Joining us today. My name is Ken Suchoski. I'm the US payments analyst at Autonomous Research. We're really excited to have Jack Henry here today. Joining us is Greg Adelson. Greg's been at Jack Henry for 14 years now. He joined the company back in 2011 as group president of iPay Solutions. He later became Jack Henry's Chief Operating Officer, and was named president in 2012. Greg took over as CEO last July. We had a conversation about this time last year.
Yeah.
Look forward to having another fun one. Greg, welcome. Thanks for doing this again.
For sure. Thanks for having me.
Great. If anyone in the audience has a question for Greg, feel free to use the pigeonhole link. I think there is a QR code in the handouts, so you can scan that and submit questions, and we will weave those in. Greg, maybe to start off, I mean, this is a generalist conference, so there might be some people who are less familiar with the Jack Henry story. Maybe give us a little bit of an overview of what Jack Henry does. Then, you have been in the CEO seat for a little under a year now. You know, how has it been? What surprised you the most? What has changed since you took over?
Yeah, thanks. First of all, we consider ourselves a well-rounded financial technology company that services the community and regional bank market. Typically, our client base is somewhere between, you know, 0 and $50 billion. $53 billion is our largest client today. We service clients up to $100 billion with other products and things along that line. Same thing on the credit union side as well. We're kind of broken into three reporting segments if you look at our business. We have core, complementary, and payments. To make it very easy, our payments really is comprised of our card business, our remote deposit capture business, our what we call our faster payments, our pay center side, and our bill pay business. Everything that's not core or payments falls into the complementary segment.
That's where the bulk that you'll find a lot of our solutions. Each of those are roughly about a third of our total revenue. If you look at it, payments is a little bit bigger than the other two at 37%, but roughly they're about a third, a third, and a third. To answer your question, I think the part that I would say that really kind of surprised me is that we have a very strong succession planning process at Jack Henry. Dave Foss, our former CEO, really set me up well for this role.
I think the transition into the role has actually surprised me, not only with how it's been approached with our associates and our clients and our shareholders, but just the things that have come up that I was prepared for based on how Dave had prepared me. That was a little bit of a surprise to me at this point in time. Now, there's only 10 minutes in, so we'll see. What has kind of changed is, I've been really focused on the SMB market. That's been something that I'm pretty passionate about and was as leading the payments group as well through many years at Jack Henry. My background is in payments. I have an accounting degree, but my background is in payments and kind of worked through a lot of that.
You know, we've brought in some new leaders at the company, both from outside and within the inside of the company. I think we are a very well-connected leadership team. I think one that most of our clients can actually see when we're going to meetings or our client conferences, and they comment that they do not normally see as connected of a leadership team as we have. I think those are two things that I was really focused on making sure that we had as I came into the role.
No, that's great. Maybe we could touch on the macro. I know it's getting a lot of focus from investors. You know, you guys called out some softness just on the macro front. I mean, how much of that is just broader macro weakness versus financial institutions being a little bit more cautious versus, you know, other things that you're seeing out there?
Yeah. I mean, we really, our macro weakness was really kind of tied to two things. One was what we call, is kind of our consulting part of our business.
Yeah.
Things that folks, when there's macro challenges, you can see them pull back on those kind of things. It is part of what we call our non-key revenue, things that we do to help support our clients grow, things along that line, you know, opportunities that they can slow down and delay. The other one really came from kind of our hardware sales, which is, again, another part of our non-key revenue line. What we end up doing is we sell hardware to our clients that are in an on-prem environment, and continue to operate in on-prem. We saw some slowdown, some folks that wanted to wait for either potential additional discounts or they are evaluating moving to our private cloud. In fact, one of them has actually moved to our private cloud since our earnings call, as part of that slowdown.
Really our macro environment, we're tied to things along that line.
Great. I guess on that point, Greg, you know, the non-recurring stuff, so some of it's hardware, some of it's, you know, the stuff that's implemented sort of post the, you know, a core onboarding. How much of that is contracted versus, you know, say, actually stopped? Meaning, you know, if it's contracted, it's actually gonna come through the numbers over the coming quarters as that stuff goes live.
Yeah. Great point. The other component of that would be what we call day two products.
Okay.
