All right. All right, so, I'm gonna kick us off today. I'm Will Nance. I cover payments and fintech here at Goldman. And today, we're delighted to have Mimi Carsley, CFO and Treasurer of Jack Henry. She has more than thirty years of experience in the industry, and joined the company in twenty twenty-two, and is coming off the heels of their twenty twenty-four Investor Day last week. So Mimi, thanks for joining us.
My pleasure.
Let's jump right in. On the top line, you've been growing at a higher rate than competitors in the market, guiding to 78% adjusted revenue growth for 2025. What are the key drivers that enable you to continue to deliver that above-market growth rate?
So I think it's a combination of things. One, I think it's the products we have, you know, a vast portfolio of products, so not just reliance on one core system. You know, Jack Henry is a well-rounded financial technology company, so we do things in the core, so the ERP system, if you will, of banks and credit unions. But we also have our payments business, which is a combination of consumer and commercial businesses. And then we have our complementary, which is a suite of specialty products that banks and credit unions need. So I think it's that ability to cross-sell and not just be reliant on just new core wins. So it's both kind of what we offer, but it's also how we offer it.
Right.
And our reputation as a service excellence, you know, provider has really enabled us to differentiate ourselves in this marketplace, particularly in the last several years. And part of that, the blend of innovation plus the service, we're just seeing a lot of new momentum, and interest for our product line.
Yeah, and I you know, I wanna come back to the momentum, 'cause that was a big focus on the Investor Day last week. One of the things I wanted to hit on is just on the private cloud migration. You know, you've been very consistent in providing updates and just the pace of migrating your customer base over to your private cloud solution. When we look at the growth algorithm historically, how much of that on-prem to private cloud shift and the doubling of ARPU that that entails, how much has that impacted the total revenue growth, and just where are you in that process?
Yeah. So it's been a migration over a number of years, where right now we're at 73% hosted in the private Jack Henry data center environment. We get about, call it 40 to 50 financial institutions migrating a year, as you called out, aptly so, at about double, roughly double, from an ARPU perspective. And people might ask, "Well, why are people gonna pay you more to be hosted in your data center?" And the reality is, at the FI perspective, it's not really that much more, but no longer are they paying for having a CIO and having data recovery systems, and the hardware and the support infrastructure, and maintaining their own cyber insurance policies. And so instead, they can hand all of that off to Jack Henry to provide.
In exchange, they get to focus on kind of what is fundamental to their business and serving their account holders and members. So you know, surprisingly, when I first joined Jack Henry about two years ago, I'm like: "Who would want to run a data center in this day and age?
Yeah.
I mean, you're a regional and community-based financial institutions. You want to serve your members and your account holders and think about, you know, mortgages and think about lending and gathering deposits, and you know, you don't want to think about, like, hardware in the basement kind of situation, but you know, it's still a migration, and so what we tend to find, from a runway perspective, I think we're gonna cap out in the nineties, from a runway. That still gives us probably seven-plus years of runway. Now, people may jump to the public cloud and skip private cloud. People may go from private cloud to then public cloud, so I think it'll be a nice catalyst as that starts to tail off.
Yeah.
People will start jumping into the public cloud. But what we find is that catalyst, where people wanting to shift from what we call on-premise, which is they're hosting their own environment, to them joining inside the Jack Henry environment, is it tends to be, let's say, when their CIO retires or when they have a new need for hardware purchases, and it's, you know, a multimillion-dollar purchase price. Like, that tends to be the catalyst. And if they aren't located in somewhere where they're gonna get top tech talent, like close to a university or something like that, that also is another driver, just of their ability to run their own data center.
Yeah, that makes sense. Maybe we can take a step back and look at just the overall macro environment and, you know, realizing that the business is not that macro-sensitive, but I guess we usually talk about the spending environment, banks, you know, banks' spending priorities, how the macro impact is impacting the customer base. What do you see when you talk to customers?
Yeah, you know, the beauty of a 90% plus recurring revenue business is it's not very volatile.
Right.
