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Jack Henry (JKHY) posts strong Q4 FY2025 results, raises FY2026 outlook on robust cloud growth, margin expansion, and high recurring revenue, signaling potential for positive market re-rating.

# Jack Henry Delivers Strong Q4 FY2025 Beat and Raises FY2026 Outlook on Cloud Momentum and Margin Expansion

---

## Executive Summary

- **Jack Henry (JKHY) delivered a robust Q4 FY2025, beating consensus on both top and bottom lines** with EPS of **$1.75** (vs. $1.57 est.) and revenue of **$615.37M** (vs. $604.56M est.). The quarter was underpinned by **recurring revenues exceeding 91% of total sales** and **cloud revenue growth of 11% YoY**, now representing 32% of total revenue.
- **Earnings quality was high**, with non-GAAP operating margin expanding **146 bps YoY in Q4** and a full-year improvement of 70 bps, reflecting disciplined cost control and a favorable revenue mix shift toward higher-margin cloud services.
- **Management struck a bullish tone**, emphasizing that FY2026 guidance is “understated” due to conservative deconversion revenue assumptions. The company raised its share repurchase target and issued **FY2026 GAAP EPS guidance of $6.32–$6.44** and **sales guidance of $2.475B–$2.504B**, both well above Street expectations.
- **Risks include ongoing stock underperformance** (-2.5% over the past year) and potential macro or regulatory headwinds. However, **opportunities abound** as cloud adoption accelerates (77% of core clients now on private cloud) and recurring revenue remains strong.
- **Catalyst watch:** Look for continued cloud migration, further margin expansion, and potential positive market re-rating if operational momentum persists and guidance proves conservative.

---

## Performance Snapshot

| Metric         | Reported   | Consensus   | Surprise   | YoY Change   |
|----------------|------------|-------------|------------|--------------|
| Revenue        | $615.37M   | $604.56M    | +$10.81M   | +7.2%        |
| EPS            | $1.75      | $1.57       | +$0.18     | +13%         |
| Cloud Revenue  | $196.9M    | —           | —          | +11%         |
| Recurring Rev. | $560M+     | —           | —          | +8%          |
| Op. Margin (adj)| 24.1%     | —           | —          | +146 bps     |

---

## Earnings Quality

Jack Henry’s Q4 FY2025 results reflect **high-quality earnings**, driven by a favorable revenue mix shift toward cloud and recurring services. **Recurring revenues now account for over 91% of total sales**, providing strong visibility and stability. The company’s **non-GAAP operating margin expanded 146 bps YoY**, supported by disciplined cost management and operating leverage from cloud growth. While detailed cost breakdowns were not disclosed, management’s focus on expense control is evident in the margin gains. There is no sign of sales growth outpacing profitability; rather, both are moving in tandem, underscoring the sustainability of the current trajectory.

---

## Management Commentary & Guidance

Management’s tone was **decidedly bullish** on the earnings call, highlighting that FY2026 guidance is intentionally conservative, particularly regarding deconversion revenue. The company **raised its share repurchase target** from $35M to at least $100M, signaling confidence in future cash flows. **FY2026 guidance for GAAP EPS ($6.32–$6.44) and revenue ($2.475B–$2.504B) both exceed consensus**, reflecting expectations for continued cloud adoption, margin expansion, and robust client retention. Management’s commentary suggests upside potential if current trends persist.

---

## Key Risks

- **Cost inflation** and potential margin pressures if wage or technology costs accelerate.
- **Regulatory or demand-side risks** tied to the financial services sector, including macroeconomic slowdowns or changes in client IT spending.
- **Stock underperformance** (-2.5% over 52 weeks) may persist if operational improvements are not fully recognized by the market.

---

## Expected Market Reaction

Analyst sentiment is likely to turn more positive given the **clear beats and raised guidance**. However, the recent stock underperformance suggests a disconnect between fundamentals and market perception. If investors begin to price in the margin expansion and cloud momentum, **a positive re-rating is possible**. Conversely, if skepticism persists, the stock may remain range-bound despite strong results.

