Jack Henry & Associates, Inc. (JKHY) Earnings Call Transcript & Summary

All right. We'll go ahead and get started here. I was just talking to Vance, who's Head of IR for Jack Henry, and he was saying that they should allow more time between meetings. So I'm sure that's how we'll see that as we go through this session. But I'm very pleased to have from Jack Henry today, incoming CEO, Greg Adelson as well as CFO, Mimi Carsley. Thanks for joining us today. And before we get started with Greg and Mimi, just a quick introduction. I'm James Faucette, Head of Fintech Research here at Morgan Stanley. And before we launch into the questions, as everybody is probably used to by now, for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representatives.

So, Mimi, this is your second year in a row here. Greg, great to have you here at our TMT Conference. Maybe we'll start with you, Greg, if you want to give a quick introduction of yourself, background, I know that you're officially taking the title as CEO in July. So just kind of give us a brief overview on your history. And then talk about Jack Henry and kind of where -- for people that aren't familiar with the company, where do you kind of fit in the ecosystem?

Sure. First of all, Greg Adelson, appreciate you having us here today. So I've been -- I have an accounting background. I've been in the payment space as a large part of my career in various things, bill pay, prepaid, things along that side. I came to Jack Henry in 2011, ran our Bill Pay business then ended up running all of our payments business about 3 years later, I became COO in 2019, became President in 2022. So I've been around the company for about 13 years. I've been very fortunate to have worked for our current CEO, my entire career at Jack Henry. So from a philosophical approach and strategic approach, I've been very much aligned with Dave throughout my career as well as the things that we're embarking upon right now. So kind of tying that back into what Jack Henry is. So in the ecosystem, so there's -- we're what's known as a core processing provider, but we do have 300 other complementary products that we sell into the financial services space. We support both banks and credit unions. We have about 1,000 banks on our core processing solutions and about 700 credit unions. But then we also support in outside of our Jack Henry core processing solutions, right around 6,500 institutions that we sell a single complementary product to out in the market space. So we're a pretty big player in the space. I would say, from the current kind of environment, we're the one that is exclusively focused on community and regional financial institutions in the United States.

So I guess, maybe I don't want to skip over is like Jack Henry is an interesting and the current period is an interesting period in my view, for Jack Henry, just because Jack Henry is always so consistent in so much of its business and operations, et cetera. But we're in kind of a unique time because in pretty short order, we're placing both the CEO later this year and Mimi, you're relatively new in the seat, at least. From a -- at least from a 10-year perspective as historically for Jack Henry, so Mimi since you came in and started in 2022, so about 1.5 years ago, what have been the biggest surprises thus far and some of the initiatives that you've implemented with investors?

Yes. So first, I'd like to commend the company on their approach to succession planning. Dave and Greg go through a very thorough succession planning pretty deep within the organization every year. And if you just think about the seamlessness of the transitions we've had. And we haven't had a ton of external hires, but we have had a number of people changing roles, expanding roles inside the company and it's gone seamlessly. And so just even thinking about the thoughtfulness and my onboarding, the timeliness of changing over within a calendar year. And then Greg, having a lot of leeway. Dave will still be here in his Chairman role, so we'll still get the value of his insights, but the company really is thoughtful and well executed in how we're approaching like the seamless transition. So just that kind of call out, from my perspective, the commercial has lived up to the hype from a perspective of the culture, just the collaboration, the innovative nature of our ambition for how we want to continue to develop products. You have a 46-year-old company, but we're still as hungry and passionate as ever in how we want to serve and best serve our customers. So that they in turn can serve their members and account holders. And so that has been a great awareness as coming into the company. Just the bench strength in the finance team. One of the things that attracted me to -- as a CFO, to Jack Henry is just the cleanliness in the high-quality earnings story. We are a GAAP EPS-focused company. There's not a lot of add-backs. It is not an EBITDA focus. We are a GAAP EPS-focused company. And so it's just that high visibility, high predictability of reoccurring revenue has been really fantastic. And at the same time, coming in with my team as a fresh perspective and being able to think about how we can support the business partners, how we can think about data and reporting, for example. And just thinking about some of the other tactical things we've done about building long-term models that support the business so that we can think more strategically.

So everybody is, I guess and it makes sense, but especially here at the beginning of -- relatively beginning of the calendar year. The question I get most often is like what's the demand environment like from banks? What's the budget planning process looking like, et cetera? So how would you characterize the overall demand environment right now? It feels like you continue to set bookings record every quarter, while pipelines are being quickly replenished. So what are kind of the dynamics that seem to be driving that? And what's the messages -- messaging that you're getting from your customers?