Things that are actually purchased at the time the core is purchased. A typical bank, when we win a competitive core, comes with about 50 different complementary and payment products along with the core on the banking side. A credit union, we see about 35. Sometimes when a contract is made for a core win and there is a complementary and payment product to happen, they may not be a coterminous timing for those products to be implemented. We call them day two because the core is implemented, and then it could be another year, two, or longer for some of those products to get implemented. What we saw with some of the products that were being purchased is that there was a delay in implementing those day two products. Again, they are all contracted.
We have the ability to start billing at a certain point in time if we want, but they have the ability to delay some of those implementations longer than they want. Honestly, that happens every single quarter, but we just saw it happening a little bit more frequently at the end of our Q3 because our fiscal year is June 30th, that we wanted to call it out at that point in time.
That's an interesting point. If they drag it out long enough, you guys can actually go in and enforce it.
Yeah.
In the contract. That's good to know. I guess, Greg, maybe we could touch on, so I think, I mean, the latest trends across the segments, I think you said the payments business is actually doing quite well in the first week of May. Visa spoke this morning. They said they saw relative stability in volumes through the month of May. You know, what are you guys seeing across the different segments so far?
Yeah. Specifically in our payments business, our card business, as you referenced, is about 60% of our overall payments business, which I referenced earlier, is 37% of Jack Henry's revenue in general. Yeah, May, with May almost over, is kind of hitting the forecasted levels that we expected. Still not necessarily at the same level as they may have been in a typical Q4 for us, but still holding steady. Consumer confidence has still been waning. As you know, consumer confidence tends to drive more credit transactions than debit transactions. The bulk of our card business is made up of debit. So 90% of our overall card business is debit revenue versus 10% is credit. About 98% of our transactions are debit.
That's where you see a little bit of that change maybe from a general Visa comments as well. The other part of our payments businesses are performing, you know, pretty much into normal standards. We typically see about 6-7% growth in our core business, 7-8% growth in our payments business, 8-9% in our complementary businesses. All of those are tracking relatively in line with what our expectations were.
Great. Maybe we could touch on hardware a little bit. Maybe just talk a little bit about the type of client that's still taking hardware. You know, I know this revenue line has come down over time. I think it's been a headwind for some time. How do we think about sort of the sustainability of the revenue there and what the impact is?
Yeah. It's not a focused part of our revenue stream for sure. To put it in perspective, 76% of our client base today lives in our private cloud. The clients that are buying hardware today are the 24% that are still on-prem. That's the bulk of what makes up that hardware purchases. You're gonna continue. Now, the good news is that a lot of those clients tend to be larger in size. As we do get them to move from their on-prem to our private cloud, that's got a bigger jump for us. They're also buying larger revenue from a hardware perspective as well. You're gonna continue to see that decline. That's a focus point of ours, to get folks to move into our private cloud. There's really a balance.
As I said earlier, a client that had delayed a hardware purchase has now made the decision to go to the private cloud. That's much better. That's 1.75 times the revenue than we had when they were on the on-prem before. That's a huge opportunity for us. You're gonna continue to see hardware going down with our opportunity to continue to drive the private cloud revenue.
You would actually be happy, I guess, if hardware comes down and those clients are converting to private because you get a 2X lift.
Exactly.
On the revenue side. All right. Great. And then I guess, okay, so I guess when you think about the hardware revenue, that's gonna diminish over time, presumably as that 76% goes to, I think you guys have talked about maybe 90% of the target.
Yeah. The goal would probably be somewhere between 90-92% based on the client base that we have. I mean, we'll never get 100%, but.
Right.
But,
Okay. So there's still, I guess, plenty of, you know, we're talking about five, six years of opportunity of shifting to the.
We move somewhere between 35 and 40 a year, over, so.
Okay. Great. I guess just one question that we got just on the hardware side or just this non-recurring revenue, you know, sort of softness, is that a leading indicator at all for the rest of the business? Is it, you know, do you still think that the processing side of the business, the core part of Jack Henry can still chug along despite some of the softness that you're seeing?
Oh, yeah. No, for sure. I mean, our core or what we call our key businesses, our key revenue, which is about 76% of our overall revenue, is still operating at close to a 10% growth rate, through the quarter. When you look at the overall growth percentages of what we had guided to and even kind of what we changed in our last guide, that key revenue continues to hum along. You know, we're winning more competitive core wins, new core deals than anybody in the industry by far. We're still on track to win 50 this year. Again, when you look at our top competitors, that's significantly more than what they're winning.
