Jack Henry & Associates, Inc. (NASDAQ:JKHY) Q2 2025 Earnings Call Transcript

Jack Henry & Associates, Inc. (NASDAQ:JKHY) Q2 2025 Earnings Call Transcript February 5, 2025

Operator: Good morning, and welcome to the Jack Henry’s Second Quarter 2025 Earnings Conference Call. [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, Michael. Good morning. Thank you for joining the Jack Henry & Associates, Inc. second quarter fiscal 2025 earnings call. Today, I am joined by President and CEO, Greg Adelson, and CFO and Treasurer, Mimi Carsley. Following my opening remarks, Greg will share his insights on the first half of our fiscal year and provide observations on our financial results, operational metrics, and outlook. Mimi will then discuss the financial results in yesterday’s press release, which is available in the Investor Relations section of the Jack Henry & Associates, Inc. website. Please note that this call includes forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from our expectations.

The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday’s press release and the risk factors and forward-looking statements in our 10-Ks. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday’s press release. Now, I will hand the call over to Greg.

Greg Adelson: Thank you, Vance. Good morning. I appreciate each of you joining this morning’s call. I’m pleased to report overall solid financial performance results in the second quarter of our fiscal year 2025. I’d like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes in doing the right thing for our clients. Our focus on a people-first culture, service excellence, technology innovation, and a well-defined strategy supported by consistent execution continues to set us apart in the market. I will share three main takeaways from the quarter and then provide additional detail about our overall business. First, our financial performance. We exceeded our second-quarter outlook.

We had non-GAAP revenue growth of 6.1% in Q2, slightly ahead of the 6% anticipated on the November call. Our non-GAAP operating margin of 21.5% was also slightly better than expected. We continue to expect results in the second half of our fiscal year that are consistent with full-year guidance provided in August. Second, our sales performance. After record sales attainment in Q1, we continued our positive momentum by setting a sales record in Q2 for the second consecutive quarter. During the quarter, we had eleven competitive core wins, and of the eleven, three were financial institutions over $1 billion in assets, including one $7.5 billion asset win. We also closed thirteen deals to move existing clients from in-house processing to our private cloud.

Third, it may be as impressive as anything this quarter was our success with client renewals. We typically don’t spend much time talking about renewals on these calls, but I am making an exception this quarter because of the volume inside of our renewals. In Q2, we closed twenty-eight core renewals, bringing our total for the fiscal year to forty-six. That is up 21% over the first six months of last year. Among those renewals are multiple banks with over $10 billion in assets, including the $17 billion bank that provided the termination notice several years ago but never deconverted to our competitor. They recently determined that the best choice for their go-forward technology strategy is Jack Henry & Associates, Inc. and resigned for seven years as well as moved from in-house to outsource processing.

We also re-signed our third-largest bank and won several mergers of equals that brought us two more banks between $10 and $20 billion in assets. This success reflects clients’ continued confidence in Jack Henry & Associates, Inc., our service quality, and our ability to deliver innovation that helps our clients grow and meet the evolving needs of their account holders. Our core retention rate, excluding M&A, remains over 99%. Now for more detail on our overall business, starting with some recognition. We are pleased that for the seventh consecutive year, our Scimitar core platform ranked as the largest platform for credit unions in Cowan’s annual ranking. Scimitar also remains the most utilized core service platform for credit unions with over $1 billion in assets, with nearly 50% of the total market share.

In addition, we are proud to recently receive two prestigious national workplace awards: Forbes’ Most Trusted Companies in America and Newsweek’s Greatest Workplaces for Diversity. These honors reaffirm our steadfast commitment to doing the right thing for both our employees and our clients. Now turning to specific products on our technology modernization progress. In our payment segment, we signed fourteen new debit processing clients and two new credit clients in the quarter. We now have 338 clients on the Zelle platform, 357 clients using RTP, representing about 42% of the live RTP clients, and 339 clients using FedNow, representing approximately 28% of the live FedNow clients. In our complementary segment, we signed seventeen new Financial Crimes Defender contracts in the quarter.

In addition, we signed thirty new contracts for the Financial Crimes Defender fast payment fraud module, a real-time solution designed to help mitigate fraud in Zelle, FedNow, and RTP transactions. As of the end of December, we have installed 104 Financial Crimes Defender customers and have another eighty in various stages of implementation. We also have fifty-four faster payment modules installed and 162 in various stages of implementation. Our Bano digital platform continues to see very nice growth through competitive wins. For the quarter, we signed eighteen new clients to the Bano retail platform, as well as thirty-three new Bano business deals. At the end of the quarter, we had nearly 1,000 Bano retail clients, including 212 live with Bano business.

We finished the quarter with 13.2 million registered users on the Bano platform. At the end of Q2 last year, we had 11 million registered users, a 20% increase over the past twelve months. On Monday, we posted a press release and update on our SMB strategy. We’ve collaborated with Visa to provide Visa Direct through Jack Henry rapid transfers, which is the first phase of our partnership with Move. Visa Direct will enable the delivery of funds to eligible cards, bank accounts, and digital wallets. For example, individuals and SMBs can make real-time transfers between linked external accounts to cover same-day transaction needs. In parallel, we are working with Mastercard to facilitate similar transactions using Mastercard Send, part of the Mastercard Move platform.