Yes. So a couple of things. So one, we spend a ton of time with our customers, both in person and in meetings, but also through surveying and conferences and stuff. So we get a lot of real-time data throughout the year, but we also rely on some external surveys as well. So there's been several different groups that have run surveying of what tech spend is. And of course, our customers are part of that survey. And so we've seen anywhere from about 5% to 10% that's kind of been the average depending on the survey. I will tell you in the Jack Henry alone survey, which I think is candidly the most relevant because it is for Jack Henry clients, we're seeing closer to 10%. And so -- and it's kind of playing out and what you just alluded to with the record quarter that we had, our second record quarter for Q2 that we had last earnings call, but a pipeline that got replenished so quickly. We've actually held 3 of the last 5 quarters have been record quarters for Jack Henry, and our pipeline has been -- remained the largest it's been in the history of the company as far as replenishing. So the demand is there. I think also, we're a believer and our customers are a believer that for them to continue to be successful in this market, technology is the way for them to survive. So when you look at the size of institutions that Jack Henry supports, and again, we range -- our largest is about $50 billion, and we have -- the typical is around $1 billion. Actually, our banking customers, the average asset size is about $1.2 billion now, and our average credit union is about close to $1 billion, about $950 million, which, by the way, both of those have increased through the last couple of years. But as you see that, you recognize that those institutions for them to continue to thrive in the markets that they serve, technology is really the only thing that can help them do that. And it's not just like the old days when core was that back office thing in the background. You have all these other complementary products like digital that truly is the front door now for that institution. And for them to make the changes and the needs that they need to have digital automation to drive whatever it be, their online account opening, their lending. Every other component is all digital-based today. Technology is the way for them to do that. And so again, it's playing out in the surveys and playing out in the Jack Henry ecosystem.

And when you talk to those customers, especially since there has been some upheaval, especially in kind of that part of the market where you operate. We had a few of the bank failures last year, some even emerging pressures, at least on one bank in the headlines this year. What is the prioritization of like what are your banks and customers focused on improving? And what do they want to modernize?

Yes. So I think there's really 3 key things that I would say that come up. And one of them is no surprise. It's deposit growth, right? That's been a continual focus and continues to be. So ways to continue to open up accounts faster, more stickiness and things along that line. Fraud is a huge concern right now. So not only in what would happen in "faster payment fraud" it's happening through the faster payment networks, but if you've seen there's been fairly large institutions that have announced a lot of check fraud. And so check fraud has significantly grown. And so our Financial Crimes Defender product that we've rolled out provides real-time capabilities to help in that as well as the check aspect of this, too. Efficiency and scale, those continue to be big drivers that continue to operate in a more efficient manner. So again, all of those are technology solutions that Jack Henry helps provide to enable that in a better way.

So I want to spend a few minutes progressing through kind of the different various -- or through the various business segments and kind of how you guys have talked about them. And maybe we'll start on core. Growth there seems like it's been fairly healthy at around 8%, maybe a little bit better through the first half of your fiscal year. And you've seen I think 24 competitive takeaways this year, which puts you about on track for that typical about 1 per week that we've heard about historically. But on track, maybe slightly below a little bit, but not much. So for those competitive takeaways, specifically, are the customers getting larger on average? And are they consuming more of your solutions upfront relative to historic trends? Just trying to get a sense for, even though the growth rate looks good, but the takeaway count is a little bit lower. Just help us understand what's happening at that core level.

Yes, let me take this one. So overall, for the industry, so you're talking about long contract cycle time. Typically, there's about 200 renewals up in a given year. And of that, 100 don't make a decision, like they may have to put an RFP out for regulatory or their Board, but they have no intention of making a decision. They're going to stick with their current provider. Of those 100 that change, as you mentioned, James, we went about 50 to 55 a year. So we're taking our fair share of those wins, and that's been pretty consistent over the last several years. We are seeing -- in any given year, we give that number of our wins every quarter just to show the momentum, but there could be a year where we win 47, but that 47 could be more revenue than a year that we win 55. It just depends on in any given cohort here what the size of those institutions are that are up for renewal. The other thing I would mention is people don't tend to buy core in a vacuum. So core, if you're not as familiar with our business, is kind of the ERP GL full system, mission-critical to operate a bank or credit union. Well, they don't take just that product. So at the time that they are renewing or if it's a new core competitive win, they'll typically take somewhere between 30 and 50 products of the other 200 solutions that we offer. So nowadays, a typical win, first of all, most of them are hosted. We're about 70% hosted in our private environment. So nowadays, most -- every win is hosted. Most -- every win has our Banno, which is our digital banking offering. And then they're going to take a collection of other products and services. And then as they have renewals each year, it's an opportunity for us to work with them, find out their strategic needs, and we typically add to that bundle. So you may have a customer who's been with SilverLake, our core banking. We have 3 core banking platforms. One is our flagship core banking product, which is our SilverLake platform, and we have only one core on the credit union side. And so that's a big differential versus our competitors. We're very focused in the number of cores we support. But say a SilverLake, a mature SilverLake customer could have 75 or 100 of our products just over time as we meet their needs and solutions.

