IT Services Practice here at RBC, and I am delighted to have Jack Henry joining us today. And from the company, we have Greg Adelson, who's the President and CEO. So, Greg, thank you so much for being here.
Yeah.
We were just chatting a second ago, kind of a walk down memory lane of all these historic companies that you've been a part of, and let me just be one of many, I'm sure, to congratulate you on your new role here as the CEO of Jack Henry.
Thank you.
I wanted to start there a little bit. I think you're the fifth in the company's history, and so it would be helpful, I think, to think about what your strategic priorities are for the organization. And then, as you've taken the helm, maybe some observations that you've seen since that transition has occurred.
Yeah, so first of all, thanks for having me. I think, for me, being the fifth CEO in a 48-year-old company that's been very successful, the first thing you do is look to not screw it up, right? So it starts with our people, and so everything we do is focused on making sure that our associates are engaged and are happy. So ensuring that our culture, our service reputation, which has been renowned for a long time in this industry, and now we have really an innovative focus on the technology that we've been developing, so if you take culture, service, innovation, and tie that to strategy and execution, those are key things for us. What is part of that strategy and execution? It's really around our tech modernization strategy that we announced a few years ago that we've been executing on.
I think we're going to get into that later.
Definitely.
So that's a big one. Our One Jack Henry initiative to allow our company to be much easier to work with in this space as far as customers, as far as prospects, as far as the consultants that we actually have to work with. So it's a way to build consistency in our organization throughout all of our groups. And then we also have things that I've been focused on, which is our SMB initiative, which we announced in our investor day with a company called Moov, where we're working with them as our acquirer processor and some of the nuances of that. And we may get into that later as well. And then lastly is what I call product rationalization, really looking at things that don't move the needle for our company, either strategically or in revenue growth or margin growth.
And honestly, it's making sure that our customers win. And so there's products that really just don't benefit our products that we need to take those dollars and reinvest in other things faster.
Yeah. Well, you've hit on a lot of things we're going to talk about, hopefully, over the next 25, 30 minutes. But one of the things that obviously is top of mind right now, as many things, I should say, but the current demand environment that you're seeing, if you can maybe touch on that. And maybe also through the lens of the Jack Henry Connect Conference, I think you had like 3,000 clients and prospects there. So well-timed to have this discussion. But anything you kind of gleaned out of the demand environment would be great.
Yeah. So a few things. So one, we just had that conference in the beginning of October, so it is very, very new. We really had actually over 4,000 participants between clients and prospects.
Sorry. I mean, it's not your short.
It was our largest ever, so I want to make sure that we still talk about that. But the demand environment really hasn't significantly changed. Our opportunities to win have changed. But really what it's all about is deposit growth, lending growth, operational efficiency, mitigating fraud. We're continuing to see those as the four biggest drivers. And we do two surveys ourselves. One is a Jack Henry-sponsored survey that we send out to CEOs, and one is sponsored by Bank Director that we actually help co-sponsor. And both of those surveys that were done in 2024, about six months apart, actually showed those four things in different orders, but those four items as the biggest focus for our institutions. And we continue to see that. The biggest piece is that each of those respondents are showing about a 6%-10% planned spending, technology spending for 2025.
So we're continuing to see 6%-10% spending in that environment. And what's important about that is that we believe that as the M&A market is going to continue to change and continue to evolve, especially with the change in administration, we believe that technology really is the answer for a lot of these smaller institutions to continue to thrive and survive. And so we'll continue to focus on that.
Yeah. I would be remiss if I didn't kind of follow up on that question a little bit in terms of the conversations that you're having with all of your leaders and partners and CEOs of these other financial institutions and other bank technology companies, for that matter. With the new administration, and now we have clarity there, it sounds like the banks are willing to spend based on kind of early reads. A lot of that incrementally came before some decisions had been made. And so I'm wondering what those conversations maybe feel like now and your expectations around regulation and otherwise.
So I'll go back to regulation. But as far as pent-up demand related to M&A, it's there. We had several of our larger institutions that called us literally the day after the election to say that they're getting a bunch of inbound calls. So I think a lot of folks were waiting to see the results of the election to determine next steps. But our larger institutions have a host of institutions that they're already talking to and talking about M&A. I truly believe M&A will continue to.
So these are larger institutions buying smaller banks?
Smaller banks, yes. There's also a combination. We have credit unions buying banks. We had 12 of those, I think, that happened last year in the country. I think we had three or four in our base. We have smaller institutions. We have mergers of equals. We actually just converted a couple of weeks ago a Jack Henry bank of X size merging with a competitor bank of X size and merger of equals. And then we have the bigger ones buying the smaller ones as well. So again, I think the ability for us to enable our smaller institutions to have the right technology to thrive and survive is a big part of our focus and strategy. Back to the regulatory comments. We're continuing to see much more regulatory scrutiny, both from the FDIC and also the CFPB.