We will begin testing Jack Henry rapid transfers with a small number of clients later this month. Rapid transfer service will be closely followed by our unique merchant acquiring solution with Move. We are on track to deliver that solution to Bano early adopter clients in May 2025. It will be provided exclusively through financial institutions and will include key features for the merchant: instant decisioning, tap to pay for both iOS and Android devices, option to receive settlement funds up to eight times per day, and continuous account reconciliation to the accounting solution of their choice. Together with Move, we will enable banks and credit unions to offer innovative digital payment solutions, attract, deepen relationships, and grow deposits, which remains a top priority.

I know we have talked a lot on these calls about our technology modernization and the development of our cloud-native API-first Jack Henry platform. It’s important to point out that none of the partnerships with modern fintechs like Move or the integration of services such as Visa Direct would be possible without the cloud-native infrastructure we have built over the past several years. We continue to execute very well on the Jack Henry platform. We are live with domestic acquirers, international wires, data broker, which serves as our centralized data hub for reporting and analysis, and entitlements, which manages permissions and access rights for users and systems. We are in beta testing with both exception processing and general ledger. We remain on track to deliver the retail and commercial deposit core functionality of the Jack Henry platform in the first half of the calendar year 2026.

Some of you may have seen Cornerstone’s annual survey of bank and credit union executives published in late January. According to that study, 73% of banks and 79% of credit unions expect to increase their technology spending in 2025. This correlates with information we’ve seen from other sources, including an American Banker survey fielded last fall in which 83% of the respondents said they plan to increase their technology spending in 2025. We’re in the midst of conducting the annual Jack Henry strategy benchmark study with our clients and we’ll share those results on our May earnings call. In closing, we are laser-focused on second-half performance and remain optimistic about our full fiscal year outlook. The demand environment, our sales pipeline, and the competitive wins we have seen this year provide confidence for the future.

Our customer and prospect conversations continue to validate that Jack Henry’s key differentiators of culture, service, innovation, strategy, and execution have positioned us well for future success. With that, I’ll turn it over to Mimi for more detail on the financials.

Mimi Carsley: Thank you, Greg. Good morning, everyone. The Jack Henry & Associates, Inc. team’s continued focus on execution and supporting our community and regional financial institution clients resulted in another quarter of solid revenue and earnings growth. I will discuss the details behind our second-quarter year-to-date results, then conclude with commentary on our fiscal 2025 guidance. Due to GAAP and non-GAAP revenue increased 5% and 6% respectively, consistent with our expectations and providing the base for achieving our full-year guidance. Quarterly deconversion revenue of approximately $100,000, which we released prior to full earnings, was down $5 million compared to the same period last year, reflecting minimal consolidation of our clients.

We remain confident in our $16 million full-year guidance. While we see indicators for increasing industry consolidation, this activity will have minimal impact in fiscal 2025 but potential for greater impact in fiscal 2026. Now taking a closer look at the detail. In the quarter and for the year, GAAP and non-GAAP services and support revenue increased 4% to 5% respectively. Data processing and hosting continue to dominate services and support revenue growth for both the quarter and year-to-date. Hardware revenue was down $2 million for the quarter and $7 million year-to-date, creating headwinds for services and support revenue. As a reminder, hardware revenue is both non-recurring and low visibility. Our private and public cloud offerings increased 11% in the quarter and year-to-date, reflecting strong persistent growth trends.

This recurring revenue contributor is 33% of our total revenue and continues to be a key double-digit growth engine. Data processing revenue, which is 44% of total quarterly revenue and is another significant contributor to our long-term growth path, saw strong performance with 7% growth on both the GAAP and non-GAAP basis for the quarter and year-to-date. Continuing long-term trend, quarterly, and year-to-date drivers include increased card, digital, and payments processing revenue. Completing complementary commentary on revenues, I would highlight quarterly total recurring revenue excluding deconversion revenue was 92%. Focus on key revenue, a non-GAAP measure, key revenue is comprised of our cloud and processing revenue. Non-key revenue includes product delivery support, on-premise annual maintenance, and other revenue.

Quarterly key revenue was 76% of total revenue and grew at 9%. For year-to-date, key revenue was 74% of total revenue growing at 9%. Excluding hardware, quarterly non-key revenue decreased 1% while year-to-date it increased 1%. Next, moving to expenses. Starting with the cost of revenue, which increased 4% above the GAAP and non-GAAP basis for the quarter. The quarterly increase was due to higher direct costs and increased personnel costs. For clarification and to assist with models, the amortization of acquisition-related intangibles was $6 million in the quarter. Next, R&D expense increased 6% on both a GAAP and non-GAAP basis for the quarter. The quarterly increase was primarily related to personnel costs. And ending with SG&A expense, it increased 9% in the quarter above the GAAP and non-GAAP basis.