And you know, that said, we do have probably about 25% of our business has some sensitivity to the macro conditions, particularly in our payments business. Now we're more heavily debit processing than we are credit processing. We have both, but we're more heavily debit, which tends to have a little bit more consistency versus the volatility of credit. But overall, you have long-term, highly recurring contracts. You know, what we're seeing is that, and we do an annual study, plus we look at things like Bank Director and others, and what we're hearing is that financial institutions plan to increase spending probably in that 6%-10% range. The reality is, no matter what their strategic challenge or priority is, technology is either the solution or it's the heart of the solution.
Right.
And because of the breadth of products and solutions we offer, we have something. So when it's deposit gathering is priority, well, we have things to help them with account opening and, you know, enhanced streamlines, you know, ways to reach out to customers and get more deposits or loans, the same way efficiency or if compliance or regulatory is on their mind. So, that's the nice thing about having a full suite of almost three hundred solutions, is we have anything that kind of-
Yeah.
Whatever is on their mind, we have something to help them with it.
I mean, is this even the right question to ask? I mean, schools of thought are, you know, banks are gonna spend more money on tech every year, and it's just what are they spending on. I think there's another school of thought that wants to think about more like an enterprise software spending cycle. So I mean, when you see it on the ground, how much does the macro and, actually impact what banks are willing to spend in any given year?
I don't think it really impacts it, you know, to a point where you would see, "Oh, gosh, they're doing everything," and then they're pulling back entirely.
Right.
Even when we had some of the banking disruption of SVB and others, you know, people maybe delayed a decision a month, but they can't delay.
Right.
We like to say that banks and credit unions have two choices: you're going to stay competitive or you're going to sell the institution. And so I don't really think that, taking their foot off of the gas from an innovation perspective, from a service offering perspective, is an option for them.
Sure.
The reality is their customers are geographically anywhere, particularly more of their customers want to have a digital engagement with them. They're not always walking into a branch, and so that requires innovation. That requires consistently, you know, staying competitive with the tier one banks. And to do so, that requires investments in technology.
Yeah, makes sense. So switching gears to the competitive environment, in addition to the private cloud migration, the consistent stream of core takeaways has been kind of a hallmark of the performance of the company. So are you seeing any meaningful shift in the competitive intensity in the business? And how do you think about just the sustainability of that, I think, elevated level of core wins that you saw last year?
So we just recently. We're June 30 fiscal year. We just closed our FY 2024. It was a fantastic year. It was a record year for sales. We had 57 new core wins, and when I say new core, it's like a completely new logo. It's not switching from one core platform to another core platform. This is someone who is not a Jack Henry core customer previously, and so it was a record number. Now, that, and of that, 15 were over a billion, so a really fantastic year. Now, it could have been a year where, you know, we had 45, and it could have been more lucrative. It just depends on the size. Now, the challenge with that is there's only so many banks that are up for contract renewal.
And of that, probably about half of those banks or credit unions have no intention to switch providers. So as much as we would love to say, like, "Oh, we're gonna do even more next year," like, it just varies from year to year. I would say we're on a multi-year journey of record sales success. Now, part of that is around the innovation we've been releasing and driving and talking about our tech modernization and where we're headed. Part we already discussed is around our services. So I think it's here to stay, particularly when the choice for an FI does not always look great from an innovation perspective, from a service perspective, and so we're really standing out within the FI community.
Now, people might say, "Well, then you have pricing pressure, you know, you have pricing power," and that doesn't always translate, unfortunately. Because each of the FIs typically hires a consultant for a new core engagement RFP. That consultant's job is to help them in their decision-making and, you know, kind of grind on price and terms. And so, it is not a pricing power dynamic for Jack Henry's favor, but we are getting new traction. And when people buy a core system, they don't buy core in a vacuum. So in general, when someone buys a new core system, they could buy 30 to 50 other complementary solutions, complementary plus payments.
Yeah
... solutions from Jack Henry. So it's a very valuable bundle to win a core.
Yeah. I think one of the notable things was. I think the entirety of the acceleration last year was focused on banks. Is it over $1 billion? Which was very notable, kind of the continued shift upmarket. So I guess specifically, as you talk about winning larger and larger banks, how do you think about that progression going forward?
