Jack Henry & Associates, Inc. (NASDAQ:JKHY) Q3 2024 Earnings Call Transcript

Jack Henry & Associates, Inc. (NASDAQ:JKHY) Q3 2024 Earnings Call Transcript May 8, 2024

Jack Henry & Associates, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Jack Henry Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] 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: Thank you, Alan. Good morning, and thank you for joining us for the Jack Henry third quarter 2024 earnings call. Joining me on the call today is David Foss, Board Chair and CEO; Mimi Carsley, CFO and Treasurer; and Greg Adelson, President and COO. After my opening remarks, I will turn the call over to Dave for his comments on our business and the industry. After Dave concludes his comments, Greg will discuss our recent strategic benchmark survey recent success metrics for multiple solutions, our strategic focus on AI plus other key initiatives. Mimi will then provide commentary around the financial results and updated guidance included in the press release issued yesterday that is available from the Investor Relations section of the Jack Henry website.

Concluding our prepared remarks, Dave will add some closing comments. 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 Dave.

David Foss: Thank you, Vance. Good morning, everyone. I’d like to begin today’s call by remembering Jack Henry Board member, Laura Kelly, who passed away unexpectedly on March 15. Laura served on our Board for over a decade and was a cherished colleague and friend to all who had the privilege of working with her. With over 30 years of experience in senior leadership roles, she brought invaluable insights, wisdom and financial expertise to our organization. Beyond her remarkable professional achievements, Laura was known for her kindness, generosity and unwavering dedication to making a positive impact. Our thoughts and deepest condolences go out to John and Jake and the rest of Laura’s family during this incredibly difficult time.

Let’s now transition to our quarterly results. We’re very pleased to report another strong quarter of revenue growth and overall business performance. As always, I’d like to thank our associates for all the hard work and commitment that went into producing those results for the quarter. For the third quarter of fiscal 2024, total revenue increased by 6% for the quarter and increased 7% on a non-GAAP basis. Operating income increased 3% for the quarter and increased 9% on a non-GAAP basis. Turning to the segments. We again had a strong quarter in the core segment of our business. Revenue was up by 7% for the quarter and increased 8% on a non-GAAP basis. Our payments segment performed very well, posting a 5% increase in revenue this quarter and a 6% increase on a non-GAAP basis.

We also had a solid quarter in our complementary solutions businesses, with a 5% increase in revenue this quarter and an 8% increase on a non-GAAP basis. As I highlighted in the press release, this was our best third quarter ever for sales bookings. During the quarter, we inked 11 competitive core takeaways with one of them being a multibillion-dollar institution. For the year, we’ve now signed six multibillion-dollar institutions topping last year’s full-year total of five. Additionally, we signed seven deals to move existing in-house core clients to our private cloud environment. We are seeing strong interest in our new Financial Crimes Defender solution with 11 new contracts in Q3. Additionally, we signed 45 new contracts for our new Financial Crimes Defender fraud module, for the Zelle, FedNow and RTP payments networks that uses artificial intelligence and machine learning to detect fraud and money laundering in real time.

We continue to see success with our card processing solution, signing 14 new card processing clients this quarter. Our Banno digital banking platform remains very popular with 69 new signings in Q3 including 37 contracts for Banno business. We now have over 11.6 million users live on Banno and we’re continuing to add approximately 200,000 users per month. Even with our strong sales success in Q3, we continued to replenish our sales pipeline and keep it near an all-time high. As we look towards the end of our fiscal year, we remain very optimistic about the industry, the demand for our solutions our ability to deliver outstanding service and our long-term prospects for success. With that, I’ll turn it over to Greg for more detail on our solutions and businesses.