This is also related to an increase in net personnel costs. We remain focused on generating annually compounding margin expansion. The quarter delivered a 25 basis points increase in non-GAAP margins to 22%, and this offset the year-to-date to a 34 basis point decrease in non-GAAP margin to 23%. We remain confident in our ability to deliver margin expansion in line with our full-year guide. These solid quarterly operating results produced a fully diluted GAAP earnings per share of $1.34, up 6%. Reviewing the three operating segments, we’re pleased by both positive top and bottom-line performance across the board. Core segment revenue increased 6% for the quarter on a non-GAAP basis against a tough comp. Performance primarily came from organic growth in data processing and hosting, partly offset by lower software usage revenue and lower maintenance fees.

The results of our core customers continuing to shift from on-premise to private cloud. Non-GAAP operating margin for the core segment increased 139 basis points from improved operating leverage. Payments segment quarterly revenue increased 6% on a non-GAAP basis. This segment had impressive non-GAAP operating margin growth of 177 basis points. Performance was due to continued higher card revenue from volume, increased payment processing revenue, including FedNow, RTP, Zelle, and elevated EPS payment. Margins in the payments segment also benefited from ongoing improvements to operating leverage. And finally, complementary segment quarterly non-GAAP revenue increased 6% from strong product mix with hosting and digital driving consistent growth.

Segment margin expanded 207 basis points. Now let’s turn to review cash flow and capital allocation. Second-quarter operating cash flow was $90 million, an $8 million increase over the prior year period. Strong cash flow reflects higher profitability, increased receivable collection, lower prepaid, partly offset by tax payment. Trailing twelve-month free cash flow was $296 million, resulting in a 73% conversion, in line with full-year guidance range. Our dedication to value creation resulted in a trailing twelve-month return on invested capital of 20%. And for the quarter, we repurchased $17 million of Jack Henry & Associates, Inc. shares aligned with our intent to offset dilution from stock comp. As we move into the back half of fiscal 2025, I will conclude with comments on full-year guidance metrics.

Yesterday’s press release included fiscal 2025 full-year GAAP guidance, along with a reconciliation to our non-GAAP guidance metric, all of which we are reiterating. And while the press release also includes fiscal 2025 non-GAAP EPS metric, this is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers and it should be noted that a 24% tax rate is used. All of the current fiscal year guidance metrics are aligned with our near-term targets as the business operations remain healthy and on track. Our outlook for financial performance remains positive with continued expectations for a strong second half that will be more pronounced than typical. The appropriate performance indicator for our business is the full fiscal year financial results.

In conclusion, the positive first half of fiscal 2025 was consistent with our expectations and provides a base for a full year aligned towards stated long-term targets. Our focus remains on delivering long-term profitability, growth, and value through compounding revenue growth and margin expansion. In pursuing these goals, we appreciate the achievements of our more than 7,200 dedicated associates and our investors for their ongoing confidence.

Vance Sherard: Michael, please open the line for questions.

Q&A Session

Operator: We will now begin the question and answer session. To withdraw your question, the first question comes from Rayna Kumar with Oppenheimer. Please go ahead.

Rayna Kumar: Good morning. Thanks for taking my question. Could you just talk a little bit about what gives you confidence on the back half of revenue acceleration and what the key drivers will be?

Mimi Carsley: Good morning, Rayna. The confidence we have comes from two things. One is the confidence we have in the results that we’ve just delivered through the first half. And then through the metrics and drivers we’ve previously talked about, which are consistent. And those are the ones we manage last quarter’s call. That we see cloud continuing to grow. We see card ramping up in the back half. We see the installation of new products and consulting for things like Financial Crimes Defender. And we see digital continuing to be strong. On top of that, we’re now past some of the headwinds like the hardware headwinds we saw. And I will mention that cloud growth now we’re over in the back half. We’re gonna grow over a lower cost. So the combination of those factors gives us confidence in addition to seeing the execution on the operational side of our business.

Rayna Kumar: Thanks, Mimi. That’s very helpful. And as a follow-up, are you seeing any increased competition at the low end of the market from a large competitor that’s been calling out these wins? Like, specifically, are you seeing any pricing pressure?

Greg Adelson: Hey, Rayna. This is Greg. Thanks for the question. So yeah. I mean, we’re not seeing anything different than we have before. You know, I know that those have been called out. You know, we haven’t really seen much on our side unless they’re taking them from somebody else, but you know, from the part that we have seen a little bit of a difference is their approach on some of the clients that they’re trying to keep less than what we’re seeing in the clients that they’re trying to win. And so I think part of the question would be is, are some of the references to clients that they’ve actually maintained from a renewal standpoint, you know, or not. So I, you know, I talked about renewals today, but, of course, they’re not in the eleven competitive wins that we talk about.

I just wanted to reference the fact that we had a lot of large institutions that renewed with us. As well as institutions that were winning in win and mergers now. Related to what I would call mergers of equals. By the way, some of those mergers of equals are coming from that same competitor. So it’s interesting to see, you know, some of the comments, but not seeing anything different than what we’ve seen in years past.

Rayna Kumar: Very helpful. Appreciate the color.

