All right, great. Let's get started. Well, first I wanted to start off by thanking Greg Adelson, CEO of Jack Henry, for being here with us. We also are lucky to have Mimi Carsley, CFO of Jack Henry, here as well. So just to kick things off, it would be great to hear what's top of mind for you and your customers heading into 2025.
Yeah, I think for Jack Henry's perspective, I mean, we're highly focused on executing on our strategy. Our strategy really entails our tech modernization strategy, which is not just the breaking out of the core, but also a lot of the key public cloud-native products that we've rolled out, like Financial Crimes Defender and Banno, things along that line. We're highly focused on continuing our One Jack Henry initiative, our generative AI initiatives that we have, both from a product and from an operational efficiency standpoint. You know, I think we've recently announced the SMB strategy that we talked about at Investor Day. Very excited, and we're progressing very nicely on that. From a Jack Henry perspective, I'd say those are the key things.
Our clients, you know, really when you look at surveys over time, you know, we've continued to hear the same things that have been popping around for the last couple of years: deposit and lending growth, operational efficiency, for them utilizing some of our tools as well as things that they're doing within their businesses. And then, when you look at fraud mitigation, that's big on everybody's mind right now related to either faster payments and faster fraud or just fraud in general. So those kinda are coupled with the key things right now.
Got it. No, that's helpful. And just wanted to touch on the strong sales performance. It seems like quarter after quarter, year after year, record sales. So I just wanted to check in on what's driving the continued momentum here?
Yeah, I think it really comes down to a few things. We like to summarize it like this: we believe that between our culture, our customer service reputation, and the level of innovation that we are bringing to the industry right now, coupled with a strategy that we've articulated very well and are executing in measurable ways, those really are huge differentiators for us in the space, compared to what we've seen with the competition at this point in time. And we are on track. We feel very confident and on track to deliver another 50 to 55 competitive core wins this year. And again, those are part of the reasons why.
Got it. So about two months back, you guys had your annual customer conference here in Phoenix. So just wanted to, you know, touch on just how the demand environment is. I know it's very strong, but maybe just kinda relative to last year, you know, how does it feel?
Yeah. Large demand for Waymos. That was part of it. I will tell you that we continue to hear through our benchmark survey. I think most of you know that we sponsor a benchmark survey that goes out in January, February timeframe. Then there's also one that we co-sponsor with Bank Director, and that one goes out in the June, July timeframe. Both of those have strongly indicated a 5%-10% increase in technology spending in 2025. I think, honestly, the election results will only continue to help solidify that, based on, you know, less regulatory scrutiny as expected, M&A to pick up, things along that line. I think those all fit with what we've seen and heard from our customers. Again, the priorities that I had already mentioned.
And if I can add on to that, I mean, the client conference was tremendous excitement, positivity from our clients on their own financial health. We had a record number of prospects in attendance and just really fantastic conversations with those prospects. And that's our number one event in the year from a lead gen perspective. So the number of new leads that our sales and marketing team took away from that really exciting in terms of future growth of the pipeline.
Yeah. And just, we closed 17 of our 57 core deals came from customers or that were prospects at our client conference the year before. So, to Mimi's point, it is a great, fertile ground for us to bring in new opportunities.
No, absolutely. And just wanted to follow up on the one point you mentioned on the election. So I know that there's just you know general positive notions for the financial services industry with the incoming Trump administration, especially for you know maybe some faster approval times for bank M&A. But are there any other potential positives? I know there's some uncertainty for policies, but maybe around like taxes or anything like that.
Yeah. And I think Section 174, which has been a hot topic and one that's near and dear to Mimi's heart. So I'll let her take that one.
Yeah. So I think first of all, just having certainty on the outcome was something that I think everyone viewed as a positive. Not having ambiguity for several months post-election. So I think from a just moving forward perspective, removing that risk set helped a lot. The other is just, you know, as we talked about, as you mentioned, Nick, in terms of the M&A environment, not only being potentially more conducive, but also a faster decision timeframe, helps with a lot of our customers as they think about their growth strategies.