Gregory Adelson: Thank you, Dave. As some of you have seen, we recently released the 2024 results from our Annual Strategy Benchmark survey. This survey offers insight into concerns, opportunities and technology priorities from bank and credit union CEOs. The survey indicated that 80% of bank and credit union CEOs plan to increase technology spending over the next two years. Of those, the largest segment, 35% plan to increase investments between 6% and 10%. We also inquired where they plan to invest over the next two years. The top four areas for planned investment were fraud detection, digital banking, data analytics and automation, all areas where Jack Henry has been investing and executing with innovative solutions through our technology modernization strategy.

As previously announced, we recently launched our cloud-native AI-powered Financial Crimes Defender fraud detection platform. We now have 16 clients live and another 175 clients in the implementation queue. In addition, we announced in March the Financial Crimes Defender was named the best fraud prevention platform by fintech breakthrough, an independent market intelligent organization. Dave mentioned earlier that we have more than 11.6 million registered users on our cloud-native Banno digital banking platform. We continue to see strong interest in our recently launched Banno business solution that provides a modern banking experience for small and medium-sized businesses. As of March 31st, we had 124 clients live and about 70 additional clients in various stages of implementation.

In terms of data analytics, we continue to make progress on our data broker and executive dashboard solutions. Both are part of the cloud-native API first Jack Henry platform. Data broker, which is currently in beta will eventually provide access to all of a client’s Jack Henry data in a single repository with innovative AI intelligence capabilities. To complement the data broker solution, we are developing an executive dashboard with real-time event monitoring to help executives at our financial institutions make informed dynamic decisions throughout the day based on metrics they customize. Related to automation technology, one new Jack Henry platform offering, we haven’t spoken much about yet is our cloud-native online deposit and loan account opening solution.

This integrated solution will provide a seamless digital account opening experience for our clients that enables them to streamline processes, automate workflows and better serve both retail and commercial loan clients. We plan to begin the beta phase with clients in early calendar year 2025. The survey also found that 96% of our clients plan to add payment services over the next two years. We continue to offer a full range of payment solutions in our pay center application as well as other areas of our payment groups. As of March 31st, we had 312 clients using Zelle, 275 clients using RTP, the real-time payments network, which represents 48% of the live RTP clients and 190 clients using FedNow, representing 29% of the live FedNow clients. One final point on the survey findings.

They were consistent with what we heard from our clients at our Annual Strategic Initiative Symposium in late April. While financial institutions are concerned about the increasing cost of deposits and impact to interest margins, there is a general feeling of optimism and less concerned about an economic slowdown this year versus what we heard a year ago. One topic we spent a lot of time discussing that the strategic initiative Symposium is artificial intelligence. We presented in detail Jack Henry’s framework for building the necessary guardrails, education, training, use of acceptable tools, et cetera. We continue to actively identify opportunities to leverage AI, aiming to enhance client solutions and optimize internal process and work streams.

Incorporating AI into select client solutions like financial crimes defender, data broker, executive dashboard and Banno conversations is part of that strategy. We are approaching AI deployment thoughtfully, ensuring it benefits our clients and associates and aligns with our commitment to data privacy, protection and security. Our strategy ensures we are responsibly bold and balanced. It’s been about 18 months since our corporate rebranding initiative to retire the Symitar, ProfitStars and Jack Henry banking brands as we now simply go-to-market as Jack Henry. As we said at that time, uniting the brands reflects Jack Henry’s role as a well-rounded financial technology provider and enables us to speak from a single consistent brand voice, one Jack Henry.

We recently received results from an independent brand study that showed that Jack Henry’s brand equity has increased by nine points in just 18 months. We specifically saw significant improvement with large regional financial institutions and millennials. This is important as we continue to execute on our strategy to provide innovative technology solutions to larger financial institutions beyond what we already provide today through both our payment and complementary groups. And millennials are a critical audience because they are taking on larger leadership roles at these financial institutions and having more influence and technology buyer decisions. Speaking of brand equity, hopefully, you all have seen the new corporate sustainability report that we published on March 29th.