Operator: Sure. The next question comes from Kartik Mehta with Northcoast Research. Please go ahead.

Kartik Mehta: Hey. Good morning, Greg. In the past, you know, we’ve talked about when we’ve talked about market share, you usually reference or usually on average two hundred deals and maybe a hundred come to market. And that Jack Henry & Associates, Inc. usually wins their fair share, if not more. Is there a difference in that environment at all in terms of number deals coming to market and also maybe the number of deals you’re winning?

Greg Adelson: You know, it’s a great question, Kartik. Thanks. But I don’t think there’s anything that’s changed significantly yet. I do believe that some of the numbers could change based on M&A. And, you know, we are seeing an increase, you know, based on our customers and, as I mentioned before, several of these mergers that have already occurred. So that may lower the overall number. But we are still tracking to our traditional fifty-ish wins. You know, we still bear still very confident about that. The good news is also we’re continuing to win larger deals. For the second quarter in a row. I referenced an almost $8 billion win for us. And again, we have seven over a billion already this year. So you know, we’re tracking very nicely there.

I just think the only thing that is yet to be determined is some of the decisions that could have been made, you know, do they get wrapped up in an M&A? And then just moving over to your partnership with Move, you know you were very excited about that. Seems like that’s moving in the right direction especially with the recent anomaly Visa Direct. I’m wondering, you know, when you would expect revenue from that partnership to have an impact on Jack Henry & Associates, Inc. growth.

Greg Adelson: Yeah. I would expect that in fiscal year 2026. You know, we might see some small pieces of that still in fiscal year 2025 depending on, you know, how things go. But the reality is I would expect anything meaningful to happen in 2026.

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

Operator: Yes. Thank you. The next question comes from John Davis with Raymond James. Please go ahead.

John Davis: Good morning, guys. Greg, I wanna touch on the renewals for a minute. You called out the outside number. Maybe talk a little bit about the pricing dynamics. You know, on one hand, you usually get, you know, they get better price as they grow. On the other hand, we have the opportunity to sell them and bundle more products. So if you on average, maybe talk a little bit about you expect more revenue from those customers going forward or is that a potential headwind in the back half of this year and then the points that.

Greg Adelson: Yeah. Good question, JD. Thanks. You know, I don’t think there’s anything that is we haven’t already planned into other forecasts that we are giving for the guidance. So we knew exactly who was going to renew and when. But, yes, to answer your question directly, there’s always some potential for early, you know, some level of price compression that happens. But what we typically do is we offset that with additional product sets that we have. So some of it’s the timing of when those products actually come on. You know, did they come on at the exact same time as any level of price compression? Or do they happen, you know, in a year or two later based on, you know, let’s just say it’s a card deal and have a couple more years left on their card contract, and you have to wait for that to expire.

But all of that is factored into what we are planning to do for the back half of the year. But what I wanted to call out really was the point of, yes, there was a significant number, but again, just showing the strength of what we are doing to be able to know, in a time when a lot of our competition is talking about things that they are doing to win deals, you know, they haven’t been winning them from us.

John Davis: Okay. Great. And then maybe, just on the shape of the back half of the year, you know, we’re expecting you need about three hundred basis points or so of acceleration, you know, one half to two half. But, you know, is that more four Q weighted or any color that you can give us there on the cadence of the back?

Mimi Carsley: Thanks, JD, for the question. I would say at this point, we continue to expect an acceleration throughout the year. But we’re not gonna give specific color on any particular quarter. You know, some things, whether it be installation dates or other things can switch from quarter to quarter, we feel good about the full year, and I would continue to people in the direction of full-year guidance.

John Davis: When you say acceleration, i.e., four Q should be higher than three Q.

Mimi Carsley: Correct.

John Davis: Thanks, guys.

Operator: The next question comes from Chris Kennedy with William Blair. Please go ahead.

Chris Kennedy: Good morning. Thanks for taking the question. Can you just talk about the current operating environment for your customers? You do have a new head of the FDIC who’s made some comments. Fraud comments would be great.

Greg Adelson: Yeah. I mean, I think at this point, based I was just with two clients last week, I mean, everybody still remains very optimistic. I think the biggest thing that we’ve seen is, you know, will there be any lessening of some level of regulatory scrutiny. You know, we, you know, at least for us, and in some cases, our institutions, you know, folks like the CFPB and others have been involved. There hasn’t been anybody that’s raised any concern, and honestly, anybody that I’ve been with so far this year, has been nothing but optimistic about, you know, the environment, the demand environment, for us remains really strong, and their willingness and need to continue to buy the products that we are focused on, you know, to help them increase deposits and their loans and build efficiency. All of those things remain top of mind.

Chris Kennedy: Great. Thank you for that. And then any update on your efforts to rationalize the number of products that you guys service?

Greg Adelson: Yeah. Thanks for that, Chris. Yeah. So absolutely. Right now, I would say that we are in progress of all three things that I’ve mentioned. We have things that we are considering divesting. We have things that we are looking at sunsetting, and we have things we are looking at cash cowing. So all three of those are in progress right now.

Chris Kennedy: Thank you.