Great. All right. I think that's enough of the, the macro. Maybe we can get into some of the, the strategic discussion here. And that's a good segue, Greg, 'cause I wanted to touch on the competitive core wins. I think you're, you're guiding to, I, I think it's like 20-25 core wins in fiscal 4Q. I mean, that's, that's a, that's a big number. So what gives you visibility and confidence in hitting that number? And I guess the one thing we noticed as well was that, you know, the core wins look like they might be a little bit more seasonal.
Yep.
Is that also playing into that number?
Yeah. We typically, Q4 for us, again, June 30 being our fiscal close, is always a bigger quarter. I mean, it's the end of the year for the sales folks, and everybody's motivated to close as many as they can. Last year at this time, we closed 22 in Q4. It's not like it's an unusual number to see. Our visibility is very, very strong. I mean, we typically can forecast, literally by month, how well we're gonna do. Things may move by a month, and sometimes that month may end up being a different quarter. Some of those we knew that moved from Q3- Q4 gave us that level of visibility. Again, we tend to have a much larger Q4.
To answer the other part of your question though, what we are doing with our tech story, our opportunity to get to larger clients. If you look at the total asset size, so far through Q3, we had closed 28 core deals that totaled $30 billion in assets. Compared to last year, we sold 35 core deals in Q3, but only $21 billion in total assets, compared to two years ago when we closed 28 core deals at $14 billion in assets. We have more than doubled the asset size with fewer core wins through Q3, which proves the point of us continuing to go up market and continuing to win a lot larger of those deals.
I remember doing the math on the size per win, and it's definitely going up. I guess what's allowing Jack Henry to gain traction, right, as you look up market and, as you go up market? Is there anything prohibiting the company from having success, right, continuing to push up market?
Yeah. The win part is pretty, pretty easy 'cause this is what we're hearing from the prospects that we win. When you compare ourselves to our two biggest competitors in particular, they look at our culture and our service, which have been around a long, long time, but it's now our tech innovation. And not just the innovation that we are building, but the level of execution that we are delivering on. We actually share roadmaps with our clients, which is very unique, on an every six-month basis. Every August, every February, we publish roadmaps for 70 different product sets. These are the key products that are kind of driving the company's performance. Very unique, again, all shared proactively. We measure our success and our level of doing what we say we're gonna do kind of mindset. Nobody else does that.
Our consultants tell us this, and the clients and prospects tell us this. About five years ago when I started this as COO, we were only executing at about 69%. We are now at 91% execution as of last, the February, numbers. When you are able to couple the ability to provide customer service to the level that we do, but build technology and do what you say you are gonna do, it creates huge differentiation in the space compared to what they see today. Part of the big reasons why they make the move. There is a level of frustration with core providers of not doing what they say they are gonna do, and we are not, you know, we are not in that bucket right now.
No, the feedback on Jack Henry has always been pretty, pretty solid. I guess in terms of the unit economics on deals with larger customers, I mean, are there any major differences in terms of implementation timelines, I guess, number of products purchased? I think you mentioned 50 earlier in our conversation or just ACV per deal. I mean, the bank's, the size of the bank per win has gone up. Does that sort of correlate with sort of ACV size as well?
It, and, you know, I'm gonna answer your question in three different ways, which is yes, yes, and yes 'cause they all can be, you know, kind of depends on the answer. One is what is the take rate? You know, how many products did they actually buy? The larger the actual customer, they tend to be more of a best of breed kind of approach. Again, there tends to be more third parties that are attached than actually every product that that particular ex-core used to have. If it's one of our F friends and they buy a bunch of products from them today, then it's real easy to convert all those over.
If they have non-coterminous contracts because they buy some other third party for digital, some other third party for fraud, things along that line, it creates part of that day two challenge that I mentioned before. Those take rates are a big, big driver to whether and which model do we use. Do we use a per asset kind of model or a per account model? Why is that important? A $20 billion asset institution, depending on the number of, the percentage of retail accounts, can be much different than a highly commercial-based account or highly commercial-based bank. What that means is that if we're using per account pricing in a $20 billion commercial account or commercial-based client, that price point's gonna be a lot different than an asset-based one.
So it really is dependent on all three of those factors.