Got it. Got it. So let's move on to the payments business. Growth in that business has been kind of 6.5% to 7% and maybe a touch softer than the normalized growth of 8% to 9%. Can you talk a little bit about the building blocks of growth in that business, particularly, how should we think about it going into the back half of the year? And is there -- what are the things that would happen? And how are you feeling about the potential for some reacceleration or in that business, especially as we go through the second half of the fiscal year?

So I would say core is on track to have -- so our growth algorithm is core segment is about 6% to 7%. Payments is about 8% to 9%, complementary. So if it's not core and it's not payments, it's complementary. It's kind of like the catch-all bucket, is about 8% to 9%. So that's kind of in a given year, not precision of this year, but like generally trends. I think core is on pace to do at least that, probably upward biased. Payments is probably, there's some non-processing-related hiccups we mentioned on the last call relative to just timing or card issuance or other things that aren't processing-related. Processing volume itself was 8%. So still within that kind of growth algorithm, but payments for the year will probably be a little lighter than that long-term model. Complementary probably on pace to hit the growth algorithm.

And so -- and I want to come to complementary in just a second. But on payment specifically, can you just remind us a little detail of why it may be a little softer and then what would be the circumstances would allow it to get back maybe next year to kind of this normalized part of the algorithm?

Our payments business, within payments, we have our enterprise payment business, if you think about remote deposit capture, you think about the ACH business. We also have the mature bill pay business, well penetrated, but mature, good, stable business there. And then we have our card processing business. So primarily a debit issuer and processor there. We did step into credit a number of years ago. But predominantly, that revenue comes more from the debit side of the house. We don't play in interchange. So whether you buy a $10 meal or $100 piece of audio, visual equipment, the revenue for us is more stable than it is for traditional card processing, merchant acquiring businesses. So that's kind of been the business for us. It's a healthy grower, where we had our PayRailz acquisition. So exciting new areas, particularly around the FedNow, RTP, so as we think about the future of what those could unlock for us, really interesting momentum story.

And that's the only thing I was going to add is that the PayCenter business plays in that space, too. So to Mimi's point, opportunities that we're seeing with the Fed with RTP, even with Zelle as we fix some of the fraud issues with some of our Financial Crimes Defender modules, we see some opportunity to grow that PayCenter business in the payments segment as well.

So can I just ask you, Greg, Defender has come up quite a bit, not just today, but over the last few quarters and you're highlighting fraud. Like what's your sense as to why there has been this maybe at least increased focus and if it has been driven by increased fraud rates, like what's happening there? And how does Defender address that?

Increased focus in fraud...

Yes. And how does Defender address that as a product?

Yes. So great question. So one of the things that we've been highly focused on is fraud. So we've had a historical product called Yellow Hammer. It was kind of an AML BSA separate. We've now built it all on a single platform. But the real differentiator for Financial Crimes Defender in the space is its real-time capabilities and its artificial intelligence. So we have generative AI built in there with a company called Feedzai, which is internationally known for their capabilities. So when you take the true ability to fight fraud in anything these days is the ability to do it in real time. And so when you look at the competitive offerings that are out there without naming competitors by name, they do not have real-time capabilities. So the reason why you've seen so much success early on in us selling that product, some, yes, is a lift from our old product that we're moving people to. But there has been significant competitive wins from the environment because of that real-time component. And then when you throw in what we're doing with the real-time modules for Zelle, clearing house and the Fed, nobody has those three. And we're building them separately for each to be very specific for that part of the business. So I think that's really important to understand as well as we move that forward.

That Financial Crimes Defender product, is that captured -- are those revenues captured in the complementary bucket? And I guess the question is, is the growth there moving the needle on complementary? Or how much of it is -- of the spend that maybe banks are putting their displacing spend that would otherwise be in other parts of the complementary bucket?