Then on the taxes front, we're really hoping that in the new session of Congress that they address the Section 174, which pertains to the R&D and the expense for tax purposes, not changing from a GAAP purposes, how that is expensed over time, but from a tax purposes, you used to have a full deductibility of that, research and development expense in the same year. And the last year and a half, what we've seen with the lack of that legislation being addressed is for a domestic company like Jack Henry, you have to have that expense over a five-year window. Even worse, if you're in an international company, you have that expense over a 15-year period. So addressing that, just the, I think everyone thought it would be addressed earlier.
The good news is in the last year in an operating environment, the Treasury and the government has put out more bulletins, so we have more certainty around it. So that's already mitigated the financial duress of, of the policy. But certainly addressing it on a more permanent basis, by having hopefully a Republican-controlled Congress, they'll address it not only temporary because the idea was that it would've been addressed, but then we'd have the same issue come back up three to five years from now. Hopefully, if they address it on a more permanent basis, that'll go away.
Got it. And then are there any free cash flow considerations for this potential change in tax policy or?
For sure. I mean, it would have, you know, and then it depends on when it would be implemented, what the timing is, how retroactive it would be. But it's pretty substantial. You know, I think when the legislation first came out, you had companies, everything from small businesses to Boeing. I think Boeing announced like a $900 million in extra taxes. So Jack Henry, we talked about $80 million in extra cash taxes. That was, you know, a Q3, Q4 fiscal year, two years ago. But we've seen kind of that duress continue, mitigated somewhat, as I said, from the clarity of the policy. But there's still a substantial, meaningful amount that if it were to be addressed kind of in the year, you would see a bump in free cash flow.
Got it. We'll keep an eye on that. So just moving into the segment, I mean, Jack Henry's performance in the core segment, you know, continues to impress everyone in the industry. 57 core wins last year. You know, it's hard to see anyone else coming close to that. So maybe just taking a step back, like high level, you know, like what is the sales pitch when you go into a new core prospect? Like why Jack Henry? You know, why are you guys, you know, winning so much more regularly versus your competitors?
Yeah, and I do think it goes back to what I said earlier. So, you know, part of the pitch, I'll tell you what I gave to 15 CEOs at our client conference, that I met with personally is that when you look across the industry and you look what has changed over the last five or six years in particular, so take Jack Henry or where we were six years ago. So we were always known as a great company with a great culture. Just for those of you who don't know, Jack Henry's never done a layoff in the history of our company. So our culture is incredible, and maintains average tenure 9.2 years.
So when you look at our culture and then you look at our customer service reputation, which goes unmatched, we've been told by the American Bankers Association that we lead the industry in customer service. But the thing that Jack Henry wasn't always known for in the past was our innovation. And we are now. So we are in the last five or six years not only talking about things, but executing on things. So it goes back to the comments I said. When you talk about a company that has culture, service, innovation, and a strategy that they've been executing on, there really isn't anybody in the space right now that can say that they're doing any of those things or at least not all of them. And so, that has really helped resonate with the opportunities, created more bigger opportunities as well.
You know, you, if you've referenced those 57, 15 of the 57 that we won last year were multi-billion dollar opportunities, and we just referenced in the six that we won in the first quarter, three of those were multi-billion, one of them being a $7 billion. So Jack Henry's core asset size for our customer base has significantly grown as well. Most people don't realize that we actually have 21 financial institutions that are over $15 billion in assets, our largest being $50 billion. And by the way, when we acquired that $50 billion institution, they were $16 billion. So they grew with us through our products, through our service, through the things that keep people with us, and that continues to be a big driver.
And the other big driver that I'll allude to is that of those $15 billion, or of those 15 multi-billion ones that we won, those are all creating opportunities for us on this other side of the M&A, right? So when you look at the M&A market and historically what's happened, the larger institutions have typically bought the smaller ones. And so as our average asset size has grown, which by the way, in the last four years, our average bank asset size has grown 27%. Our average credit union asset size has grown 34%. And we are now an average of $1.3 billion on the banks, $1.2 billion on the credit union. So putting all that into perspective, that creates a really nice opportunity for Jack Henry as we expect this M&A opportunity or this M&A space to accelerate.