No, that's helpful, Greg. I guess cloud is obviously a big part of the growth at the company. I mean, how quickly can we start to see the public cloud services being adopted? And I know there's some revenue benefits from a client going from on-prem to private cloud, right? You mentioned the 1.75. I've heard 2X, you know, historically. How does public cloud, you know, is there a revenue lift, I guess, as you shift to public cloud? Is it, you know, how does that compare to that lift going from on-prem to private?
Yeah. And just to clarify, the 2X has actually kind of come down. Banking, there is an average of about two for banking and one and a half for credit union. The average overall for the two is 1.75. What we are seeing today, let me just back up what we are doing with our tech modernization and building out components. We are breaking up the core, basically building everything in a singular component process to allow those things to be implemented in a much easier fashion. That has been a big focus of ours for the last three years. We are ahead of where we said we were going to be. I mentioned that on the last earnings call, that we are about six months ahead of delivering a full deposit-only core in the public cloud.
We'll have that at about this time next year, versus at the end of the calendar year 2026, which was what we originally forecasted. The lift we believe is going to be, and we've only modeled it, right, 'cause we haven't moved anybody to that. What we believe is if the 1.75 happens from on-prem to private cloud, then there'll be about a 20%-25% bump from private cloud to public cloud. Let's just call it 2X if you move from on-prem to the public cloud directly. There are some clients that are waiting for that, as part of their reasons to go. Where we believe the huge opportunity for us is, being able to take this product set up market.
We're actually talking to institutions of over $100 billion in asset size right now that we've never talked to before. The reason why we're able to do that is they like the approach of being able to incrementally bring components on versus doing a full Big Bang core conversion and creating those as additional opportunities. A couple of these institutions are interested only in maybe our general ledger or our new domestic wires that we've come up with, and then kind of testing the waters with us versus moving everything to a full new core at that point in time.
I, I, that's helpful on the, the revenue lift. I guess what about the margins, Greg, as you think about as you shift to public cloud? I mean, what does that do to the margin profile of, of the business? Is there any sort of cost drag, I guess, as you think about, you know, still having to support that private cloud, but eventually, you know, you would sort of reduce that cost base and then eventually, you know, sort of bring everyone onto public cloud over time?
Yeah. It's a great point. We have a strategy that we're working towards, and some of them are contracts that we have in our existing data centers. Jack Henry wants to be out of the full data center business by 2030. We'll have colos, and the colos will hold our private cloud components that we still have, and we'll have the public cloud. Some of the margin drag is some of the timing delays of having operations in all three of those sites today through at least 2030. That's where we expect to see some nice lifts as we're able to get out of the full data center business and operate in the colo and the public cloud.
The other component is our ability to implement and lessen some of the duplication that we have when we're in the public cloud. Our ability to innovate faster, our ability to deliver things that happen in the public cloud is also a big part of where we think we'll do less duplication of efforts in what we do in some of our products today.
Great. Maybe we could touch on the tech modernization strategy. Maybe you can give us an update on where we are on that. I'm curious when, you know, can we start seeing greater adoption on that front? Related to that, Greg, I guess, where do you expect to see that adoption? Is it, you know, more on the bank side, the credit union side? Is it, you know, small versus large? You know, who do you expect to adopt that technology?
Let's start with the adoption. You know, we expect really we're getting interest from all levels. As I mentioned, we're talking to over $100 billion institutions. We're talking to our smallest institutions, both on the bank and the credit union side. It's really about how the level of innovation. Candidly, sometimes it's the age of the executive team at the bank or credit union, and how willing they are to move faster. Some of it has some legislative and regulatory type challenges where you're waiting for some of the regulators to kind of come along. One of the things about Jack Henry that most people don't know is that we were one of the first providers to be in the public cloud. When we built Banno in 2018, it was built public cloud native.
We've been operating in the public cloud since 2018. Again, we have 14 million users of our Banno platform. The regulators are comfortable with how Jack Henry operates. In fact, we've created some documentation that lives in Washington, DC right now based on our work with the regulators, and through that. We're very comfortable. The regulators are comfortable with us. It's the banks and credit unions, some of their regulators, that we kind of get over. Where are we? We've created 15 modules to date. About four of them are actually being commercialized and monetized, in a very slow fashion on purpose. Mostly it's domestic wires and international wires, what we call exception item processing, and then a general ledger.