We believe the 2024 report is an excellent representation of the key initiatives and accomplishments we’ve been working on over the past year. This year’s report details how we are, we’re supporting local communities with a focus on financial wellness through both our investments and innovative technology in a variety of philanthropic efforts. We also continue to further our commitment to valuing people with disabilities with the launch of a new associate-led business innovation group focused on awareness of visible and invisible disabilities. The report also highlights some of the public Best Places to Work recognition we received from organizations like Newsweek, Computer World, and USA Today. As part of our planned organizational changes, we recently announced the promotion of Shannon McLaughlin, who is currently President of Jack Henry Credit Union Solutions to Chief Operating Officer effective July 1st.

Shannon has been with Jack Henry for nine years, but has close to 30 years working with both banks and credit unions and senior technology and operational roles. Shannon is a strategic visionary leader who has significantly contributed to our company’s overall success, and we’ll continue to do so as the next Chief Operating Officer. I want to close by recognizing Dave for the exceptional job he has done as CEO over the past eight years. Under Dave’s leadership, Jack Henry has experienced outstanding growth both organically and through strategic acquisitions. I also want to thank Dave for his mentorship and guidance. He has prepared me well as I step into the CEO role on July 1st, and I’m honored to continue leading our company with an unwavering focus on our associates, clients and shareholders.

With that, I will turn it over to Mimi for more details on the numbers.

Mimi Carsley: Thank you, Greg, and good morning. Our continued focus on serving our community and regional financial institution clients, delivering shareholder value led to another quarter of solid revenue and earnings growth. I’ll start with the details driving our third quarter and year-to-date results, then conclude with our full-year guidance update. Q3 GAAP revenue increased 6% and non-GAAP revenue increased 7%, a continuation of consistently solid performance and keeping us on track for a strong fiscal 2024. Year-to-date growth was 7% on a GAAP basis and stronger on non-GAAP at 8%. Deconversion revenue of approximately $800,000, which we pre-released last week, was down approximately $5.3 million, reflecting minimal financial institution consolidation of our clients.

Year-to-date deconversion revenue is $9.9 million, $7.2 million less than the prior period. Now let’s look more closely at the details. GAAP services and support revenue increased 4%, while non-GAAP increased a more robust 6%. Year-to-date, the increase was 6% for GAAP and 7% on a non-GAAP basis. Service and support growth during the quarter was the result of increases in data processing and hosting revenues. We continue to experience robust growth in our private and public cloud offerings, which again increased 10% in the quarter and for the year-to-date. This reoccurring revenue contributor is 32% of our total revenue and has long been a key to double-digit growth engine. Shifting to processing revenue, which is 43% of total revenue and another key component of our long-term growth model.

We saw positive performance with 8% growth on both a GAAP and non-GAAP basis for the quarter and year-to-date delivered 9% for both. Consistent with recent results, drivers include positive demand for our digital solutions, card processing, other payment processing and other processing revenues. In closing out revenue commentary, I would like to highlight total recurring revenue exceeded 91%. Next, moving to expenses. Beginning with cost of revenue, which increased 7% on both a GAAP and non-GAAP basis for the quarter and 7% for GAAP versus 6% for non-GAAP year-to-date. Drivers for the quarter included higher direct costs consistent with increases in related revenue, higher personnel costs and increased internal license and fees. Next, R&D increased 4% on both a GAAP and non-GAAP basis for the quarter.

The increase is primarily due to cloud consumption costs net of capitalization. For the year-to-date, R&D increased 4% on a GAAP basis and 3% for non-GAAP. And lastly, on a GAAP basis, SG&A rose 7% for the quarter and 8% on a non-GAAP basis primarily due to higher personnel costs. Year-to-date SG&A expense increased 23% on a GAAP basis and 9% on a non-GAAP basis. The primary GAAP differences are the $16.4 million in onetime related costs related to the voluntary early departure incentive program. [indiscernible] in Q1 and prior period $7.4 million gain on asset sales. For non-GAAP, the difference is primarily due to the higher personnel costs and absence of gain on sale of assets. We remain focused on generating compounding margin expansion and the quarter results delivered 30 basis points of increased non-GAAP margin, which was 20.8%.

