Mimi Carsley
Chief Financial Officer and Treasurer at Jack Henry & Associates
Thank you, Dave, and hello, everyone. As always, we remain focused on serving our community and regional financial institution clients, growing our business, investing in our future, and delivering shareholder value. This focus led to another quarter of solid revenue and earnings growth. This morning, I'll begin with the details driving Q4 and the full-year 2023 results, notable capital management items, and end with our initial outlook for fiscal year 2024. For the quarter, GAAP revenue increased 11% and non-GAAP increased 8%, delivering solid results in the fourth quarter, we closed out a strong year for our business as full year 2023 non-GAAP revenue grew 8% to over $2 billion.
Now, let's look more closely at the quarter details. Firstly, on a GAAP basis, services and support revenue increased 12% for the quarter and 5% for the full year. Services and support were positively impacted during the quarter as deconversion revenue increased approximately $10 million. Despite the better-than-expected volume in Q4, full year deconversion revenue was down approximately $22 million versus prior year. And as we discussed earlier, this was due to the limited market acquisition activity in our space. Of note, product delivery and services increased 27% in the quarter, driven by higher deconversion, license and hardware, and implementation-related revenue. For the full year, given the significant headwind of over 40% lower annual deconversion revenue, we're pleased with the strong growth in all other areas, resulting in a modest 2% decrease.
Next, we continue to experience robust growth in our private and public cloud offering, which increased 10% in the quarter and for the full year. I would highlight that on a non-GAAP basis, services and support revenue grew 8% for the quarter and 7% for the year. Finally, shifting to processing revenue, we saw consistent strength with 10% growth on a GAAP basis for the quarter and the year, and on a non-GAAP basis, healthy growth of 9% for the quarter and the year. As noted on previous calls, performance continues to be driven by higher card volumes and services and robust digital demand.
Next, moving to operating expenses. I'll begin with the cost of revenue, which was up 8% for the fourth quarter and full year, roughly tracking revenue performance. At a total company level, quarterly and full year drivers were consistent and included higher direct costs, personnel costs, and amortization expenses. Similarly, R&D expense increased 13% during the quarter, mostly due to higher personnel costs and internal license fees used to drive innovation. Based on the same drivers, these expenses increased 18% for the full year. And lastly, SG&A rose 9% for the quarter and 8% for the year, driven by increases in personnel-related costs, reflecting talent market conditions.
We continue to deliver savings across the company stemming from our disciplined focus on prioritization and efficiency. I'm happy to report a 22% increase in net income driven by operations and increased deconversion revenue, resulting in a fully diluted earnings per share of $1.34 for the quarter. We appreciate the collective contributions of our hardworking and dedicated associates that drove strong quarterly and full year results.
Now, let's turn to reviewing cash flow and capital allocation. Across the year, we faced large headwinds impacting cash flow, and therefore our full year operating cash flow at $382 million was down from $505 million posted last year. Impacting the decline was lower deconversion revenue, higher prepaid expenses, and legislative changes to the deductibility of development expenses, which shifted the timing of tax payments.
Consistent with operating cash flow factors, we produced free cash flow of $203 million. Subsequent to fiscal '23, We have paid down our debt by an additional $75 million to $200 million. Regarding capital management, our capital allocation priorities remain consistent. We're fully committed to our disciplined approach, which includes investing in our business, maintaining a strong balance sheet, pursuing high-return acquisitions where appropriate, and returning capital to shareholders. This consistent dedication to value creation resulted in an annual return on invested capital of 21.7%, and I would highlight that for the full fiscal year, we returned over $172 million to shareholders through share repurchases and dividends.
So with that, I'll conclude with guidance for the fiscal year 2024. As you're aware, yesterday's press release included fiscal 2024 full year GAAP guidance along with the reconciliation to non-GAAP guidance metrics. As a reminder, we filed an 8-K on August 3rd that described how starting in the current fiscal year we're using a revised approach for deconversion revenue. Of note, we've moved to deconversion revenue estimates in line with the recent historical low. And with that framing in mind, for fiscal year 2024, we're guiding to $16 million evenly distributed across the year.