Operator: The next question comes from Peter Heckmann with D.A. Davidson. Please go ahead.

Peter Heckmann: Hey. Good morning, everyone. Maybe just one quick more housekeeping question. But in terms of getting to the $16 million of deconversion fees for the year, which, you know, at this point, should we just kinda think about that as equally weighted between the third quarter and the fourth quarter or should we expect a bigger step up in the fourth quarter?

Mimi Carsley: First of all, I just reiterate, we are affirming the full year sixteen, and that may look a little odd given the low number in Q2, but we feel comfortable based on the calendar we see, the slots that are already taken. So the line is slightly out gives us confidence for the sixteen. I think it’s fair to assume kind of an even-ish weighting but you never know kind of some date movement between things that are on the calendar. But I think pretty safe to say, even across two remaining quarters.

Peter Heckmann: Okay. Thanks. And then, Greg, you talk a little bit about real-time payment volumes, Energet can reach done a real good job of bringing events institutions live on the different platforms. But what are you seeing in terms of volumes? And then, you know, can you tell where those volumes are coming from? Are they primarily coming from ACH, same-day ACH? Are you seeing maybe some migration from card volumes? Just talk about kind of the composition of payments and, you know, what’s really working in real-time.

Greg Adelson: Yeah. Thanks for the question. I think the biggest thing is that we’re not seeing anything moving at this point really from card to real-time. There’s some things that we’re actually doing with the Move partnership that will help facilitate the replacement of ACH and the ability to move funds to the SMBs in a real-time fashion that’s using the eight settlement window. So there’s some components of that that will be utilized in our faster payments group, what we call pay center. We’ve seen very meaningful growth in that group over the last quarter. A lot of that’s attributed to some of the work that we’re doing with a few of our banks on some SEND transactions that we’re now utilizing. So we did a pretty large number of send transactions in the quarter, which, you know, provide a little bit more meaningful revenue growth for us.

You know, the use cases still are really the key, and the amount of fraud that people are still concerned about. So that’s why we’re excited to get our faster payments fraud module out to from financial crimes. Because we’re already seeing that the customers that are installing that are having less fraud on the pay on the faster payment networks. So I think that will continue to evolve. But candidly, I really don’t think there is anything in the near term that you’ll see that’s truly taken away from card volume. That’s anything that’s meaningful. It’s gonna be really more about some of the edge use cases that we can use both with the small businesses and with some retail consumers as well.

Mimi Carsley: And if I may add on to that, Greg, just in terms of I would highlight that in the release yesterday under processing and one of the drivers we did call out and then kind of the first time noted that processing the payment processing area, which falls under a ribbon for those just for clarity, you know, was one of the drivers of that strong processing being up 7%. So that is page that were kinda related to some of these use cases we’re starting to release volumes on. Related to faster payments.

Greg Adelson: Yeah. And Pete, we’re really focused with driving a lot of these use cases. We work very regularly with the Fed and the clearing house and have conversations about things that we could be out in the forefront in doing.

Peter Heckmann: Okay. That’s helpful. Thanks.

Operator: The next question comes from Jason Kupferberg with Bank of America. Please go ahead.

Jason Kupferberg: Good morning, guys. Good to speak with you again. I wanted to ask about free cash flow conversion, just visibility on the full-year target. Mimi, any thoughts on how the back half may trend there and just the visibility on it? Thanks.

Mimi Carsley: Yeah. Thanks for the question, Jason. It’s been nice to have two solid quarters of free cash flow returning to more of a normalized type of range. We think there’s further to go in the out years, but for this year, we are in line with guidance, full-year guidance. I think the back half will continue to see some strength in the range that we’ve kind of been operating thus far this year. So I feel pretty confident in our ability to hit the range for free cash flow conversion, which we said was 65% to 75%.

Jason Kupferberg: Okay. Understood. And then I wanted to ask about the trend of private cloud within core. I think you guys talked about, you know, a bunch of FIs moving from in-house to private cloud. Curious to get an update on where do we stand now, how many core clients are on private cloud? And, you know, do you see that trend accelerating through the back half of this year and just anything we should be thinking about in terms of whether or not that impacts the margin profile of your business?

Greg Adelson: Yes. Thanks, Jason. This is Greg. I’ll take that one. So, you know, we’re at 75% right now at the private cloud number. So we continue to grow. We are on pace to hit the targets that we thought we’d hit. We’ve been averaging between forty and forty-five a year. We’re on pace to do that this year. And expect to do that. So no changes in this fiscal year at all. And we continue to drive towards what we’ve talked about in other settings where when you look at the folks that, you know, at the very end, we may not get a hundred percent. Right? You know, do we get about ninety, ninety-five percent of folks that end up moving? There’s gonna be some holdouts to wait to move directly to the public cloud. And as I mentioned earlier, you know, we’re on pace to deliver our retail deposit, commercial and consumer core in the first half of 2026.

So we’ll start to see some movement there of folks that wanna just wait. So but we got several more years as we’ve said. Of room to go do what we need to do. In fact, I was with a very large customer this week who said, they plan to move in 2026. And they’ve been a long-term holdout of ours to move to private cloud. So we’re still moving them at the pace that we have them.