Non-GAAP margin benefited from focused process improvements and disciplined management of our workforce, while retaining key talent. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.19, up 7%. Separating results into the 3 operating segments, we’re pleased to see across the board positive performance. Our core segment revenue increased 8% for the quarter on a non-GAAP basis, with non-GAAP operating margins increasing 216 basis points. We continue to benefit from private cloud trends and strong cost control. Year-to-date, non-GAAP revenue growth was 8% and the associated margin increased 124 basis points. Payments segment revenue increased 6% on a non-GAAP basis. The segment had impressive non-GAAP operating margin growth of 121 basis points.

This was due to continuing growth in our EPS business, and moderate card growth consistent with U.S. consumer spending trends and a slightly tough comp combined with the focused cost management. Year-to-date, non-GAAP revenue growth matched the quarter at 6% with 103 basis points of margin expansion. And finally, complementary segment, non-GAAP revenue increased 8% with 33 basis points of margin expansion. Year-to-date, non-GAAP revenue also increased 8% with 28 basis points of margin expansion. Growth year-to-date reflects digital solution demand and beneficial overall product mix. Segment quarterly margins were impacted by moderate headwinds from direct support costs and license and fees. Let’s now turn to a review of cash flow and capital allocation.

Year-to-date operating cash flow was $336 million, $129 million increase over prior period. Excluding proceeds from the sale of assets, free cash flow was $172 million, significantly more than the $54 million last year. Our base case entering the year included an elevated level of cash tax payments based on the Section 174 impact. Based on legislative clarity and internal efforts, we were able to meaningfully lessen the impact. The net result was lower cash taxes equating to an approximately $29 million overpayment last fiscal year, as well as improved cash tax outlook this fiscal year. Our consistent dedication to share value creation resulted in a trailing 12-month return on invested capital of 19%. Additionally, I would highlight other notable return on capital metrics for the year-to-date period, including $20 million in share repurchase offsetting annual dilution, $25 million in debt reduction and $116 million in dividends.

With three quarters of the year complete, we’re nearing the conclusion of our fiscal year, and therefore, I’ll conclude with guidance changes. As you’re aware, yesterday’s press release included updated fiscal 2024 full-year GAAP guidance along with a reconciliation to non-GAAP 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 guidance. While we reported third quarter deconversion revenue of approximately $800,000, we are reiterating our full year deconversion guidance of $16 million. We are reiterating both GAAP and non-GAAP revenue growth and expect non-GAAP growth to potentially have a bias towards the lower end of our 7.4% to 8.0% growth range.

Due to the continued positive operational results and a focus on cost management, we now expect an increase in annual non-GAAP margin expansion of 45 to 50 basis points compared to the 35 to 40 basis points previously provided. The full-year tax rate estimate remains at 23.5%. Incorporating the noted positive update, full-year guidance for GAAP EPS is revised upward to $5.15 to $5.19 per share from the previous guidance of $5.09 to $5.13 per share. As a reminder, the guidance or deconversion revenue compared to actual fiscal 2023 deconversion revenue, VEDIP, severance-related costs and nonrecurring gain on asset sales results in approximate $0.37 headwind for GAAP EPS for fiscal 2024. Due to the better than initially anticipated cash tax payments, improved margins and contributions from favorable net interest, our full year guidance for free cash flow conversion has increased to 70% to 75% from the previous commentary of 60%.