And based on some comments that I received this week from some folks in Washington that I talked to, they strongly believe that the CFPB will have some better guardrails around them, even if it continues to exist in its current capacity. But it'll definitely have more of a guardrail, much like the Fed does today, whether it's a Board of Governors or things that are around that standpoint. So we'll see. But they truly believe, these folks truly believe that regulation will continue to get a little more in line than it is today.
Okay. Yeah. So how do we take that kind of demand cycle, M&A, pent-up, and the easing of regulatory, and think about if all those things kind of play out, how quickly do financial institutions typically move in terms of flow of investment and/or kind of that M&A cycle? It gets announced, but we might get ahead of ourselves in the modeling sometimes. But what's the realistic duration?
As of in 2024, that duration to even get approval had almost doubled. It had gone from a typical three, four-month time frame to a six- to eight-month time frame. If that comes back into its normalcy of three to four months, that's one. It really depends on the timing of where they want to implement. They may have other projects. They may have other things that are tied to the core integration that they want to move over. If they're moving, like we just did a Merger of Equals, and it took almost a year for them to actually make that happen from the time that they told us about it, the slot they took, the approval that they got, and when they went. It's really all over the board based on that.
But I would say the earliest is usually about 120 to 150 days.
Okay. Okay. Great. I wanted to just touch base just in the quarter, just a second, because one of the topics that came out of that, and you had a solid quarter, but there seemed to be a lot of questions about your core wins. Six, hey, that's not good enough. That was the mentality that I heard from a lot of investors. And some of that was weather and some of that's timing. But I guess more importantly, as you think about the confidence you're building around potentially getting to 45 or 50 of those core wins, what gives you so much confidence as you start off maybe a little slower than expected?
A couple of things. One, what people didn't do is that they only compared us to last year in the first quarter, when we did 10. If they went back two fiscal years before that, we did six and six. Three of the four fiscal years, we did six in the first quarter, which is typically our slowest quarter for core wins for this reason. It's our first fiscal quarter, so we're on a June 30th fiscal year end. We did 20 new core wins in the fourth quarter. If you take the two together, we average 13 over the two quarters, which is typically about what we see. No concerns on the first quarter number. We were already seeing some of those that rolled over get done already as we move forward.
We have the path and the pipeline to get to our traditional 50 to 55 wins, and we're tracking very, very well to make that happen. The one thing I do want to say is not all core deals are created equal.
I was going to ask you that. Yeah.
So last year, we sold 15 multibillion-dollar wins versus five the year before. In the first quarter of the six that we won, we sold three. One was a $7 billion institution. So seven $1 billion institutions that would be counted as seven core wins doesn't necessarily always equate to one $7 billion institution. So you can't look at the core wins exclusively as a comparative. You have to really look at the mix of the core wins to determine what that might mean meaningfully for the company down the road. And so we're continuing to see that. We're continuing to see opportunities up market. We've already closed some deals that we're very excited about as we move into this quarter. And so that pace of continuation and the things that we're going to talk about related to why we're winning those core deals is what we're excited about.
All right. Well, let's get into that. So it starts with kind of the tech modernization strategy. I guess the question just in the onset there is, are financial institutions truly in a position to go on that journey with you yet, or are they having conversations with you about what that journey might look like?
Yeah, both. So there's aspects of this journey that have immediate ramifications and opportunities. So let's use Banno, our digital application. So we've already moved Banno into the public cloud. It was actually built as a public cloud-native digital application, the only one in the space today of any size. And so if you look at that, those are parts of our tech modernization strategy. What we've done with Financial Crimes Defender, a new product that we've rolled out. What we've done with our PayCenter application, which is our payments hub, all public cloud-native products. So they see that the evolution of where we're going on the core is ultimately where they want it. So we're building a public cloud-native core.
We will have the deposit-only components for both consumer and commercial available in 2026, as we stated four years ago, that we would have that done in 2026, and we will, so they're seeing that not only do we have a strategy, but we're executing on the strategy, and I think when you look at the level of differentiation in the space right now, it is a lot about doing what you say you're going to do, and we have a good track record over the last several years of making that happen, so the journey has got immediate opportunities with certain products, and even some of the things that we built in the core, we built out 10 components already of core components. Two of those we're using internally for things like authorization management and exception item processing, two big things.