Mimi Carsley: And what we said previously is some of the catalysts to those positions tends to be internal to the FI. Is around their ability to recruit talent that need for their hardware refresher. So it’s kind of an individual choice that kind of brings them over the line if you will. But it’s a multi-year trend that we’ve seen continue at a nice healthy pace.

Jason Kupferberg: Excellent. Thank you, guys.

Operator: The next question comes from James Faucette with Morgan Stanley. Please go ahead.

James Faucette: Good morning. Thanks, guys. I wanted to follow-up on the cloud discussion and Greg, I guess, maybe this question for you. But some of the investor concern that we’ve heard regarding technology modernization, especially as we take the next step to public cloud is that, you know, maybe your development initiatives with the origin strategy are ahead of where regulators are likely to be in the next few years or at least that’s been the thought. With the change in administration, do you think that within the time frame regulators will be more comfortable with broad-based financial PII in the cloud? Such that the investments in your origin platform better lines up with likely regulatory time frames. Just wondering if you think that we could bring those forward and see that move to public cloud start to accelerate.

Greg Adelson: Yeah. Hey, James. Good to hear from you. I think the short answer is, I would believe it’s way more of a possibility than it would have been two months ago. And so, you know, I don’t know what I don’t know, but I would say based on our conversations with regulators, which, you know, I think we’ve said on this call and other meetings that we literally meet with the FDA on a monthly basis here just because of the number of products. So we have a chance to have a lot of conversations on what we’re doing with not only the public cloud core, but also what we’ve done with other public cloud products. And so, you know, we’ve been able to educate them, you know, just as a reminder, Bano was the very first digital platform to be public cloud native.

So we’ve been educating them for six years on what we’ve done around here. So I think we have as good a chance as anybody to get them comfortable just because we have so much experience doing it. But, you know, the rest of it, I can’t answer definitively other than I think you’re right that, you know, we’re gonna with Trump in office and other changes that are being made, I think we have a better chance of making that happen.

James Faucette: Great. And then wanted to touch on Bano there. Just get a sense from you given your strategic and, you know, how the strategy may be evolving how we should be thinking about the mix between Bano retail and Bano business? And how that’s likely to evolve over the next few years?

Greg Adelson: I think, you know, obviously, right now, we’re about 20% penetrated. As I mentioned earlier, we have roughly a thousand Bano retail clients and 212 Bano business clients. And we continue to see just based on the install queue, which is about 115 in the install queue right now, you know, I mentioned I think it was Dave’s last call, you know, he and I talked about this and kinda joked. I still think there’ll be 65% to 70% penetration potentially, you know, higher, but that’s kinda what we think they’ll be from Bano Business into the retail platform. But one thing that could really drive those numbers up is what we’re doing with Move and the SMB because of how we’re rolling that out. And we’re kinda pushing that offering out to all of our Bano clients at one time.

So if they have they don’t have to have Bano business to actually have this application, which is something to note. But as we continue to build out feature parity and though nobody brought that up yet, I’m gonna go ahead and bring it up because it was something I talked about at the investor day. We are on track to do what I said we were gonna do back in September. To have feature parity with our largest digital competitors by this summer. And we’re actually ahead already on some things that I’ve seen especially as it goes to open banking, fintech integration, native apps, our back-office applications, and, of course, now what we’re doing in the SMB space. So all of those are gonna continue to be huge drivers for us with Bano and applications like Bano.

James Faucette: That’s great. Thanks, guys.

Operator: The next question comes from Dominick Gabriele with Compass Point. Please go ahead.

Dominick Gabriele: Hey, good morning, everybody. Thanks for taking the questions. Just first, what are some of the underlying factors at your partners that could accelerate the demand for your products? And is there a shift in where your clients are putting incremental dollars to work expanding their solutions that you provide? Thanks. I just wanna follow-up.

Greg Adelson: So Dominick, just to make sure I’m clear on the question, when you said partners, do you mean third-party partners?

Dominick Gabriele: I’m sorry. The banks and credit unions. Oh, so what could accelerate the demand for your products among the banks and credit unions?

Greg Adelson: Yeah. I mean, I think the demand is there. I mean, some of it is as you can imagine, some of it’s resources to implement on their side because there’s a lot of reeducation and, you know, there’s timing of things. There’s contract timing of, you know, actually, like I said, I’ve mentioned two customers I was with last week. One of them doesn’t have our digital product and we had a really long conversation about that. And I think they’re more interested than they’ve ever been. But it’s a timing thing. Right? Because they’re already in a contract and they gotta get out of it. But some of it is our ability to show the level of innovation and the level of execution and some of it is just timing on contracts and resources on their end and things like that.

But there isn’t anything inhibiting us from being successful, you know, other than time. And so but the things we are doing and the messaging that we are getting from our clients and consultants candidly continues to be very very positive. So we’re just putting the pedal to the metal, continuing to work on our level of execution, and continuing to have that as a big differentiator.