Got it. No, and just following up on that. So when you think about, you know, Jack Henry continuing on this pace of, call it, you know, 50 core wins per year over the next few years, do you anticipate a greater share coming from the bank side versus the credit union side just given, I think, your market share on the credit union side for your target market is close to 50% and it's about half of that on the bank side? So is there opportunity to increase share there?
It's a great question. I think the real answer comes into the number of opportunities that truly happen every year. There's a lot more on the banking side. So, just to give you this as a perspective, from the 57 that we won last year, 37 of those were banks, 20 were credit unions. The other side is, is that when you start to look at asset size growing, once you get above about $10 billion in the credit union space, there's only a handful of credit unions that are over $10 billion in assets. And so there, there's a lot more. So as, as I think, as we look at the M&A market over time, it'll be really, you know, we'll, we'll have to see what happens in M&A and credit unions. As you also know, credit unions have been buying a lot of banks as well.
I think there was 12 of those last year. Putting all that into perspective, I would still expect the number of banks to, to exceed and maybe far exceed the number of opportunities on the credit union space, but we'll see what happens in the M&A market as times change.
That's the only other thing I would love to call out is when we talk about those 50-55 on an average given year, and the size can vary, right? Sometimes you could have a year of 45 that could be more financially interesting than a year of 55. It really depends on the profile of that cohort. But the other thing I would say is when Jack Henry talks about it, it is truly new logo wins. This is not moving from one of our products to another one of our products or what we call an in-to-out, which is on-premise to private cloud. This is truly a new sales opportunity.
Yeah. Got it. No, I'm definitely aware of the difference. And that makes the number all the more impressive. But just, touching back on the six core wins last quarter, I know that's pretty typical for Q1 given you have like a huge Q4 of like over 20 wins. But, you know, I know there were some delays last quarter because of some of the hurricanes, but is there any update on how new core wins have been trending in the quarter?
Yeah. I can't speak too much about Q2 at this point, but I can tell you that two of those that we mentioned that had slipped have now since been signed. So, you know, we're tracking, as I mentioned, you know, regardless of what number we end up in Q2, we are very confident in tracking to that 50 to 55 for the annual for the year.
Got it. And then just another follow-up on, you know, how things are trending, maybe without getting too specific into Q2, but I know that the core conversion implementations are pretty important for the back half of the year for Jack Henry in terms of the revenue acceleration. So any update in terms of how the implementations have been going, generally on track or?
Yeah, all on track. In fact, when you look at, and part of the reason why we've continued to reiterate guidance is that we already know the backlog for all of the second half of the year, our implementation slots, they are all filled. So, you know, the next question would be, well, what does that mean? Well, it means we have opportunities through M&A and other things to be able to add people to those slots, but the slots that we needed to fill for both banks and credit unions are filled. So that gives us a lot more ability to see into the future, but I'll give you an example, that is, Veterans Day weekend, we actually did seven core conversions in one weekend.
And so, most of those were on the banking side, including one M&A deal where it was a $4 billion Jack Henry institution with a $4 billion competitor institution that merged into an $8 billion now Jack Henry institution. And so we did that weekend as well. So the point is we can do more than one conversion in a weekend and we're staffed to be able to do that.
Great to hear. So just, moving to the tech modernization strategy, you know, it's been a few years since the strategy has been formally announced. But just taking a step back, can you just remind us, like, what the advantages are for customers for moving from the private cloud to a public cloud environment?
Yeah. So just one thing on the strategy itself, I'm very proud to announce that we are on track and actually in some cases ahead to deliver what we have promised on our earnings call about a year ago to deliver a deposit-only consumer and commercial public cloud native core. So you can say that multiple times.
Mm-hmm.