In conclusion, Q3 results reflected continued momentum of the strong execution we’ve seen thus far this year and we expect a solid finish for the remainder of the fiscal year. We remain exceptionally positive about our ability to deliver innovative and in-demand solutions, the resilience of our clients and our focus on execution and shareholder value creation. We appreciate the contributions of our diligent and dedicated associates that drove these strong results in Jack Henry investors for their continued confidence. Before I turn the call back over to Dave for closing remarks. While I haven’t had the pleasure of working with Dave as long as others, I cherished our time together. I want to thank Dave for giving me the opportunity to work for this amazing company for being so incredibly generous with his wisdom and support for so many small and meaningful pieces of guidance over the past two years.

He is a role model of service, leadership and doing the right thing. We are fortunate to have him lead the Jack Henry Board, and I look forward to this continued journey together. Dave?

David Foss: Well, thank you, Mimi. As you are all undoubtedly aware, this marks my final earnings call as CEO before my transition to Executive Board Chair on July 1st. Reflecting on my career at Jack Henry, this has been an incredibly humbling journey for me, both personally and professionally. And I’m beyond grateful to have had the opportunity to lead this great company for the past eight years. As we move forward, I have the utmost confidence in Greg and the rest of our exceptional team to sustain our reputation for great technology and service as well as our strong financial performance. I’ve cherished the opportunity to get to know all of you over the years and appreciate your insightful questions and thorough analysis.

I thank our investors for their trust in Jack Henry and our clients for allowing us to serve their needs. And lastly, I want to express my heartfelt appreciation to our associates. It is their dedication and unwavering commitment to supporting our clients and each other that drives our success and makes this company special. With that, we’ll open up the floor for questions. Alan, if you would, please open the line.

Operator: We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Kartik Mehta of Northcoast Research. Please go ahead.

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Q&A Session

Kartik Mehta: Well, Dave, it’s been good talking to all these calls. We’ll miss speaking with you in the future, at least on the calls anyways.

David Foss: Thank you, Kartik.

Kartik Mehta: Dave, I wanted to get your perspective on maybe just the backlog. I know, Mimi, you said, as you’re expecting maybe the lower end of the non-GAAP revenue for fiscal ’24, and maybe backlog is a wrong word to use. But just your perspective on based on what the sales pipeline looks like, and how good you feel about as we move forward, the ability to predict revenue and maybe why the lower end of the guidance.

David Foss: So I’ll give you my perspective, and then I’ll ask Mimi to comment. So first off, I mentioned in the release and in my comments that this was a — the best sales quarter we’ve ever — best third quarter sales quarter we’ve ever had. And I also highlighted the fact that the sales pipeline has been replenished almost to that same record level that it was at last quarter. So as I see what’s going on in the sales pipeline, but even more importantly, as I see what’s happening here in the quarter that we’re in right now, which, of course, we’re not here to announce, I feel really bullish about the future opportunity as far as sales at Jack Henry and our ability to continue to deliver. So that’s a sales perspective. I’ll ask Mimi to go — oh, did you want to say something.

Gregory Adelson: Well, let me just add this. So I think the other thing is that we’ve had unbelievable sales success this year. But as we’ve highlighted many times, the deals that we’re selling this year, for the most part, don’t actually become revenue opportunities until future years and future quarters. So I think part of this is, yes, there are some things that are in an implementation queue and we’re working through all those as we always do. But there isn’t really anything that is signaling anything other than hopefully future success based on what we’ve seen. So I just want to make sure that you understand that all of the sales success we’re seeing right now will be in future quarters.

Mimi Carsley: Yes. The only thing I would add, Kartik, is that we feel really good about all three operating segments revenue. The total revenue is still very much in line with our long-term algorithm and what we thought about at the beginning of the year. There is a part of our business that does relate to economic factors in U.S. [indiscernible] that’s the card business. So I think as we look out for the year, we feel really confident about our ability to hit that range.

Kartik Mehta: Perfect. And then, Greg, just you talked about AI and maybe the opportunities in there. But I’m wondering for Jack Henry, is there an opportunity for you to use it internally and could that lower cost? And if so, is there an upfront cost that you’re dealing with in an effort to implement that?