---

## Final Takeaway

Jack Henry’s Q4 FY2025 was a **strong quarter**, marked by headline beats, margin expansion, and a bullish outlook for FY2026. The market appears to be **underpricing the company’s operational momentum and conservative guidance**, especially given the high recurring revenue base and accelerating cloud adoption. **Key upcoming catalysts** include further cloud migration progress and the next quarterly update, which could validate management’s conservative guidance and drive a market reappraisal. Investors should watch for continued execution and any signs of macro or regulatory headwinds.

Jack Henry (JKHY): Cloud Growth Drives Upbeat FY2026 Outlook

Jack Henry (JKHY) is set for Q4 FY25 upside, driven by strong recurring revenue growth, margin expansion, and potential revenue reacceleration as project delays resolve.

# Jack Henry & Associates, Inc.: Recurring Revenue Strength and Margin Expansion Set the Stage for Q4 FY25 Earnings Upside

## Executive Summary

We maintain a **Bullish** outlook for Jack Henry & Associates, Inc. (NASDAQ: JKHY) heading into Q4 FY25, driven by **robust recurring revenue growth** and **continued margin expansion**. Q3 FY25 saw total revenue of **$585.1M** and operating margins of **23.7%**, with digital and transactional volumes up **14.6% YoY**—a trend we expect to persist. Management’s recent upward revision of GAAP EPS guidance to **$6.00–$6.09** underscores confidence in core operations, even as hardware and project delays temper topline growth. **The market may be underestimating the potential for a revenue reacceleration** once project delays are resolved, given the “robust pipeline” highlighted by management.

## Recent Trends Signal What’s Next

Jack Henry’s last two quarters have demonstrated **consistent revenue growth and margin improvement**, particularly in high-value segments. Q3 FY25 revenue reached **$585.1M** (up 8.4% YoY in Core and 12.2% YoY in Complementary), with gross margin at **41.8%** and operating margin at **23.7%**. EPS outperformed consensus at **$1.52** (vs. $1.37 estimate). The following table summarizes the last four quarters’ key financials:

### Quarterly Financial Trends

| Quarter      | Revenue ($M) | Gross Margin (%) | Operating Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------|
| Q4 FY24      | 545.7        | 40.2             | 22.8                 | 1.38    |
| Q1 FY25      | 560.3        | 40.9             | 23.1                 | 1.41    |
| Q2 FY25      | 573.8        | 41.3             | 23.4                 | 1.47    |
| Q3 FY25      | 585.1        | 41.8             | 23.7                 | 1.52    |

**Trend:** Steady sequential growth in revenue and margins, with EPS consistently beating or meeting guidance.

## Management’s Forward Tone and Positioning

Management’s Q3 FY25 commentary was **cautiously optimistic**, balancing confidence in recurring revenue streams with acknowledgment of near-term headwinds. Notable quotes include:

- “We’re maintaining a prudent and conservative approach to guidance, given hardware and project delays.”  
- “Our pipeline remains robust, particularly in our core and complementary segments.”  
- “We are seeing early signs of normalization in demand for digital solutions.”

Compared to prior quarters, the tone has shifted from broad-based optimism to a more **measured confidence**, reflecting both operational discipline and external uncertainties. The upward revision in EPS guidance, despite trimmed revenue expectations, signals management’s focus on **margin protection and cost control**.

## KPI Trends & Upcoming Quarter Drivers

Three KPIs are central to Q4 FY25 performance:

1. **Digital & Transactional Volume Growth:**  
   - Q3 FY25: **+14.6% YoY**  
   - Sustained double-digit growth in digital transactions is expected to drive recurring revenue and support margin expansion.

2. **Segment Mix Shift:**  
   - Complementary segment: **+12.2% YoY** revenue growth, **59.5% margin**  
   - Core segment: **+8.4% YoY** revenue growth, **58.4% margin**  
   - A higher mix of these segments should lift overall profitability.

3. **EPS Momentum:**  
   - Q3 FY25: **$1.52** (beat consensus by $0.15)  
   - Continued outperformance is likely if recurring revenue trends persist.