But we're already using those applications in other parts of our business, so what we call shared services to allow that to happen. But then we also have several components that we're starting to monetize. So we've talked about domestic and international wires. We've talked about data brokers. We just launched general ledgers. So we now have a separate general ledger that we've built that will start to sell inside and outside the Jack Henry core base to replace what they have today. It could be with us. It could be with a competitor. So those are the three key products as of today that have been built that will be monetized. The others have all started to be parts of the overall story.
Got it. Got it. And then as you pointed out earlier, not all cores are created equal. And you've also been winning a lot of larger banks than historically maybe has been the case. And so I'm assuming this is part of the catalyst, like this modernization, but maybe you could talk to that point as you gravitate towards some of these larger financial institutions. And what they're demanding maybe that you maybe didn't provide to them before or how that's really transitioning?
I think some of it has been reputational. We were always viewed as this smaller core provider. One of the things that folks didn't realize, and I brought this up a couple of earnings calls ago, but we now, over the last four years, we've seen our banking base grow by 27% asset size. So our average asset bank today is $1.3 billion. Our average credit union is $1.2 billion, and that's a 34% growth. And we were always viewed as that core provider that had $500 million-$750 million clients, so not only have they grown organically, but we've also acquired larger institutions. We now have close to 270 that are over $1 billion in our market, 25% of the market share, by the way. So we're just not the same, and we have to get people to see and think differently.
Tech modernization and a lot of the priorities that I mentioned early on are definitely drivers. But it really truly is about execution. We share roadmaps with our customers every six months. They get to see exactly what we're going to build out across all of our product sets. We publish those every August and every February. And we hold ourselves accountable for showing that level of execution. And a lot of the prospects that we've converted to new wins got frustrated with our competitors on their lack of execution. And so that's been a big difference. So you throw our good culture and our good service in with good execution and good strategy, we're winning more deals.
Well, you brought up competition. I would have thought maybe to ask that a little bit later in the depth chart. But it does feel like there's a lot of discussions in the market, as we hear it, around service and service qualities. And even though some that are maybe getting more recognition than you do in many instances around some larger financial institutions, they don't always seem to get the same kind of quality. So it might be a loaded question, but what are you hearing, good, bad, indifferent from the competitive set out there?
Yeah, so I'm not going to throw any shade.
Yeah, not at all.
But what I will say is that it's documented. It's documented by the ABA. It's documented by independent organizations that show that Jack Henry by far has the best service. And candidly, right now, it's not even close based on the scores. So again, service is great. And you want to make sure that you're providing that service because, again, we're dealing with technology. Things happen. But I really think the bigger differentiator for Jack Henry today is the level of innovative technology that we're building ourselves and distributing and, again, executing on time, which is a big driver for us.
Yep. I totally agree. I want to spend some time on cloud migration. I know you talked about where you're heading further down the road, but maybe taking a step back a little bit because there has been a pretty consistent trend where financial institutions are kind of migrating more critical functions, but it's historically been private and hybrid cloud, and I think you said in the last quarter, you signed six deals to kind of migrate more towards in-house, and so where is that trend in its kind of process? Are we getting pretty long in the tooth there, or is there still a pretty long runway, and is that something that is also important, or are they going to leapfrog into maybe your next step?
Yeah, great question. And I think it kind of has a couple of different aspects. So I'll cover it this way. So one, we're 74% today penetrated where we've taken in-house customers and moved that into the Jack Henry private cloud. So we're handling all of their infrastructure for them. And so that has been an evolution over time. We've been seeing about 40-45 of those happen every year. We're on pace, even though it was only six again in the first quarter, we're on pace to see 40-45 of those again this year. To answer your question, what's the runway on that? It's four plus years. We'll never get to 100%. There'll be some customers that won't make the move. There'll be some customers that wait to make the move and just go to the public cloud and skip the private cloud.
When we move a customer from the in-house environment to our private cloud, it's an average of 1.75 uptick in our revenue. So we charge them at the 1.75, a little bit higher on the banking side, a little bit lower on the credit union. But the mix is an average of 1.75%. What I would say is that as you see that start to move towards its path over the next four years, we'll in the same time be releasing, as I said, a deposit-only core in 2026 and other aspects of that core over the next couple of years past that. You're going to start to see people say, "I'm either going to move straight from in-house to the public cloud," or you're going to see people move from the private cloud to the public cloud.
We're anticipating that to be right about 20%-25% of an uplift than what we see today from being in the private cloud. We have some runway. I think the more important part for what becomes meaningful revenue for us is this. It is all of the new products that we've been rolling out and really seeing the uptick in financial crimes, in Banno Business, in our PayCenter PayHub product, what we're doing in lending, what we're doing in fraud, what we've done in Banno to date. Things along that line are truly the drivers. In our SMB strategy, by the way, which again is an important part of where we're going.
