guess for clients that do get taken away and that create these deconversion fees, What about the win back rates? Perhaps the one that got taken out was using Jack Henry, really liked it and then they Can I explain the benefits there and then you could win perhaps the entire relationship later? Does that happen? Maybe you can discuss all those factors.

Speaker 8

Thanks so much.

Speaker 2

Dominic, you've got a lot packed into that one question that are things that I love talking about. You'll give me about an hour and a half, I'll try and fill you in. So, no, Seriously. So first off, we when M and A happens, I'll answer your question from the beginning and work forward. Does it happen that customers are acquired away and then they come back to Jack Henry?

Speaker 2

Yes, that happens. And in fact, it's more often than you might think where somebody gets acquired, The logical thing is for the acquiring institution to convert them to whatever they're running. And then once they get integrated in, the people who have been acquired, The people who have been acquired suddenly start to say, we had it better on the old platform than we have on this new platform. Let us tell you guys what we used to be able to do with Jack Henry. And it's oftentimes the combination of the technology and the relationships.

Speaker 2

This is a relationship business. Partnership is a key Part of what we do and so oftentimes the acquired institution will educate the acquirer on what it was like to do business with Jack Henry. So we do win those occasionally. The other thing that we win once in a while is what is let's say that an acquirer is targeting One of our institutions, we know that that's happening. We can oftentimes sell the acquirer on converting to the Jack Henry platform as Opposed to the acquirer using whatever it was they had before the acquisition was announced or before the deal was announced.

Speaker 2

And so those we refer to those as win a merger and those we've been successful at. But kind of the heart of your question, the beginning of your question Was oh, I bet it's the power. The beginning of your question, sorry, we have a little phone issue going on here. The beginning of your question, Most of the M and A activity is happening at the low end of the range, so real small institutions being acquired by larger institutions. And we don't tend to serve the real small institutions.

Speaker 2

So that tends to be good for us that usually we are the benefactor. 1 of our Acquiring a smaller institution as opposed to ours being acquired away. But to the very beginning of your question, what that means is our asset base among our Customers is growing because those larger customers in our base are acquiring smaller customers. And so over time, we will continue to grow as far as average asset size.

Speaker 8

Great. Thank you. Thank you so much. I really appreciate all that. Thank you.

Operator

And there are no further questions. I'll now turn the call back over to the speakers.

Speaker 1

Okay. Again, we are pleased with the overall results of our ongoing operations. I want to thank all of our associates for the way they have handled these challenging times by taking care of themselves and our customers and continue to work hard to improve our company And to continue moving forward for the future. All of us at Jack Huener continue to focus on what is best for our customers and our shareholders. Again, I want to thank you for joining us today.

Speaker 1

And with that, Brian, will you please provide the replay number?

Speaker 2

All

Operator

right. Encore replay will be available 2 hours after the call is concluded. To access the encore replay, you may dial 800-585 8367 or 855-859-2059. This concludes today's conference call. You may now disconnect.

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