Mimi Carsley: And I would say rather opportunities for additional kind of demand. We’ve seen stabilization over the last three years from our survey results of what are the priorities of our FI and that continues to be, you know, getting deposits, loans, efficiencies. So all of our solutions certainly meet the sweet spot of those needs, but, you know, as we learn more about the administration, where they’re focused, could we see even an increased need for digital and payment center the administration continues to kinda push in those directions.

Dominick Gabriele: Yep. Perfect. And then just lastly, just talk about the pace of innovation in the space you and your peers, and then what products are seeing the most investment dollars to stay ahead of competition at Jack Henry & Associates, Inc. Thanks so much.

Greg Adelson: Yeah. Thank you for the question. I can’t really speak for the competition. So, you know, I mean, you know, just they’ll have to speak to whatever innovation that they’re focused on. You know, what we’ve continued to see is that the things that we have spent our time and money on we talked earlier about the public cloud and the work that we’re doing with that. But the real part that we’ve seen big differentiators in a level of innovation is in our digital platform, is in our account opening platform, in our pay center or our payments, you know, our faster payments module, what we’re doing in lending and our loan vantage solution and, you know, one other note of that, we are actually launching the first phase of our enterprise account origination solution this month.

Something that we’ve been working on for the last two and a half years. So you know, that’s where a lot of this innovation’s happening, fraud, obviously, in financial crimes. But when you think about, you know, digital lending fraud payments, that really are the big drivers of things that everybody’s looking to do. And usually, it starts with payments because payments and we’ve actually been educating our customers a lot on payment strategy and allowing them to see what payments can really do for them. Especially, you know, noninterest free income type opportunities. So that’s really where the focus has been for Jack Henry & Associates, Inc. And we’ll continue to be driving things through those solutions much like the Move application well.

Mimi Carsley: And, Greg, if I may add on, you know, one of the areas I think around it’s innovation and differentiation for Jack Henry & Associates, Inc. Not something one would traditionally think about around innovation, but the continued work around the one Jack Henry experience driving a better experience for our FIs and our partners, just to see and the efficiency that we’re getting as an organization that will enhance the service quality. Is a real differentiation from an experience relative to our competitors, and we’re seeing, you know, even more and more the focus on that as one of the key determinants of vendor selection.

Greg Adelson: Yeah. It’s a great point. We had a recent meeting with both the ISO ICBA and the ABA, and they both commented that service is being much more valued than in years past because there’s a little bit more of a level playing field. They view in APIs and things like that. So it’s a really good point. And our one Jack Henry initiative has really changed the dynamic of that. I would also throw in AI. Just while we’re on the subject. And the things that we’re doing internally with AI hand in some of our products.

Dominick Gabriele: Thank you both.

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

Andrew Schmidt: Hi, Greg. Hi, Mimi. Good morning. Thank you for taking my questions. I wanted to just dig into M&A for a second. I guess first, an end market M&A. I guess first, is there any convert merge revenue in the back half outlook? And then I think, you know, when we think about just ongoing revenues, maybe you could talk about what you’re seeing just from your customer base, how ConvertMerge balances the conversion. Now there’s a lot of questions around, you know, the, you know, benefits, the pros and cons of end market consolidation. If you’d speak to those things, that’d be helpful. Thank you so much.

Mimi Carsley: Good morning, Andrew. So we do have a modest amount of convert merge. We’ve seen a little bit of convert merge and consulting this year and helping some of our clients ready around their strategy and prepare for what we believe will be an increased pace of consolidation within our industry. I think more you’ll see the impact in FY 2026 than FY 2025. Just based on the timing of our fiscal year and when we think things will really start to get react. It’ll be interesting to see over the next quarter the pace of approvals, from the administration and the regulatory bodies. And I think that will be more of a telling sign of the pace to come.

Greg Adelson: Yeah. And I again, I referenced meeting with some customers, but one of the customers I met with was a winter merger that we had that is now a $20 billion institution after the merger. And they told me point blank that they plan to do three more acquisitions in the next two years. And so, you know, those are opportunities that, you know, as we win the winter merger, you know, we’re in the catbird seat obviously to continue to add on to that. So we think they’ll continue to be a fairly significant amount of M&A in the banking and credit union space after the next couple of years. Again, as we always do, we’re gearing up for that. And have conversations with our customers. And we actually get a lot of notifications before those happen, not necessarily who the institution is they’re acquiring, but the kind of the profile of that institution.

Andrew Schmidt: Got it. Super helpful. Thank you for that. And then maybe we could go back to your just your wins, the move up market. I know we’ve talked about this in the past, but if you talk about just the conversations with those large banks and credit unions that you’re winning, what’s driving those wins? Have the conversations evolved a little more recently? I know, obviously, business banking and treasury as you move up market is a bigger component. But other larger factors in terms of what’s driving this conversation?