So I think all of those are going to be much more significant drivers than what you see either in the uplift from moving from in-house to private or from private to public.
Yep. Yep. I want to come back to that SMB strategy in one second because I do think that's super important. And I want to finish off the cloud for a second here. The question that does still come up in this kind of unbundling the core strategy is, is there kind of cannibalization of legacy business that is going to take place, and do you have to have some grow-over period? And you guys have been pretty consistent about how you've said not really the case, but it's still, I think we still get the question. So I'm sure you wouldn't mind kind of reiterating that.
I think the answer is still no. Here's the reasons why. One, we have a history of taking products and being able to move them to these newer products, right? In each of those cases, there's an uplift. I'll use Banno as an example. We moved from a product we had called NetTeller, and there's an uplift of about 20%, 25%, 30%, or even more in cases. We've seen that with our Bill Pay product when we moved off of our old legacy Bill Pay product to our iPay product. We see uplift in all those products. We see it in financial crimes, moving from Yellowhammer to financial crimes. We're used to seeing that. We're going to see an uplift in a, let's just use General Ledger.
If we replace General Ledger with an existing core General Ledger, even our own, they get a lot more functionality, even AI built into it. So they're going to pay more for that particular module to get that level of innovation. We'll continue to see that. So as we sell this and continue to build out products, we're selling components as individual components. We sell them as a bundle. Say they want to buy three or four of the components only. Or in the case of going up market, back to your question, we're talking to a couple of super regionals right now that are interested in three or four of the components to replace their existing homegrown cores that they have and to be able to replace, whether that be the General Ledger, whether that would be the exception item processing component, whether that be whatever.
There's opportunities to sell at a multitude of stages that allows us to keep that from being cannibalized. As we grow out, and then there'll be people that say, "Huh, I'm going to wait till the full core is ready." That becomes a different sales cycle as well.
Yep. Nope. That's a great response. It helps us get better at answering that question.
For sure. No, I get you.
Yeah. So let's talk about the SMB strategy a little bit. And you talked about your relationship or partnership you have with Moov. So maybe if you want to just kind of go through and elaborate on that a little bit would be great.
Yeah. Let me describe Move. So Move is a, well, first of all, let me make this clear. Move's CEO was the original CEO of Banno. So when we acquired Banno, he was the CEO of the company. We know him very well. His name is Wade Arnold. He built about five years ago now, he built the first public cloud-native acquirer processor platform in the country. And because if you think about all the acquiring platforms that are out there, they've all been out there for 20, 30, 40 years. And they've had evolution and custom, but they were never built as public cloud-native. So one, it's public cloud-native. Two, it sits in the Google Cloud with Jack Henry, literally next to us in the Google Cloud. So there's some nuances that we're able to do with just being in that level of close proximity.
The other part is that they've created some nuances to their product offering that nobody else has today. Here's a few examples. For the SMB themselves, these are four key things that SMB will get in the product offering from Jack Henry/Move. Just to be clear, Move is the acquirer processor and the underwriter. Jack Henry has no risk as far as this from an acquiring process. It's not what our competitors did with Worldpay and First Data. The other part is we're only selling to financial institutions. We are not selling around them. Our mission at Jack Henry is to ensure that our community and regional institutions stay and thrive, as I've said a couple of times. We are not selling around them. We're selling through them. There's ways that we're going to help them with that. Here's the product itself.
So, one, you will be able to, as an institution, you'll be able to offer this for free. We're not charging the institution for the product at all. Why? Because we're going to give them the opportunity to increase their SMB penetration in their own basic customers. Most of you may know this, but 98% of all SMBs are sole proprietors. And those sole proprietors are living inside of a retail account today inside the base. We will help them pull that retail account apart to have their typical retail, their own personal accounts to their two LLCs that they have and be able to charge that differently. So that gives them an opportunity. Plus, the average SMB deposit is about four and a half times that of a retail deposit. So those are two key things. For the SMB themselves, we're going to give them four key things.
One, as they get notification that this offering, and we're going to push this out through the Banno application, through Treasury applications and other things, they will get notification that this offering's available. They will fill out their information like they do typically, and they will have a one-button approval. They will literally get approved instantaneously or denied instantaneously. Why? Because we have all the information in the core. And the way that we're able to facilitate that is pretty sophisticated. I won't go into the level of detail here. But anyway, we have all that information. You get a single-button approval. Once they're approved, they will immediately get notified on their phone that they have the ability to start accepting payments in tap-to-pay. Both iOS phones and Android phones immediately will have access.