So just to answer the question in a short version, we have sold a lot of contracts, but they haven't all been implemented. It's very small, I'd say, add to the actual complementary. Digital has continued to grow as you know, Banno. And then things that we're doing in our LoanVantage product, which is our LOS solution. There's been some nice growth in that business, too.

Yes. So the products that Greg already mentioned are ones we highlight quite often on our earnings call because they're exciting, they're digital cloud-native, they're utilizing Gen AI to Greg's point. And they really showcase the modernization, our tech modernization strategy. And so many times, it was replacing an existing well-penetrated, durable product, but it's bringing up to speed, right? And it's a new modern refresh, a completely rewrite, and a new modern refresh. But as we think about that segment as a whole, I mean, you have 200-plus solutions, so in any given year, from an additive perspective, it's going to be really hard to say like what moves the needle for the whole segment. I like to think of it much more from a portfolio diversity perspective, like what might have been super interesting 5 years ago, now you're going to have something new that drives the momentum and keeps some momentum because it's going to be a balance of some low single-digit more mature products and now some new exciting good grower type new products. So that's what's going to keep that 8% to 9% consistency over time.

And that's -- sorry, go ahead.

I'll just say and consistency of delivering new products. So if you've seen over the last several years, we've been very calculated on the delivery timing of some of these products as well for the reasons that Mimi said. So it allows some of the other products that maybe aren't moving the needle as fast as they once did 5, 10 years ago to allow that to happen.

Yes. Well, it's kind of an interesting point because a lot of times, especially for us in the investment community, we get so conditioned to seeing product cycles as new products are launched, hit so fast and not really ticked and so it's important to take into account the nature of the customers here, right? It's like you bring out a new product and maybe an improvement, but even the evaluation process for a bank can be a very long time. And so you're actually getting this long tail of growth contribution. And -- but as you said, keeping it renewed. So turning to Banno quickly. How are you thinking about the strategy surrounding sales and potentially go outside the core base? Or the Banno business launch maybe more generally at large? Like how should we be thinking about that as a product within that complementary group?

Yes. So we -- for those that don't know, so Banno is our digital offering. So it is the only offering out in the space. If you think about whoever you bank with today, typically, your experience with your digital offering, both for mobile and for online is different. You don't have the exact same experience. Well, Banno is built to have a single experience. So whether you're on your mobile, you're on your laptop, you're on an iPad, whatever, you're going to get the exact same experience. So that is one big differentiator than what you see typically out in the space. So to your point, it's been very successful. We launched it about 5 years ago, have over 11 million registered users in 5 years, by far, the fastest-growing application that's out there. We continue to invest significantly in that in a couple of different ways. So not only did we launch Banno business, which we originally launched the Banno application in a retail only. So now we're going back to a lot of those customers, those 11 million users at our institutions and adding the business application to it. The way the pricing works is that we actually apply kind of an add-on to those 11 million users. So whether they're using the business application or not, they're paying for it as part of getting business. Well, why you're saying, well, why would they do that? That's truly how our competitors sell. They just sold it all at one time and didn't have to go back and do another bite at the apple, right? So -- but we have several other add-on features that we sell in that. So Banno will continue to have a huge amount of focus for us. To your point about taking it outside the base. We're fairly -- we're nicely penetrated in both our banking and our credit union space within the Jack Henry core. But there's still a lot of upside there as well. But we think that now that we're rolling out the Banno business application, we can truly compete out in the marketplace with the largest competitors in digital. And so as a byproduct of that, we will take Banno as well as several of our other products outside of the Jack Henry core base to see that same level of success. So we needed the business application to do that. And now that we're fine-tuning that, we'll be able to do that as part of our overall strategy.

Got it. Mimi I want to talk about margins like beyond top line and that kind of thing. I think probably the thing that we get asked about most by investors, I'm sure you do as well, is margin expansion, et cetera. And I know that you've made it a key initiative of yours to deliver a more consistent cadence of margin expansion and you've kind of really set and been very deliberate in the way that you've gone through like what's the potential and setting the expectations of 35 to 40 basis points per year. Like how are you feeling about in terms of tracking to that? And then more importantly, how persistent or how long could that cadence persist, if you will? And how should we think about the long-term steady-state margin potential of the business?