Yeah, I mean, it's been a trend. If you look back five, you know, seven years, and you look at our market share, we do have in our investor day deck, our market share within peers of, financial institutions. You'll see that, we have almost, you know, over 46%, almost 50% of the credit unions of large size, and we have over 25% of the banks of, you know, material size. So, that grew from, you know, very small numbers, you know, like a handful of years ago, and we're continuing to gain market share every year. Now, part of that is helping our existing clients grow with us... and stay. So our largest client is, call it, roughly $35 billion today, for core system.
We have clients that are over $200 billion in complementary and payments, but in core systems, our largest today is roughly $35 billion, with an ambition to be $70 billion or $100 billion. So there's nothing prohibitive from our system. We've tested it. We can support a $100 billion bank plus. So it's just a question of proving it and getting traction. But we're having those sales calls every day, where, you know, 10 years ago, a $20 billion-sized institution wouldn't have thought to call Jack Henry. We're having those dialogues today and winning.
Yeah. Right. Okay, maybe moving on to the payment segment. The payment segment came in stronger than anticipated this past quarter. There's been a lot of focus just in the broader industry around the pace of U.S. transaction growth, and how that impacts both payments companies and issuer processing businesses like Jack Henry. You know, that's obviously more of a same store sales dynamic to the algorithm, but, you know, how do you think about some of the other drivers around that business going forward?
Yeah. So our payments business has three components to it. It has the card processing, so debit and credit processing. It has our enterprise payment business, so our ACH, remote deposit capture, other enterprise-worthy payments offerings. And then we have our payment center, our consumer and commercial. That's where you find our bill pay, our A2A, our P2P solutions, and all of our real-time payments, like Zelle and RTP and FedNow are in that. So it's a couple of things. One, you know, it's same-store sale growth, but it's also new. As we sign on new customers to the card processing, you get, you know, that on top of the same-store sales, so that gives a boost, as you always have customers coming out of the funnel into implementation. That helps.
We also have services, whether that be rewards or risk management, or fraud, so that helps as well. Those have been doing quite well recently, the adjacency services around credit processing and debit processing, and then we're seeing a lot of excitement around some of the real-time networks, and that momentum. Now, there's not a ton of dollar transaction flows in that processing yet. Most of the people, especially FedNow, RTP, are doing more receive than send, but there's a lot of. If you see the numbers that we release on our quarterlies, a lot of clients signing up.
And so the interesting thing is that momentum of how quickly it's getting to scale for things like FedNow is really compelling, but it's also interesting that as people sign up for FedNow, they're also signing up for RTP, if they hadn't.
Yeah.
So you're getting to this level of comfort in the market where people are signing into it. And so that combination of things is helping drive the payment segment.
Got it. That makes sense, and I do want to come back to the SMB strategy-
Yeah
... that was announced. But before we do that, maybe we can talk through the complementary solutions segment and kind of round out the discussion. I know there's so many solutions in this segment, it's kind of hard to make generalizations, but when you think about a typical FI partner over the life of a seven-year core contract, you know, what do you typically see in terms of utilization of complementary solutions, ongoing conversations to upsell the customer over time, and just kind of how does it fit into the broader-
Yeah
- relationship?
So the way I think about our complementary segment is, if it's not core and it's not payment, it must be like... It's like the other.
Right.
It's like kind of the other catch-all, if you will, and you're right, it is a basket of a lot of diverse things. A lot of things we just don't talk about, things like e-sign and image capture and, you know, there's a lot of nuts and bolts there that support the core system, but then there's a lot of really exciting kind of standalone specialty products, like our Financial Crimes Defender, or our Treasury Management solution. That's also where you find our digital suite of products, like Banno, so there are certainly some anchors, but it is a full portfolio there.
And so, you know, over the lifetime, Will, to your question on kind of how a customer matures, so if it's a core customer, as I mentioned, when they sign on, they tend to get a whole basket of things that support the core experience. So call that 30-50, you know, depending on who the customer is and the size. And then every year that they renew with us, they're talking to their customer relationship. They're seeing what new products they need, other, you know, solutions they need for their strategy. So we have over 55% of our banks and credit unions of size have been with us over 20 years, so really long. You know, which is why we have almost 99% ex-M&A of client retention.
But you could have a client that's been with us for 20 years, could have 100 of our products. So I would say of non-core customers, those who have a competitive core, the average is three complementary products. So most banks and credit unions in the U.S., you know, have at least one Jack Henry product, and so they're already starting to feel what it is to engage with Jack Henry, to experience our service with Jack Henry, which really helps when they're up for core renewal, because they already know.