So if you think about a sole proprietor, regardless of whatever their role is, you'll have the opportunity to do that. That is significant for them to be able to do. No dongles, no point-of-sale devices they got to plug, whatever. The third thing, and I think it's huge for cash flow reasons, is Move has the ability to settle eight times a day. So if you think about today, when typical transactions occur, you wait three to five days to get your money in most cases, maybe in some cases two to four, but it's usually three to five. So you're waiting to get your money. Now, as those transactions occur, you're going to get your money eight times a day as it's occurring. The fourth is the biggest. And we've already done pilots on this.
So if you think about a small SMB that, again, is getting their money two to four days later, they have to go back and reconcile all the transactions that they did to actually equate to the balance that was deposited into their account. Whether it's 50 transactions or 500, they have to go back and reconcile that. What we've been able to do is that as the transactions occur, we actually load them onto their device, their phone device. So as the deposit, if they want eight deposits a day, as the deposit hits the accounts, we show all the transactions that occurred right underneath it. All they do is upload that into QuickBooks or Xero or whatever accounting package they're using, and the rest is history. So in our proof of concepts, we save the SMB about 20 to 25 hours a week in reconciliation time.
And we're actually filing for some patents on this as well based on how we're doing it. So those are the big things. I know I went into more detail.
No, that's fantastic.
This is a huge part of where we think future growth is coming for Jack Henry and how we're going to drive this in, take control of the SMB space because it's been completely ignored because nobody could really make these things happen. We're also going to allow them to be multi-acquirer, meaning that they already have existing relationships. They can continue to keep those relationships, so lots of opportunity there.
Yeah. It sounds a lot like you're trying to make sure that the bank stays forefront of all this stuff as opposed to all these other fintechs coming on the end around. And so reinstituting the kind of dominance that a financial institution kind of played when you go back and look at 20 years ago when they were kind of getting rid of the acquiring businesses. Now, a lot of that stuff sounds like.
One last stat that validates your point. Only 16% of SMBs actually bank in the bank that they have their retail accounts. So think about the sole proprietors. So if they have LLCs, unless they're hiding, if they actually have a small business, they're banking in a larger super regional or a tier one, only 16% banking community bank. So if we can change that number significantly for our community banks, that'll be a big driver too. By the way, we're working out arrangements with both Mastercard and Visa to help us with the marketing of these things. And so we're very excited about them participating and allowing us to focus on that.
That's wild. 16%. That's amazing. I did want to ask you a question about this developers conference. So we talked about the other one. This is, I think, the first one.
It is for us.
You've had, and it made me think, is this kind of a new sales approach in that you want to be in front of the developers to get kind of street cred, so to speak, in order to get them on board as the banks start to kind of make those decisions? Is that changed or is that just a different strategy for you?
Philosophically, it hasn't changed. Us doing this is the first time, and I'll get to that, so today it's actually happening today. It's a Jack Henry DevCon, but it's really about emphasizing what we've been talking about for years as our open philosophy, so we have a very open philosophy. At our client conference just a few weeks ago, we had 250 fintechs in our exhibit hall: 250, and a lot of them are competitors, and we allow them Q2s in there. I mean, anybody else that you want to talk about. Every competitor that we have is sitting there. We just don't allow them to sell core, but we let them anything else they're selling, we allow them in. Why? Because we truly are open. We truly allow those integrations, so one, it gets us closer to the fintechs and continues to build that relationship.
Two is that we have a lot of really smart technology people at our company led by our CTO, Ben Metz. And he's got a long following in the fintech world. And so people want to come and hear what he and the rest of the team are talking about. And what is Jack Henry looking at the future of technology and where is our development? We've hired people from MIT, Stanford, just recently, X, Facebook, you name them, we're hiring them. And they all want to come work for what we're building. So it gives us a chance to be able to share that. And then lastly, it's really about just building relationships in general, talking about best tools to use, best methodologies to use, whether we use it's what we call SAFe agile development or things along that line, just kind of talking through that in general.
But it's a way to get closer to the people that we want to work with.
That's great. So I know we're out of time, but it sounds like the journey is really just getting started in a lot of ways. I mean, it's been a company that's been around for a long time, but your journey is just getting started, and you got a lot. If we had a drop-down menu of everything you just said, it'd be a long one.
Yeah. Yeah. Yeah.
So this is good. This is a high-quality problem you got.
It is. And I'm super excited. And the biggest thing for us is about making sure that we stay focused and prioritized.
Totally. So thank you so much for being here. I really appreciate it.
Thank you very much.
All righty.