Yes. So James, you're spot on in terms of it being a priority. We know from an investment thesis perspective, Jack Henry is about steady, predictable reoccurring revenue, high credibility in terms of the predictability of the nature of that revenue, a margin expansion story and a positive free cash flow story. So that is part of the premise we know from an investment thesis. The management team is bonused on, both revenue growth, but also 3-year CAGR of margin expansion. So it's that consistency that's a real focus of not just what do we aspire to because obviously, we aspire to much more than the guidance that we've given, but it's what do we believe year in, year out on a compounded basis, can the model generate and do we want to. And so I think there's some great tailwinds over time that will raise that. If we think about the public cloud native, if we think about the way we're approaching software development as a right one to use often, the continuous improvement efforts that Greg has led for a number of years, the zero-based budgeting approach that we do at Jack Henry. We are designed to have margin expansion as a core part of the business model structure. So I feel really comfortable in both our ability to hit the numbers we've set out, but to do them on a repeatable basis.

And one of the questions I have is like as we go through this margin expansion period, I know it's been probably 4 years now. But I know there was a period where current CEO, David Foss, expressed a little bit of apprehension that maybe the company had been underinvesting in R&D, wanted to make sure that there was some accelerated investment there. And maybe we've seen some of that over the last few years, especially as you've rolled out Banno, et cetera. So how are you thinking about like the appropriate level of investment in that kind of -- in the technology and in the product itself?

Yes. So I think they tie in together, we have spent the last several years valuations were quite expensive. We didn't see properties that we felt were compelling. So we have the capability to just heads down and develop. And so that differentiates us from a lot of those in our space. Now the result of that is all of the wonderful products that we've talked about lately and we've rolled out. The downside of that is amortization, so that does hurt the near-term margins, which is why the near-term guidance was a little lower than the more annual growth algorithm guidance we gave. So we're getting through that amortization. I think from a standpoint of what we think is the right level of investment spend, we've operated in that 14% to 15% of revenues consistently. We think that's probably double our peers. I think also the point I made earlier that limiting the number of cores has allowed us to be more influential in how we spend. We have a very rigorous prioritization, consistent dialogue internally, where we talk about where we need to allocate those funds. I think partly, it's also around bandwidth, bandwidth of an organization, bandwidth of our customers to digest new technologies. So I think we found what we feel is a good mix. There's not a lot on the cutting room floor that we feel like, gosh, it was really important. If there was something we felt was so compelling, we would increase that a little bit. The interesting thing is all of the work on Banno, all of the work on the tech modernization platform we've made for the last 3 years, has still been inside that 14% to 15%. So we've made some trade-offs, but we're still continuing to innovate on all of our products that we think have nice and healthy pace.

And I think one thing that just to emphasize, so our level of prioritization and focus on the things that are important for our customers through our conversations because we spend a lot of time talking to our customers. And also a level Mimi used the term right ones, use often. So part of that experience allows us to look at true product rationalization and understanding what things we should continue to invest, or eventually either go away. So we've already seen it in our wires platform, we have 5 wires platforms today that we write to various things. We're only going to have one, and we'll be able to eliminate end-of-life those other 5 as part of people moving over. That will be a continued focus as part of our tech modernization strategy.

Right ones used often, so I'll give the example of the authorizations, one of the modules we have on the Jack Henry platform, the new tech modernization platform. So that talks about you as an individual kind of rights management, what's your role in the organization, what are you allowed to do and that used to be a function by function. Okay, James this authorization. Now let's do for the 200 modules we have let's change James' setting. Well, now it's ubiquitous. You change it once. It happens throughout the platform. Well, that's technology we can use in every product, right? That's not SilverLake writing it differently than Symitar is going to write it versus Financial Crimes Defender is going to write it. So there's an increase of velocity that you're going to get on that 14% to 15% spend. The more you have common code that we can use across the product. So it's going to increase the velocity of innovation within the same dollar effect.

Sure. That makes a lot of sense. I've really been sucking up all the airtime asking my questions. I want to make sure if there's anybody in the audience who has a question, raise your hand, and we'll get you a microphone. That's all right. Free cash flow conversion. You -- we got a question here, sorry.

Yes. I was just going to ask. So there's been a lot of consolidation, obviously, in turmoil in your markets. Because whenever there is this consolidation, how have you spend -- seen total spend change between like the 2 companies, just like, is some of the parts are greater, is it less?

So why don't I start in and then you obviously have a much greater tenure in the industry? So we've seen industry consolidation at about 4% a year for over a decade. And so while the number of institutions -- financial institutions in the U.S. has been on the decline for some time, the total assets and the total number of accounts that they hold has been on the rise. So in the aggregate. So if you think about our business model, very little if nothing has to do with FI caps, like the number of caps. Yes, if we ended up going down to Canada and only had 6 financial institutions, that might be a different story in our model. But today, it's not driven by the number of FIs. So it's number of assets they have, number of account holders they have or members they have or transactional volume based. So there's very little -- so from a spend perspective, we haven't seen a correlation between number of FI declines and spend.