Yeah, that makes sense. And you mentioned just the anchor products. Do you foresee a time in the future where the anchor products are kind of large enough to talk about in isolation?
Yeah. I mean, you know, the challenge is, you know, and you pointed it out earlier, Will, what's needed today may not be needed tomorrow.
Right.
You know, for a while, I'm sure it was all about branches and walking into branches. Today it's all about digital, right? It's about every FI customer will be a digital customer as well at some point in the future. We're sensitive to, you know, what we call out. We do call out certain stats like for new products, the number of contracts, the number that are live. We talk about our 12 million Banno customers, but we don't really break out individual revenue components-
Yep
... just because, you know, it-
Things change, yeah.
Once you tell someone something, they're gonna wanna know it every year, and it just may not be meaningful-
Yeah
... you know, every year.
Totally get it. You mentioned kind of selling to non-core customers, and one thing that's been a focus has been the strategy of selling Banno outside the base. Could you give us your latest thoughts on that sales motion and kind of what the plan is for broader distribution?
Yeah. So, I would say we've had tremendous traction with Banno inside the base. We - that's been a blend of migrating people who used to be on a product called NetTeller, plus people that were on competitive products. As I mentioned previously, we have over 12 million active users on Banno. So of our, roughly call it 1,700 core bank customers, I think the number, Vance, correct me if I'm wrong, but it's like around 850 Banno, roughly 850 Banno FIs. So well penetrated, established as like the, the preeminent digital banking suite for those institutions. But we have lots of need.
And the challenge has been, if you call it that, like, people who over the last three years have wanted to upgrade their digital experience because it is so paramount to a bank or credit union strategy, if they were at a different core, they sometimes had a very, you know, a challenge of getting a modern digital banking experience for their customers. And so it was part of the reason for some of the momentum of the wins of the core. And so we've just been really thoughtful of to not slow down that winning core train, because every core win, we get Banno, but we also want the core win. And so we're starting to go outside the base this calendar year.
You're gonna hear us do more about it, but it's going to be a very tactical, you know, start of like, what competitive cores we want to attack in what sequence, but eventually, we will be outside the base with Banno more broadly, but that also might be some bundling strategies as well.
Yeah, makes sense. Okay, I wanted to shift gears, talk about the tech modernization strategy. It was a big focus at the Investor Day. You know, can you maybe provide just high level the latest updates on this initiative and how you kind of see it going forward?
Sure. So it's something that is about five years in the making at this point. This is about... This is not a lift and shift, this is a complete rewrite to be public cloud native, API first, re-architecting kind of every one of our main kind of flagship products over time. And so it is rewriting a completely new core. The interesting thing now that we're further along in the journey, so we have some modules out. So in the core, if you think about a core system, about like 30 key bits of key functionality, you need to like recognize an account holder and then post a loan payment. And, you know, there's like, you know, settle at night. There's like 30 big buckets of functionality. So not only are we rewriting the core, but we're also componentizing it.
And so, some of those components are out today, like we have domestic wires out, international wires is coming. We also have something called entitlements, which is around authorizations. The beauty of our program on tech modernization is it's not just about the core. Like, each of our products, whether that be Financial Crimes Defender, like that was public cloud native. Banno, public cloud native. So like we're hitting everything will eventually be public cloud native in this way, and we're starting from a shared software services approach. So as we write things like entitlements, or we write things like wires, well, we used to have seven different wires platforms across the company. Like, we can consolidate, which is great from a margin expansion perspective, but it also helps from a development velocity perspective.
Right.
So as we write some of these components, we now are putting it into our existing cores today or putting it into other complementary products today. So, you know, we're seeing great traction. We're also starting to see other business cases for the need as we're developing that. So that's kind of how the Data Broker and the dashboarding of Executive Insights came out. So this is on top of your private cloud. It's around data aggregation services and how to get the core data and your payments data, and let's say you use, you know, 30 of our products, how do you get that data, your data, as an FI, into a place that is usable? And then you can have a reporting layer on top, but you can extract it if you want.