But that will be delivered in the first half of 2026 as we had promised. We had agreed to deliver it in 2026. We're now agreeing to deliver it in the first half of 2026. So that's number one. So very proud of that. We've completed 10 of the components that go into that strategy, and three of those are being monetized, as we spoke, Data Broker, General Ledger, and our Wires platform. Now back to your question, which I think is really important. The public cloud aspects, what's what was really advantages for our customers and why we think there's going to be even an upcharge for what we've seen, right, is that when you look at the feature functionality that we're adding to every one of these components that we rewrite, all have better features, all have more seamlessness to them.
Most of them have AI components built into the, to the strategy as well. So you're able to get that up tick. The second part is really, the ability for instant immediate scalability. So when you think about products that have ebbs and flows, you know, whether that be digital or other parts of the core that may ebb and flow based on holiday weekends or things like that, the seamlessness to be able to scale in the public cloud is far greater than what you can in a traditional data center. It's just, it just is. And we, we saw it over the weekend, in our digital applications. And then the third thing, which I think is really unique, well, actually there's two more things. The, the third thing would be, the ability to improve the SLA environment. So the standard SLA for core in this industry is 98.5%.
We believe we can get to three nines and maybe even better. And so people are gonna pay for that, that level of performance. That's another one. And then the last one is really the ability to innovate and innovate faster. So using Banno is a perfect example of what we do today in the public cloud because it was built public cloud native, six years ago. By the way, the only digital provider that was built public cloud native. And so when we look at what we're able to do with innovation, we actually can push to production, and we have done this as much as 300 x a week. 300x a week we can push to production. You can't do that in a non-cloud environment.
Got it. No, all tangible examples. So appreciate that. And maybe just going back to the revenue uplift for the, you know, better service, better uptime, better SLAs, all of that, how would you think about the revenue uplift once you get them to the, the public cloud?
Yeah. So, you know, we're estimating 20%-25% at this point in time. We feel pretty confident on that based on conversations because we actually have four customers identified, and we'll see by the time we get to 2026, but four as of today that have said that they want to be early adopters of the retail core that we're putting out in the early part of 2026. So we'll learn a lot more about that. But that's our estimate at this point, 2025.
Okay. Understood. And then you mentioned that you're on track to have the retail and consumer deposits in the public cloud in 2026. It's like how much more work needs to be done until like the majority of a customer's core would be in the public cloud?
Yeah. That's a great question. So, just ask the European cores how difficult it is to do the rest of it, right? So, the lending part and the other aspects of a core are really where it's, it becomes a lot more difficult. So based on where we are today, based on our plans and also, a few things that we're continuing to ebb and flow both, you know, within the overall project, I would expect that to be conservatively because I don't exactly know what I don't know yet. But I would say 24-30 months, post the implementation of the retail core, we would finish the rest of the other core. So right in that timeframe, 24-30 months.
Understood. So just moving along to the payment segment, your largest business, I know that there's like three high-level components. So maybe we could just ballpark the size of those: card processing, enterprise payments, and the PayCenter business. And then just thinking about like the relative growth contributions for each, I think some are a little faster, some are a little slower relative to the segments, 8%-9% target.
Yeah. So the card business is about 60% of that payments business, itself. The EPS, which includes remote deposit capture and ACH, is roughly 35-ish%, I believe, or no, like 25-ish%. Then, the bill pay and the PayCenter, so bill pay is in there, is roughly 15% of that. And so, you got that level of balance. I expect that level of continuity to be fairly consistent. The card business might be a little bit slower and the PayCenter, iPay and Payrailz business might be a little bit higher, over the next year. A lot of that's being driven by real-time payments, so we are one of the largest providers, so we have roughly 43% of the RTP clients that are live on the RTP network today and roughly 38% of the FedNow clients, over 300 on each of those.
We continue to see some significant growth, both from received transactions as well as now send transactions that we're starting to do, and seeing that. So I see some growth. I don't know what you would want to add to that.