I'm just going to add 2 quick things. So one is, so Mimi referenced the last decade. It's really almost been the last 30 years that we've seen about a 4% decline at that lower asset base. So the under $250 million, $300 million that are getting acquired. The over $500 million on up have all been growing. So based on those folks acquiring. The other thing that's important to note is that when you look at some of the product sets that we have, they're all to the point, whether it be -- they're all with technology. They're all growing their digital base. They're all growing their card base. They're all growing through the technology that Jack Henry provides. So we have customers of ours that literally started at $400 million and $500 million that are up to $30 billion in assets today through a very minor number of acquisitions, that has all been through organic growth in a variety of ways. So there's a lot of that through the technology spot.

Another one right here.

I just wanted to follow up on one of the comments you made, Greg, about a $50 billion bank that is now a customer. I think previously, you had mentioned you were in conversations with those customers. But did something change there, and maybe as you think about the technology infrastructure of Jack Henry broadly, is there a size threshold that we should be keeping in mind that you are capable of servicing today? And how we should think about that evolving with the tech modernization strategy?

So a couple of things. So that $50 billion bank started as a $15 billion bank with Jack Henry when we acquired them as a client. So they grew with us and they're now $50 billion. We have several clients in our prospect list today. Dave mentioned this on our earnings call that we had 3 over $20 billion at our last client conference. We've never sold an institution directly that's over $20 billion. We now have 3 in the pipeline, and they're all moving nicely at this point. We'll see what happens. But -- so we've had a lot of growth through our existing client base. But the technology modernization strategy has allowed us to not only fully articulate what we're doing today in existing core and existing products, but where we're going tomorrow. And again, when I mentioned earlier about us being really the only one in the industry that can say we're exclusively focused on community and regional financial institutions in the United States, that resonates with the banking union and credit union industry. Because they know that we mean it when we talk about what we're building. So that's given us a lot more opportunity for us to prove what we've done. We can process -- we can actually target things up to $100 billion pretty easily, but it's back to credibility. We need to earn more credibility in the $20 billion to $50 billion space before we start chasing the ones above that. And so that's what we're doing right now. We're earning our credibility with our product sets and our focus.

So I want to ask one last question to wrap up here on free cash flow conversion. Mimi, how should we think about getting back to 80% to 100% in fiscal year '24 and '25 versus kind of those 60%? What are the key things that would help enable that, that we should pay attention to?

So I think this year, I think our guide is around 60%. I think there's a bias to the upside there. I think over time, the majority of the change of why it went from, like, call it, 80% to 100% to 60% was the change in the Section 174 legislative. So for those not familiar, and I have quickly researched far more than the last few years than I ever knew about this was, as part of the JOBS Act, it was changed. It was to remove the deductibility for tax purposes of R&D. So if you think about the development expense, you have your gap, sure you're going to amortize and capitalize some of that and have it amortizing over the life of the project. But for tax purposes, you've got 100% of that benefit from a cash tax [ basis ]. Well, that went away. That was supposed to be so onerous of a deterrent that legislative progress was supposed to have it drafted. Well, they did not, and unfortunately, it expired last year. So Q3 of last year, we saw an enormous cash -- an outsized cash tax payment, it doesn't change our federal tax rate at all, but from a cash tax perspective. So last year in fiscal, we're June 30 filer. So in our last year's fiscal, we paid over $80 million more in cash taxes. Now you've heard a lot, Wall Street Journal article talked about Boeing and Lockheed Martin paying over $800 million, $900 million more in cash taxes. It's also hurt small businesses where they were very focused in development and all of a sudden had to pay $100,000 tax bill. So I do think there's positive momentum. It's on the docket for Congress right now to be addressed, whether it's now or post the election. I think they will address and fix it, and that will have like a dramatic reversion back to kind of historical norms of free cash flow. If, for some reason, they don't address it, you kind of crawl back out of it as you restock that new basis of the amortization and expense allowance. So if worse comes to worst, it's kind of a 4-year journey, let's say, kind of [ back ]. Best case is Congress makes some momentum.

Great. Well, Greg, Mimi, thank you very much for joining us. Thanks to everybody here in the audience.

Thanks, James, for having us. Thank you.

Thank you.