Additionally, approximately 10 days prior to our quarterly earnings release, we will prerelease actual deconversion revenue figures so that your models may be updated. This will allow us to focus our quarterly call on results from operations. And going forward, each quarter, we will update guidance based on actual deconversion revenue, which is expected to likely exceed the beginning full-year estimate. It's important to note the negative impact of this change. Based on the new approach, full year GAAP EPS guidance will understate anticipated EPS growth since deconversion revenue was $32 million in fiscal year 2023. Pay close attention to the impact of GAAP EPS of $0.01 per $1 million of deconversion revenue using current share count. Based on current trends, we expect to see minimal fiscal institutional consolidation in the first half of fiscal '24, with possible acceleration in the second half.
Additionally important, in 2024, there will be a one-time impact from a Voluntary Early Departure Incentive Program, VEDIP for short, that was initiated at the start of this fiscal year. As Dave mentioned, the program opens paths for employees to move into more senior positions. The financial impact from VEDIP for fiscal year 2024 is $17 million to $18 million in severance related costs, which will have an approximate negative $0.18 impact on our reported GAAP EPS, all of which will be in our Q1 results.
Lastly, related to our latest acquisition, Payrailz has been successfully integrated into our Payments segment. Therefore, we will not provide specific metrics for FY '24. And as a reminder, our financials will reflect two months of related non-GAAP results. Going forward for FY '23 and '24, non-GAAP results reflect 10 months of Payrailz aligned with the September 1st acquisition date. We expect full year Payrailz revenue to more than double and become EBITDA positive starting in the first half and continuing to ramp for the full year.
Based on current momentum, strong execution, and near-term visibility, we should generate 6.3% to 7.3% for full-year GAAP revenue growth for fiscal '24, and I would highlight non-GAAP revenue growth expectations a 7.0% to 8.0%, consistent with our recent Investor Day discussions. To be helpful, as it pertains to the expected cadence of non-GAAP revenue growth, we currently see Q1 being the low point of the year at approximately 6.4% to 6.6%, then a sizable increase in Q2 with sequential increases in Q3 and Q4. We will update this trend if we see changes.
Driven by a combination of our year-over-year growth and continued focus on cost efficiency, we will deliver margin expansion in 2024. At a total company level, for the full year, we expect non-GAAP margin expansion of 20 basis points to 25 basis points. We expect the full year tax rate to be approximately 24%, and we will provide updated guidance during the year, if applicable. Incorporating these discussed impacts, full year guidance for GAAP EPS is $4.92 to $4.99 per share. And as a reminder, the conservative guidance for deconversion revenue, the VEDIP severance-related costs, and the non-reoccurring gain on asset disposals result in approximately $0.39 headwind assuming deconversion fees consistent with fiscal '23. The expected trend of our quarterly GAAP EPS is consistent with current estimates where Q1 and Q4 are the best performing quarters with slightly lower results in Q2 and Q3.
Additionally, on last year's Q1 call, we said we expected the expenses related to our 2023 client conference to remain in Q1. However, instead, we will be hosting our clients in October 2023 and the related cost impact will be in our fiscal Q2. Also of note, for fiscal '2024, we expect free cash flow conversion to be approximately 60% impacted by the higher one-time capital expenses, lower guided deconversion revenue, and continuing high cash taxes from last year's change in the deductibility of development-related expenses, the trend to increasingly higher prepaids both for sales commissions and third party relationships. Looking beyond this year to provide near-term targets, we expect non-GAAP revenue growth of 7% to 8% as discussed at Investor Day in May, and we see annual non-GAAP margin expansion at 20 basis points to 40 basis points. These targets are based on stable economic conditions and do not incorporate potential significant macroeconomic headwinds. So in closing, 2023 was a strong year for our business and I'm energized about the opportunities ahead. We thank all our investors for their continued confidence in Jack Henry.
Anthony, will you please open the call for questions?