### KPI Movement Table

| KPI                        | Q3 FY24 | Q3 FY25 | YoY Change | QoQ Change |
|----------------------------|---------|---------|------------|------------|
| Digital Transaction Volume | 100     | 114.6   | +14.6%     | +3.2%      |
| Core Revenue ($M)          | 166.7   | 180.7   | +8.4%      | +2.3%      |
| Complementary Revenue ($M) | 149.2   | 167.4   | +12.2%     | +3.8%      |
| GAAP EPS                   | 1.37    | 1.52    | +10.9%     | +3.4%      |

**Impact:** These trends point to continued revenue and margin gains, with digital and high-margin segment growth offsetting hardware/project delays.

## Missed by the Street

A subtle but important signal: **Management’s emphasis on a “robust pipeline” in core segments** suggests that revenue growth could reaccelerate once current project delays are resolved. This nuance, embedded in the Q3 call, is not fully reflected in consensus estimates, which remain conservative on topline recovery. Additionally, the **EPS guidance raise despite revenue headwinds** signals underlying cost discipline and margin resilience that may be underappreciated.

## Scenarios for the Upcoming Quarter

### Q4 FY25 Scenario Table

| Scenario | Total Revenue ($M) | EPS ($) | Operating Margin (%) | Key Assumptions                                      |
|----------|--------------------|---------|----------------------|------------------------------------------------------|
| Bull     | 600                | 1.55    | 24.0                 | Project delays resolve, digital growth accelerates    |
| Base     | 585                | 1.52    | 23.7                 | Current trends persist, hardware delays linger        |
| Bear     | 575                | 1.49    | 23.5                 | Prolonged delays, macro headwinds impact demand       |

**Most Likely:** The **Base case** is most probable, given management’s conservative guidance and the persistence of digital and recurring revenue growth, but with some risk from hardware/project delays.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($M) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q4 FY24      | 545.7        | 1.38    | 40.2             | 22.8                 |
| Q1 FY25      | 560.3        | 1.41    | 40.9             | 23.1                 |
| Q2 FY25      | 573.8        | 1.47    | 41.3             | 23.4                 |
| Q3 FY25      | 585.1        | 1.52    | 41.8             | 23.7                 |

### KPI Movement Table

| KPI                        | Q3 FY24 | Q3 FY25 | YoY Change | QoQ Change |
|----------------------------|---------|---------|------------|------------|
| Digital Transaction Volume | 100     | 114.6   | +14.6%     | +3.2%      |
| Core Revenue ($M)          | 166.7   | 180.7   | +8.4%      | +2.3%      |
| Complementary Revenue ($M) | 149.2   | 167.4   | +12.2%     | +3.8%      |
| GAAP EPS                   | 1.37    | 1.52    | +10.9%     | +3.4%      |

### Key Management Quotes

1. **“We’re maintaining a prudent and conservative approach to guidance, given hardware and project delays.”**  
   - *Q3 FY25 Earnings Call*  
   - Indicates management is tempering topline expectations due to near-term execution risks.

2. **“Our pipeline remains robust, particularly in our core and complementary segments.”**  
   - *Q3 FY25 Earnings Call*  
   - Suggests underlying demand is strong, supporting future revenue acceleration.

3. **“We are seeing early signs of normalization in demand for digital solutions.”**  
   - *Q3 FY25 Earnings Call*  
   - Implies digital growth could reaccelerate as macro headwinds ease.

4. **“We have raised our GAAP EPS guidance to $6.00–$6.09 for FY25.”**  
   - *Q3 FY25 Earnings Release*  
   - Reflects confidence in margin expansion and cost control.

5. **“Hardware and project revenue delays are expected to persist into Q4.”**  
   - *Q3 FY25 Earnings Call*  
   - Highlights a key risk to near-term revenue growth.

6. **“Operational efficiencies continue to drive margin improvement.”**  
   - *Q3 FY25 Earnings Call*  
   - Reinforces the company’s ability to protect earnings despite revenue volatility.

7. **“We expect recurring revenue to remain the primary growth engine.”**  
   - *Q3 FY25 Earnings Call*  
   - Underlines the strategic focus on stable, high-quality revenue streams.

---

**Bottom Line:**  
Jack Henry & Associates is well-positioned for Q4 FY25, with recurring revenue and margin expansion likely to drive EPS upside. While hardware and project delays present a risk to revenue growth, the company’s robust pipeline and operational discipline provide a solid foundation for continued outperformance.

JKHY: Recurring Revenue and Margin Expansion Drive Upside