Those are four really key components that we're starting to roll out to our client base and introducing to non-Jack Henry clients, as I mentioned before, a couple of these $100 billion opportunities. I mentioned that we will have the full retail deposit-only core available at this time next year. The other components that we built were really about creating more of a shared services mindset within Jack Henry. In years past, we operated kind of in a more independent setting where each business unit was building their product sets adhering to budgets and processes. We were building a lot of things multiple times the same. We do not do that anymore. The big part was to build it once and use it in multiple applications.
Again, back to your margin component or question and things along that line. What's important for everybody to know is that that shared services model is allowing us to, again, to innovate faster, and, and again, part of what I talked about earlier with the execution, but using something that we build in the company and using it across the organization. Authorization management is a perfect example. You have to build authorization management into every piece of technology that you have, but we used to build it in each of the pieces of technology individually. We do not do that anymore, and there is a whole host of opportunities that will continue to happen there. We are super excited about where we are. Customers have been kind of testing this in a, what we call a closed beta environment.
You know, we have less than 20 clients using the wires platform today. We have less than five using the General Ledger today. So, really early, but again, we're making a lot of progress on that.
It sounds like it's easier to trial and adopt. You might have clients coming in that say, "Hey, I wanna test out, you know, a couple modules, see how it goes," and then sort of build from there.
That's exactly what they're doing. Again, especially as you get up market. Not only existing clients that wanna test it, but a $150 billion institution that says, "You know what? You know, I'm interested in your general ledger and I'm interested in your wires because I think they're better than what I have today in my platform, but I don't wanna make a full core change." What components can I use that I need help on without having to make a full core change?
Right.
I think that'll actually be a part of our strategy, as you move forward and look at where opportunities really exist, is our ability to go into clients and look at gaps and features that they have with existing core providers, and be able to fill those gaps with our components.
Would they test that, I guess, in a sandbox or would it be?
They do both.
They would test it and then I guess run it parallel or I guess completely switch over?
Most of the time they run it parallel.
Run it parallel.
They definitely run it parallel. Yeah.
Okay. Great. Greg, I wanna touch on the SMB strategy. I mean, you guys spent a lot of time at the investor day talking about this. It's obviously a very important initiative for the company. Maybe just give us the latest thinking, sort of where are we on that, and how are you adding value to FIs on that front?
Yeah. So one of the things, as I mentioned earlier, that I was passionate about was making sure that we really drove an SMB strategy here at the company. You know, it's a market that's highly unpenetrated. And I want you to think more of the Stripe and the Square applications that are out there today when I describe, excuse me, what we are doing. That focus is really about two things. One is delivering a deposit, a growth opportunity and keeping the level of stickiness within the financial institutions. Again, Stripe, Square, taking deposits away from our financial institutions. Some of our competitors were actually selling around the institutions to their own clients. Our entire focus was to sell directly through the institutions. We presented this to both Mastercard and Visa very early on.
Both of them have agreed to be significant sponsors for us related to helping us market this within the base because, again, they are big believers in what we are doing to continue to keep financial institutions growing and thriving. Where are some of the key differentiators? What we wanted to do was create a solution set that would allow the sole proprietor or small, medium-sized business to operate differently than what they would see with a Stripe or a Square. We give four distinct advantages today in the market. One, instantaneous approval. Anybody that knows the SMB market knows that it usually takes two to three days to actually get an application approved. We give instantaneous approval or decline. Once you are, and we have technology that allows that to happen.
Once you are approved, you get a push to your phone, Android or iOS device, that allows you to start taking payments on your phone via tap to pay immediately. We will be the very first provider in the United States to offer both tap to pay on iOS and Android devices. By the way, our customers will start going live next month in June. That is kind of where we are in that process. The third one, eight settlement windows. If you think about an SMB today, they do their transactions, they usually wait two to three days to get their money. We have created eight settlement windows with Visa and Mastercard to help facilitate the ability to make that happen. Obviously, from a cash flow perspective, that is huge for the SMB.
The last part, something that we're actually patenting is what we call continuous account reconciliation. Continuous account reconciliation allows the SMB, when they get their deposit one, two, eight times a day, to actually see all the transactions that occurred that totaled that deposit show up on their Banno mobile app at the time the deposit hits. They no longer have to go back and manually reconcile all those transactions to see what totaled that particular deposit amount. Again, everything is very real-time, instantaneous. The ability to see those small deposits in every transaction, especially for a sole proprietor, on average during our POCs saved them five to six hours per week of time. Again, Visa, Mastercard, very excited about all that. In fact, Visa even talked about it on their last earnings call.