Yeah. I think that's a good example. I mean, I think the debit, we're more heavily weighted towards debit than we are credit. So in that card space, and that's more tied to consumer sentiment versus some of the other solutions are gonna be more driven by some of the innovation that we're helping drive in some of the faster payments areas.
Understood. Thanks for that, Mimi. So just moving along to the complementary segment, it's comprised of, you know, your 1,700 core customers and call it 5,800 non-core customers with an average of three products. Like how do you dimensionalize that opportunity internally in terms of growth?
The one thing I would say, so all of those products can be sold into the core, and our. So the average core, the 57 that we talked about, over time, they may not come initially with that, but the average core take when we originally signed a deal is about 35 complementary and payment products that get attached to the core for a credit union and somewhere close to 50 for a bank. Our average across the board for all of that is 56 when you look at our customer base, 56 complementary and payment products. So that's an important aspect of all of those payments. When you look at the outside of the base of what used to be our ProfitStars strategy, which is now just called complementary, that three is a little bit of a misnomer. Here's why.
Because as we start to grow the number of integrations and products into a particular, you know, competitive core, so it may get to six or eight or nine. By the time they get to six or eight or nine, they become a Jack Henry core client, and then the number goes right back down. So it really is a little bit of a misnomer of that three and why that number doesn't change dramatically, as we drive. So back to your question about growth, I mean, I absolutely believe the growth will continue to come from those key products in that set, which includes Banno and all of digital. So digital isn't just Banno, by the way, but it's a large part of it.
Then you have financial crimes, and then you have a product that we're rolling out in January as a beta, which we've been working on for the last two and a half years called enterprise account opening. I'm sorry, Enterprise Account Origination, which includes an acquisition we did a few years ago called Bolts for open. What's called OpenAnywhere now is our product. So it takes the OpenAnywhere product and brings that together with our LoanVantage product, but we've created our LoanVantage product to now be a single platform for both consumer and commercial loans. So you take those three things together and it becomes the Enterprise Account Origination, and we're gonna roll that out in beta in January.
Oh, very exciting, and just wanted to go back to Banno. I know it's an important part of the segment's growth trajectory. I think you're about 60% penetrated on the retail side in terms of your core customers, and you got Banno business ramping, I think in like the 180 range. But how would you characterize the growth runway for Banno over the next few years and maybe just touching on outside the base terms?
Yeah. So I think the growth strategy is more predominant really in the credit union because there is a higher penetration in the banking space today. And a lot of that is just because of the time when we rolled out the credit union side, we didn't have some things that were really important to the credit unions. And there's a lot more competitiveness on the credit union. So huge opportunity on that. And we're already seeing a lot more wins in our Banno wins lately. So that's number one. Number two is though, as we have built out our strategy related to digital, Banno Business is what we call an add-on.
And so if you understand the way that we actually price our digital business is that there's a user fee regardless of what that is, doesn't matter, but there's a user fee that's kind of a flat for all of the retail customers. As they add Banno business, it's an add-on fee that goes to every single user regardless of whether that user ever turns on Banno business or utilizes it or not. So it's kind of the gift that keeps on giving kind of mindset, right? But we do that with a lot of other add-ons. So we have a video chat, we have Spanish, we have Finicity, which is a third-party aggregation tool that we utilize. And so those are other aspects that continue to drive that growth.
So I think there's a lot of, and by the way, Moov is all the SMB solution is all gonna be sold through Banno as well. So as we start to look at significant growth within the existing base as well as opportunities to sell within the existing core base, you know, there's a lot of excitement. Outside the core, we've had some challenges. I mentioned this on the earnings call. In particular, a couple of our key competitors haven't been as open as we had hoped or as they've articulated to others. And as a byproduct of that, we've received some irrational pricing to try to integrate with them. We have integration on a lot of our other products because it's very simple to integrate. There's very few things that have to get done.
In digital, especially our digital application, it's a lot more complicated and we need a lot more cooperation and a lot more work. We've found another way around this and we will continue to utilize it as part of our Moov strategy, but it has slowed down our progress of taking at least Banno outside the base.
