Mimi Carsley
Chief Financial Officer and Treasurer at Jack Henry & Associates
Thank you, Greg, and good morning, everyone.
Our continued focus on serving our community and regional financial institution clients, growing our business, investing in our future and delivering shareholder value led to another quarter of solid revenue and earnings growth.
I'll begin with the details driving our positive first quarter and then conclude with our full year guidance update. We're encouraged by Q1 GAAP revenue and non-GAAP revenue increasing 8%, establishing a healthy start to our year and setting us up for a fantastic fiscal 2024. Deconversion revenue of $4.1 million, which we pre-released last week, was down approximately $400,000, reflecting continued temperate financial institutional consolidation.
As a reminder, given the September 1, 2022, close of Payrailz acquisition, the first two months of Q1 2024 results are excluded from non-GAAP financials, but that September 1 onwards, Payrailz results are included in both GAAP and non-GAAP.
Now let's look more closely at the details. First, on a GAAP and non-GAAP basis, services and support revenue increased a healthy 7%. Services and support growth was the result of increases in data processing and hosting, software usage and subscription and hardware. We continue to experience robust growth in our private and public cloud offerings, which increased 10% in the quarter. This revenue contributor has long been a double-digit growth engine.
Shifting to processing revenue. We saw vigorous performance with 10% growth on a GAAP basis and 9% growth on a non-GAAP basis for the quarter. Consistent with prior period results, drivers include a combination of higher card volumes and services plus strong digital demand.
Next, moving to expenses. I'll begin with cost of revenue, which increased 8% on a GAAP basis and 7% on non-GAAP. Drivers include higher direct costs, personnel and benefit costs and internal licenses and fees. Next, R&D expense increased 12% on a GAAP basis and 10% on a non-GAAP basis, reflecting higher personnel and benefits costs, net of capitalization. This is in support of our continued solution innovation, maintaining competitiveness and our technology modernization strategy, including the Jack Henry Platform.
Finally, on a GAAP basis, SG&A rose 38% for the quarter, primarily due to the $16.4 million one-time cost related to the voluntary early departure incentive program, VEDIP. This cost was lower than the $17 million to $18 million estimate based on the final participation in the program. As a reminder, all VEDIP costs are in this quarter and there will be no additional P&L impact as we move through the year. When these one-time VEDIP costs and last year's $6.2 million gain from real estate divestures are adjusted to non-GAAP, SG&A decreased 2% during the quarter. These adjusted figures reflect our ongoing commitment to cost control.
We remain focused on generating compounding margin expansion and the quarter results delivered 121 basis points increase in non-GAAP margin, which was 26.1%. This increase was partially driven by the timing shift of our Connect customer conference into Q2 compared to Q1 last year. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.39.
Breaking down non-GAAP results, we're pleased by the consistent solid performance achieved by the three operating segments. Our core segment revenue increased 8% on both a GAAP and non-GAAP basis with non-GAAP operating margin increasing 5 basis points to 59%. We benefit from positive tailwinds from winning share, continued migration from on-premise to private cloud and customer growth.
The payments segment revenue increased 7% on a GAAP basis and 6% for non-GAAP. This segment had an impressive non-GAAP operating margin growth of 59 basis to 46%. This was due to increase in card transaction and related revenues plus growth in our EPS business. The Fed recently announced its considered change, a change to the debit card interchange that would translate to an approximate 28% decrease in interchange for issuers. It should be noted that our revenue model for card processing is transactional and not reliant on interchange.
Finally, our complementary segment. Revenue increased 9% on both a GAAP and non-GAAP basis with strong non-GAAP operating margin expansion of 47 basis points to 61%. Our diverse mix of solutions, including key headliners like Banno, LoanVantage, treasury management, in addition to the numerous additional solutions, contribute to this strong growth trend. And our new fraud Financial Crimes Defender solution will soon contribute to the growth in this segment as well.
Now let's turn to a review of cash flow and capital allocation. Quarterly operating cash flow was $157 million, a $20 million increase over prior year, producing free cash flow of $107 million, slightly less than the $116 million last year. Last year included $26 million contribution from asset sales that was non-reoccurring in nature. Our consistent dedication to value creation resulted in an annual return on invested capital of 20%.
Additionally, I'd like to highlight notable return of capital, including $20 million in share repurchases, offsetting annual dilution; $30 million in debt reduction; and $38 million in dividends during the quarter.
With Q1 in our rear view, we shift our focus to the remainder of 2024. And I will conclude with guidance change highlights. As you're aware, yesterday's press release included updated fiscal 2024 full year guidance, along with the reconciliation to non-GAAP guidance metrics.
As a reminder, we filed an 8-K on August 3 that described how starting in the current fiscal year, we're using a revised approach for deconversion guidance. Based on current trends, we expect to see minimal financial institution consolidations in the first half of fiscal 2024 with possible acceleration in the second half. As such, we're maintaining and reiterating full year deconversion revenue guidance of $16 million.
Based on a positive Q1 result from strong execution and near-term visibility, we see upside over our prior guidance. We now expect to generate full year non-GAAP revenue growth of 7.2% to 8.2% compared to the 7.0% to 8.0% provided on the August call. This corresponds to an increased full year GAAP revenue guidance of 6.4% to 7.4% for fiscal 2024.
In tandem with our increased revenue outlook and continued focus on cost efficiencies, we now expect an increase in annual non-GAAP margin expansion of 30 to 35 basis points compared to the 20 to 25 basis points previously provided. The full year tax rate remains unchanged at approximately 24%.
Incorporating the noted positive updates, full year guidance for GAAP EPS is revised upward to $4.98 to $5.04 per share from previous guidance of $4.92 to $4.99 per share. As a reminder, the conservative guidance for deconversion revenue compared to actual fiscal 2023 deconversion revenue, the slightly lower VEDIP severance-related costs and the non-reoccurring gain on asset sales results in an approximate $0.37 headwind for fiscal 2024 GAAP EPS.
And lastly, some additional modeling commentary. As previously highlighted, we recently hosted our customer conference, JH Connect. The associated revenue and expenses will be reflected next quarter. Please recall in FY '23, the related financial impact was in Q1. We believe this timing shift has led to an approximate $0.01 to $0.02 higher consensus Q2 EPS estimate.
Our full year guidance of 60% free cash flow conversion remains consistent, given the continued impact of tax deductibility timing on development expenses resulting in higher cash taxes. In the relative near term, we expect to return to historical norms of conversion.
We appreciate the contributions of our hardworking and dedicated associates that drove these strong quarterly results.
In conclusion, Q1 was a strong start to our fiscal year. And we remain exceptionally positive about our ability to deliver innovation and valued solutions, the resiliency of our clients, our focus on execution, growth accelerators and shareholder value creation. We thank all Jack Henry investors for their continued confidence.
MJ, could you please open the call for questions?