The FI owns their data, but how do you make data more ubiquitous for the FI? Because as we know, AI is coming, but without data, you can't have AI. So.
Right.
That came out of tech modernization as well.
Yeah. And then, if you think about just the financial impacts of that strategy, how do you think about just upfront investment and then sort of the benefits of that conversion whenever that does start in the industry?
Yeah. So Jack Henry has long spent about 14-15% of revenue in R&D. We think that that is kind of a sweet spot for us. We think that's probably 2X on a percentage basis, others in our industry, but that we think helps us for driving innovation. All of the tech modernization work has gone on under that 14-15%. We're at an exciting point as a CFO in this journey because it's not just kind of build it and it will come. We're starting to see opportunities to really monetize it.
Yeah. Okay, great. Okay, I wanted to shift gears, talk about the SMB strategy. I know it's one thing Greg has been really passionate about since he took over the helm, and we heard a little bit about it at the Investor Day. It seems like acquiring is a big part of that offering. I know Jack Henry is not becoming a merchant acquirer-
No
like some of your competitors have, but you have been notable among your peers in not really, I guess, distributing or partnering with merchant acquirers as much to distribute payments in this product. You know, maybe can you talk about how your thinking around that strategy has evolved around the, maybe the ability to monetize your distribution into the banking channel?
Yeah. For those who know less about this, we just put out a press release early last week about this. We announced a partnership with Moov, a payments platform provider, to offer through the FI, which is a key distinguishing point, through the FI, small business, you know, services, including eventually merchant acquiring. And the reason, you know, the reluctance, and Dave, you know, used to get beaten over the rails about why aren't - "When are you going to become a merchant acquiring? Everyone else is in the space.
Right.
For a while, it looked like, you know, maybe we didn't choose the right path, and then it looked like we were heroes for, you know, maybe staying out of the fray of it, but the reason why we didn't do it is we serve community and regional financial institutions. That's who we serve. We do not serve the bakery or the garage mechanic or the dry cleaner, and when you are in the merchant acquiring space, that's who you serve. The challenge, and that's kind of the challenge with that model, but what we did want to do is we wanted to keep our FIs at the hub of that relationship, and so today, most FIs, I think 78% in a recent study, said they plan to, you know, serve SMB markets. They wanted to serve. It's an underserved market.
And today, you start at the bank, right, or the credit union, and you start with a business account, and then you leave and, you know, because you're not served there. We want to bring those deposits back to the FI, and we want to put the FI at the hub of the strategy. Our strategy is a little bit more different. It's using. You know, there's a couple key components to it. We think the phone today, through tap to pay, is the acquiring, so it's no longer a hardware, you know, specific game. The other is, we think that most merchants will be multimodal in terms of they will be a multi-acquirer. That's not saying, "Okay, you need to switch off of an existing platform." It's an and strategy.
But the beauty part is, because of all the information we have in the core, we know that business. We can make it easy. We can make it a one-touch button to open an account, to set up and accept a payment, to send money for the business. And so it's bringing back. Again, it's bringing back that financial institution as a hub instead of, you know, being a deposit motel and losing out to a very fragmented industry. It's kind of bringing them back to the center of relevancy.
Yeah. No, the demo at Investor Day was very cool. I guess, as it relates to customer conversations, what has been the bank response to the product?
People are really excited because, you know, the number one need right now for a financial institution is gathering deposits. And small business, business departments, deposits are much larger in size than retail deposits. And so you have a vast market that's underserved, where trust is a really big component of that, where banks and credit unions can offer solutions to help a business. So it's a win-win. It helps the SMB, and it helps the FI.
Yeah. Okay, I wanted to talk through the margin profile. If we look at the 2025 guide, you're guiding to 25-40 basis points of margin expansion, kind of right around the long-term targets.
Right.
How do you see the trajectory of margins going forward, and where do you see further room to optimize in the business?
Yeah. So this past year, we closed at sixty basis points. We are proud of that. The guide for next year... You know, there's still a little uncertainty economically. There's still a little uncertainty on, you know, things impacting potentially, like payments, volumes. I feel very confident about the ability to deliver the 25 to 40. Obviously, we aspire for more, and we'll continue to focus on that. I think there's a lot of nice tailwinds that lead to margin expansion, over the next handful of years and beyond. One is we're towards the latter innings of, I would say, a period of investment.