Gregory Adelson: Yes, it’s a great question, Kartik. So the short answer is we are spending a lot of time on internal operational efficiency opportunities throughout our entire organization. In fact, we most recently had a corporate leadership team meeting where each of the individual business units and nonoperating business units all presented their ideas for utilization of AI and specifically generative AI. And so we’re going through prioritization. We’ve done a really good job of spending time making sure that we’re focused on building the efficiencies first. Getting the learnings and all the other stuff. We’ve just approved a couple of utilizations for the Microsoft copilot for internal use and the GitHub codeveloper stuff for the developers — or copilot, sorry.

And we’re actually in the process of going through all of those things and looking for ways that we can continue to build efficiency and effectiveness first as we’re actually doing some other things within some of our products that I announced as well.

Mimi Carsley: The only thing I would add on there as Greg said, responsibly bold and balance is our approach, and that covers both the usage as well as the investment. And so we’re using the internal existing policies and processes to prioritize, to develop business cases, to think about the benefits, not — this isn’t just a curiosity. There has to be business cases. And so all of that will still sit within our planned budget and R&D and internal expense policies.

Kartik Mehta: Perfect. Thank you very much. Appreciate it.

Operator: The next question comes from Andrew Schmidt of Citi. Please go ahead.

Andrew Schmidt: Hi, Dave, Greg, Mimi. Thanks for taking my questions. And Dave congrats again on the transition.

David Foss: Thank you.

Andrew Schmidt: Want to start on the margin front. Good performance here. Mimi, maybe you could put a finer point on this. I know that there were some — you mentioned some operational efficiencies that drove this maybe some mix factors as well. But maybe a finer point on that. And then as we think about the go-forward margin trajectory, it seems like you’re above this year, kind of what you’ve outlined for the longer term. So how does this — this year’s margin performance kind of inform the view on the longer-term margin progression? Thanks a lot.

Mimi Carsley: You’re welcome. So Andrew, I would say for this year, it came down to strong execution, operational focus, it’s a bit of product mix as well, but we’re being very diligent around headcount, around spending for the year. There’s also some timing around products and how that amortization impacts us as well, which is also something that we’re just going to be thoughtful about for next year. It’s really early still in our budget planning. Our teams are getting together and thinking about the prioritization I would say at this point, still thinking about that long-term range we’ve given versus an elevated state, but we’re always trying to deliver shareholder value. And so that’s going to always be a focus for us.

Andrew Schmidt: Perfect. And then maybe just digging into the average contract size of recent cohorts. I know the attach rates have gone up over the past few years, but maybe you can put just a finer point in terms of what you’re seeing in terms of just a complementary product adoption and just average contract sizes perhaps recent periods versus maybe a year or two years ago. Thank you very much.

David Foss: Andrew, it’s Dave. So one of the challenges in this, whenever we have a conversation like this is there is no such thing as average when it comes to our contracts. You’re correct. The attach rates tend to be high with our core clients. But remember, we sell a lot of solutions that are outside the core base and the variety of solutions that we sell roughly 300 different solutions. They range from very small ticket price to very large ticket price. Most of the solutions — almost everything we sell today is hosted. So it’s rare for us to sell a licensed version of a solution. Well, then in the hosted contract or are they going to be hosted for three years or 10 years or so they’re trying to talk about average is pretty challenging.

The best indicator because we have used the same measurement approach for sales quota attainment for many years now, the best measure is the fact that, as I just mentioned, Q3 was the best Q3 we’ve ever had. That’s the most significant indicator of sales success is the fact that — we’ve used the same way of measuring contracts for many years. And so it’s a good relative performance indicator for our sales organization. and sales overall are up. So I know it’s frustrating to not be able to talk about averages, but it’s just really not a practical thing to try and do in our world.

Andrew Schmidt: No, it makes sense, yes. A lot of different shapes and sizes that they’re [indiscernible]. Congrats again, Dave. Thank you very much.