Got it. Looks like we're getting close to being done with the session. So I just wanted to touch on, you know, the back half acceleration for revenue and the 2025 outlook and also the inflection in margins. I think guided to be up a little more than 100 basis points in the back half of the year. So what gives us line of sight into both of those?
Yeah. So a couple of things. One, I would continue to advise people to look at Jack Henry as an annual growth company and an annual margin producing company. The fluctuations year to year of how that 50-55 wins on the core segment and then a lot of other new product growth comes in after they install the core. So it just depends on the, that mix and profile of that cohort and when they're coming in, it just may create some variability quarter to quarter. So again, I really advise looking at a full year, but based on, as Greg mentioned, we have visibility of all the slots for the remainder of this year. So we know the profile, we know the mix, we know the timing. We feel quite comfortable that the revenue will come in the back half.
We also had some comps just, you know, made the first half year tougher, some easier comps in the back half of this year, so things like hardware was very strong first half last year. You know, and then you just have continuing growing, you know, things like Banno adding, you know, we have 12 million users adding, you know, about 200,000 users a month, continued growth, cloud usage, as you have those installs coming online, just tremendous growth as well. And so from a margin perspective, I think it'll align to the growth that you'll see in the back half, as well as when you get outside of Q2 is when we had our early volunteer kind of retirement program last year. And so you had the headcount drop in Q2, but then it really was a mobility, talent retention strategy.
It wasn't a riff, and so we added back the majority of those heads in the back half of last year. And so from a margin perspective, you know, we'll see that year over year is easier in the back half than it is in the first half of this year. So, you know, we know that it's a heavier weight to the back half this year than most years for us, but we feel good about it.
Got it. And thanks for all that color, Mimi. And so now that this is also an AI conference, I got a one question in, but there were some pretty encouraging examples of some increased efficiency from generative AI that you guys are seeing. We know it's early days, but like what are some areas of the business that you're most exciting for, increasing efficiency through generative AI? And do you see that to help you kind of limit head count growth in the future years? I know it's, I don't know, maybe like 1% this year, but.
Yeah. And I think that's one thing I was gonna say is we do a really good job of managing head count. We had 1% head count growth on a 7.4% revenue growth last year. And a lot of that is because we have a process in place already for process improvements. We have a group of almost 35% of our staff are at least Green Belts today across the organization. So we have a history of doing that. But on the AI side, we've already taken some aspects of development opportunities, QA-ing opportunities, moving code from old code to new code, things that we're doing. But we've also looked at things like HR. We've looked at legal.
We've looked at things that would allow us to be more efficient in our client base and get things done without having to add staff. And again, sometimes the early mover in some of these contracts is also a big opportunity as well. So that level of responsiveness. But the one thing that we've done to try to hammer this home is just this week we brought on a new Chief Data Officer. This individual has a significant amount of experience, technical experience and AI and process improvement experience. So he's going to help drive a lot of our AI across the company.
There's probably two examples I would use for AI that excites me at least. One is, we've done a proof of concept on our legal group, around contracts, which will improve the seamlessness, the efficiency, but also the ability to query the contracts' language, to be able to do advanced analytics on that and what-if cases. So that's an exciting area that'll also drive like maybe less, you know, time savings of contract entry, transaction, and just from the lawyers and everything else. So there's both some margin, but also some revenue and some insights from that. And then on the product side around Banno Conversations and the AI we're using there.
So we've been using machine learning and AI in our fraud tools and our algorithms for many years, but we now have in the AI conversations and AI Assist capability that, it's still humans in the middle, you know, humans in the loop, but it allows the FI back office or call center to kind of queue up what might be the next answer. And so some of the clients that we have that have been early adopters of that have found it incredible savings, as well as just culturally like excitement around using those tools. So more to come on the AI front for sure.
Got it. Very exciting updates here. Well, unfortunately, we are out of time with this session, but I wanna thank you both for making it out to Scottsdale. We really appreciate your time.
Thank you, Nick.
Thank you. Appreciate it, Nick.