So if we think about all of the innovation we've put into a number of products we've released recently, well, as those products have now come on in the last, call it eighteen months or so, the depreciation amortization clock starts, you know, and so sometimes there's a catch-up to revenue there. So as revenue's gonna grow over the next couple of years with those products, that becomes less of a tailwind, you know, a headwind from the amortization and depreciation element of it. But there's other nice continuation. The business inherently is a margin expansion story. We talked about the on-premise to private cloud. All that we're doing around the shared software component leads to margin expansion.
Doing a lot of cross-selling, refining our mix, thinking about product rationalization, all of that will lead to a margin expansion story going forward.
And I wanted to touch on the topic of product rationalization. I think you shared some stats at the Investor Day. I think it was kind of like, you know, 75% of the business, 70% of the revenue growing double digits, and you talked about kind of sunsetting or cash flowing some non-core products that maybe aren't growing as slow or maybe that are duplicative. And so when you talk about the product rationalization strategy overall, do you view this as sort of additive to that margin framework that you've discussed, or is this kind of part of how you get there?
I think it's additive. I think it's additive. I think the challenge is it may come lumpy, you know, as we think about portfolio life cycle, and we think about our product, and we look and evaluate each product to see the strategic fit as well as the financial performance trajectory. It may be a, you know, end of life, which we're gonna give clients two years' notice on. It may be just cash tailing it. It may be if it's a standalone business, but just isn't necessarily a business that we need to own and run, it may be an opportunity for a divestiture. But I don't see... unless it's something larger, I don't see it adding up in, like, any one quarter to something, like, really large-
Mm-hmm.
-that we'd call out, obviously. But, but it is something we're focused on.
Got it. Got a couple minutes left. One of the things I thought was notable, I think you guys sounded a lot more kind of bullish on the prospect of bank M&A. I think you said latter half of this year and certainly into the following year, and so kind of a two-part question: just what's kind of driving the optimism around bank M&A? And then second, I mean, it comes up a lot in conversations, and you've been really consistent in saying that M&A is usually a benefit to Jack Henry. I think for people who are less familiar with the story, that's often counterintuitive because it sounds like the industry is consolidating, so could you talk about the outlook for bank M&A, but then maybe more importantly, why is M&A a good thing for Jack Henry?
Sure. Well, it's hard to imagine it being less than it has been, the last couple of years. But, you know, we're starting to see and hear just kind of inklings here and there. We're starting to get feedback from some of our larger customers that are very inquisitive of asking about capacity for migration teams, telling us that they have some stuff that they're starting to look in the hopper about. So, you know, I think it's a couple of things. I think it's stability of the economy. I think you also have a resurgence in some of their, or their stocks that help from a currency-
Right
... for M&A perspective. I think regardless of what happens with the outcome of the election, I think you'll see M&A pick up. Now, it tends to be a little bit more M&A-friendly if it's Republican than Democrat, but either way, I suspect you're gonna start to see M&A pick up. The, you know, FIs are still very much looking for deposits, looking for niche growth strategies, and so M&A can be a key part of that strategy for them. You're right, in some ways, M&A is a great thing, and it's also, like, the revenue you don't want. So if a Jack Henry bank is acquired, typically the acquired bank, you know, keeps the system of record. So if it's one of our clients that gets acquired...
Now, sometimes it's a merger of equals, and sometimes we win what's called win a merger. But for the most part, if one of your customers is acquired, you, they terminate the contract, and you get kind of the remaining value life of the contract and deconversion fees. And that's a one-time. It's nice from a cash flow perspective, but it's one time. And then it creates a hole, you know, for future revenue, that the 7%-8% is a grow over on top of that headwind from that revenue hole that you just lost of deconversion. And I think people don't always think about that hole. They think about the deconversion as nice GAAP EPS or cash flow.
Right.
But it does create a hole going forward from a revenue perspective. But I think on the other side, most of our banks and credit unions tend to be the acquirer.
Mm-hmm.
and so on... for the most part, it helps us from a long-term perspective.
Great. Well, I think with that, we're out of time, but Mimi, thanks for joining us today.
Thank you so much, Will.
Appreciate it. It was great.
Good to see you again.