Gregory Adelson: Thank you.

David Foss: Thank you.

Operator: The next question comes from Darrin Peller of Wolfe Research. Please go ahead.

Darrin Peller: Thanks. And Dave, I want to — also my congrats as well. [indiscernible] so always appreciate the help. Guys maybe just start off on a free cash discussion. If we could just revisit, it obviously has gone through its periods of strength above 80% and below 60%. Now you’re saying back to 70%-plus. Maybe just give us a sense a little more on what the driving factors are and the sustainability of it now and — maybe just help us understand if we’re back to 80% going forward in the next couple of years?

Mimi Carsley: Darrin, it has been a bit of a roller coaster ride. And in part, that was due to the lack of clarity from a legislative front. As we said on last quarter’s call, we were hopeful the progress on Congress addressing the Section 174 R&D-related impact on cash taxes would go through — we were optimistic, but not betting on that. But even in the absence of that, the clarity that the treasury to IRS our outside consultants, our incredible tax team here, Jack Henry have had has really helped us from being able to discover savings from a cash tax perspective that impacted effectively last year a benefit so that would mean less cash tax paid this year. And so even if that legislation does not get fully addressed, I think we’re in an improved position versus where we thought earlier in the year.

We’re still hopeful that it will be addressed. But that’s the biggest driver that represents over $29 million in last year’s impact alone, let alone some additional for this year. So that’s a biggest impact for the free cash flow. And I think that’s a sustainable for the Dave board.

Darrin Peller: Okay. That’s very helpful. Thanks. Greg maybe just on your side, if you just talk about what you’re seeing in the market more specifically around demand for core commercial use order. Obviously, the cloud discussion we’ve had for some time now. Again just inflections you’re seeing for specific products or offerings or maybe vice versa anything that’s weaker? Any more color would be great. Thanks.

Gregory Adelson: Yes, sure. So I think a couple of things as part of our survey and even just obviously with our regular conferences and conversations with our clients, deposit growth continues to be a big driver. Operational efficiency continues to be. And that’s why we really highlighted some of those key products that we’re already focused on and fraud being a big one, things that we’re already focused on and driving out in the market set and we’re continuing to see some nice pickup in all of those. So those continue to be big ones. I think related to the tech modernization and what we’re doing with our modules. We’re continuing to have a lot of success on the execution side of that. We’ll continue to talk more about that in future calls.

But right now, we’re really excited about what we’ve done with data broker and executive dashboard. We think those are some products that really are not out there in the space today and we’ll continue to create an opportunity for us to show the advancement of what we’re doing in our cloud native technology and utilization of generative AI as part of that. So all of those will kind of tie in to what the demand has been around deposits, fraud opportunities, operational efficiency as the three big things.

Darrin Peller: Great. Thanks guys.

Operator: Our next question comes from Vasu Govil of KBW.

Vasundhara Govil: Hi, thanks for taking my questions. I guess first quick one for Mimi. I know it’s a little too early to talk about the ’25 outlook, but just based on the new sales momentum that you’ve had this year, it seems like you’re setting up for stable, if not accelerating revenue growth into next year. Any reason to think that may not be the case? And then Mimi if you could also specifically comment on the payment segment, trending slightly softer than we would have thought, just how it performed relative to internal expectations and what you’re expecting for the go-forward trend line there?

Mimi Carsley: So Vasu, I wish I could tell you with more precision the next year targets, but it’s just a little too early. We’re still during the budget process. But there’s no reason to have any other expectation than grow the algorithm at a high level. There are some things that present challenges each year from a grow-over perspective that even though we’re having tremendous success with the sales pipeline, there’s lower convert merge that impacted this year. You just never know from a grow-over perspective. But I think the growth algorithm is a pretty good framework to think about for next year. As it relates to this year and the payments question, I would say that, that really — to categorize it, we saw slower transaction growth broadly slower growth in debit.