Greg Adelson: Yeah. Thank you. I think you’re right on the products mix, but it really is back to what we’ve been talking about. You know, and I keep saying it, but I wanna make sure that you understand it. There is a level of the fact that we are winning these deals based on culture, service, innovation, strategy, and execution. Those five factors it just isn’t happening in the industry right now. And so people when they see what we are building and what we’ve been able to show from a level of execution, which is close to 90% now on our road map execution. There just isn’t anybody in the industry that’s doing what they say they’re gonna do. And then so there’s others that are getting there or trying to get there with strategies, but, you know, we’re executing on those strategies very well. I think the other big thing is and so, you know, that’s why I think we’ve been very successful have developed and really started to get ahead of our competition.

Andrew Schmidt: Sure. Thank you.

Operator: The next question comes from Ken Suchoski with Autonomous Research. Please go ahead.

Ken Suchoski: Hey. Good morning, Greg. Good morning. Thanks for taking the question. I just wanted to circle back on the back half revenue growth guidance. I think the implied growth is somewhere around 9%, which I think is the strongest sort of fiscal second-half growth rate that we’ve seen over the last handful of years. Is there anything different that stands out this year versus prior years that drives that stronger growth in the second half? And I guess from a modeling perspective, any sense of which segments are going to see the most acceleration? Thank you.

Mimi Carsley: Sure, Ken. So as we said, there’s a couple of things that are just relative to comp. That we think about cloud, for example, back half or we’re growing over. Sorry. Here, just the way it’s the year is playing out. I wouldn’t read too much into changing the color and pattern of the years going forward. This year, we just continue to see a back half acceleration. We think things like card, we see volumes pick up. We think the pace is and health of the US consumer will continue to be healthy, not in Uber and but healthy. And that’ll lead to increased payment volumes. And then just some of it is around the installation. Timing of some of our newer products. So you have things like Financial Crimes Defender, the consulting and installation that go on around that.

The continued success around digital, you know, that Greg talked about the number of wins and the pipeline that’s kinda in progress, particularly around Bano and Bano business. So I think all of that together makes us feel very comfortable about affirming the guidance. I know on paper, it looks like a very large number kind of in the back half, but we feel comfortable.

Ken Suchoski: Okay. Great. That’s really helpful, Mimi. And then maybe just a question on the payments business because we’re getting few questions on it. When you look at the network volumes in some of the large banks, they showed a couple hundred basis points of accelerating volume growth in the US in calendar 4Q versus calendar 3Q. Just looking at the payment segment, I think it accelerated about thirty basis points on a non-GAAP revenue growth basis over that same period. So I guess should we think about that line maybe being less correlated with overall market and network volume growth or, you know, maybe that kicks higher in the back half of the year. Any detail on that would be super helpful. Thank you.

Mimi Carsley: Sure. Ken, I would just remind everyone on the call that card is just one of three components of payments. And so while it is almost, you know, 60%, it’s still only one of three. So the volumes we’re seeing in card are certainly consistent with US debit trends. We’ve also seen strong related solutions that complement the card transaction itself, so we can continue to expect that in the back half of the year. Pay center that we’ve already talked about a little bit on this call, the payment processing. Through the acceleration of the new rails and innovation there works we’re continuing to see strong progress. Now is it meaningful but on a smaller number? Basis. And then you have things like bill pay, that are doing fine at, you know, 15% of the total segment, but are not kind of a huge grower kind of from a mature business perspective. So I would just remind people from a it’s not just all card transaction value.

Ken Suchoski: Okay. Thanks.

Operator: Again, if you have a question, please press star then one. Our next question comes from Dave Koning with Baird. Please go ahead.

Dave Koning: Yeah. Hey, guys. Thank you. And I guess my question, I guess it’s along some of the same lines. You know, when I look at payments, historically, Q3 has been flat to down. I think in the COVID year, it was up, but almost every quarter in Q3, it’s flat to down sequentially. And then Q4 is up, you know, a decent amount, maybe 3%, 4%, whatever. It seems like this year, you’re talking about a little more acceleration than normal. Is there something different about this year’s sequentially? Like, are you know, normally, Q3 would be flat to down just because retail debits just down a little bit in calendar Q1. But is there something different about the products being added or different things that are kinda differently affecting the sequential this year?

Greg Adelson: Yeah, Dave. This is Greg. So, you know, good observation. And, you know, I think the part that I would emphasize is really where Mimi was leading on the last question. It’s card is going to there’s nothing substantial about card being different in Q3. It’s probably fairly on pace to what we typically see. It really is the other products that are driving a lot of that opportunity. And so, you know, PayCentre is getting to the point to be very meaningful for us. As I mentioned before about what we’re doing not only with the rollout of clients but also what we’re doing on the send side of transactions and, you know, we have a couple of very large clients that were doing a large number of send transactions now. So I would, you know, I would just really more look at the balance of what’s happening or maybe the shift of the balance of what’s happening in our payment set.

Dave Koning: Gotcha. Alright. Now thank you. That’s helpful.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Vance Sherard for any closing remarks.

Vance Sherard: Thank you, Michael. In the upcoming weeks, management will attend six investor events, including availability at those events for in-person meetings. We would like to thank all Jack Henry & Associates, Inc. associates for their efforts and dedication, which contributed to our solid results. Thank you for joining us today. Michael, please provide the replay number.

Operator: The replay number for today’s call is 877-344-7529. And the access code is 4886307. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.