Jack Henry Earnings: Results Start to Level Out
Jack Henry’s JKHY growth in the fiscal fourth quarter moved more in line with our long-term expectations, and the company finished the year roughly in line with our projections. While Jack Henry has faced some headwinds this year, we continue to be impressed by the relative stability of the wide-moat company’s operations. We will maintain our $174 fair value estimate and see the shares as about fairly valued.
Revenue for the quarter grew 11% year over year, or 8% excluding deconversion fees and acquisitions. Deconversion fees have been a headwind for Jack Henry in recent quarters, as stress in the banking system has reduced bank mergers and acquisitions. However, the company is now comping against a more depressed level, which eliminates the year-over-year drag. Near-term volatility in deconversion fees does not concern us. While the near-term impact of lower deconversion fees is negative, it also means fewer lost customers.
Adjusted operating margin improved to 22.9% from 20.9% last year. For the full year, adjusted operating margin was essentially flat, while reported operating margin was down due to lower deconversion fees. Long term, we think the scalable nature of Jack Henry’s business will allow for margin improvement. However, management’s guidance suggests margins will be roughly flat in fiscal 2024.
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