Great. Maybe we could switch over to payments. I know there's a few different businesses in that payment segment. Maybe just give us, you know, maybe talk about the size of each of those underlying businesses, the type of growth that they're seeing, and where you're seeing adoption across each of those.
Yeah. So roughly, we really haven't broken out as much of the payment business as we do with card. I'll just, I'll kind of start with that. First of all, card is 60% of the overall payment business, which I said was 37% of the overall revenue for Jack Henry. Within the payments business, our EPS, which is remote deposit capture and ACH origination, then our bill pay business and our pay center business, which is real-time payments. The other three together make up the 40% of the overall. They're roughly, if you look at bill pay and the remote deposit capture ACH business, they're roughly about the same size, with pay center being much smaller. If you look at a breakout, you're roughly in an average of 20 plus, 20 plus, and a smaller number.
The part that I will emphasize is that from a growth standpoint, the Pay Center business is growing the fastest for obvious reasons, the smallest, but also, lots of opportunity happening in that world. We actually have about 40% of all the real-time, through The Clearing House, all the real-time payment customers that are live today in the market are Jack Henry clients. We have about 43% of those. If you look at the FedNow and Zelle, we have over 400 clients live on both of those as well. We are a fairly large player already, with over 400 clients live on all three of those applications. The Bill Pay business is, you know, a business that continues to steady, much of a mid to lower single-digit growth. The Remote Deposit Capture business is somewhere in the same.
When you look at what is happening in the market today, specifically with what this administration wants to do with treasury checks and things along that line, and the eliminations, I think you're gonna start seeing a much larger increase in faster payment transactions. I think you're gonna see more use cases being created for send. Today, all of our clients that are live on the real-time payments network and the FedNow network, 98% of them are only receive only. There is not really a lot of money to be had in that other than kind of monthly fees and things along that line.
The send transactions and the use cases that can be created by the elimination of checks, the elimination of use cases for bill pay, things along that line is where I see what I would call nickels and dimes go to dollars. That's where I see the bigger opportunity. From a long-term perspective, I see our faster payments growth rate being much greater than anything else we have as the world starts to continue to change.
Yeah. That's helpful. I guess, Pay Center growing very quickly, I guess in terms of monetization, I guess do you think about it on a per transaction basis or is it some, you know, recurring?
There are three big components. One would be some one-time fees, one would be some recurring kind of monthly fees, and then there would be transaction fees based on, which is why the send transactions are going to be so much more important. They get charged on a receive, you know, if a bigger bank is moving money, if a client's moving money from a bigger bank to one of their, our banks, then there are transaction fees that are had there. Again, they are in nickels and dimes and not necessarily at anything that really moves the needle.
Okay. Great. Maybe digging into card a little bit. I mean, FIS announced that it's acquiring the issuer processing business of GPN, which I think, you know, it's primarily a credit issuer processor. Obviously, Jack Henry has done really well in terms of, competing, in card for, for quite some time. How does that acquisition change the competitive landscape, at all for Jack Henry?
Yeah. In 2015, I was still running our payments business and, actually, I looked at the GPN business, the old thesis business, back at that day as part of a decision I was making to change our direction of where we were going with card. When I looked at the platform, there were some things that were interesting, but the part that I did not like and the reason why I chose First Data at that time was that we could actually process our debit transactions and our credit transactions on the same platform. Today, that continues to be a big differentiator for us. You mentioned it is primarily a credit platform. FIS today has primarily a debit platform. There are still going to be two separate platforms that they are going to have to work through.
From our standpoint, we like the fact that we're operating on a single platform. So do our clients. It's been a big, big part of our win rates. As far as the market goes, remains to be seen. We haven't really seen anything significantly changed since the announcement. You know, there's some market freeze that may happen on their side, you know, with both client bases to kind of see what actually happens and where they go with it. Remains to be seen. To be really honest, you know, most of our card competition did not come from either one of them in the market. You know, we'll see if that changes going forward.
I know Jack Henry added, you know, credit issuer processing some time ago. I mean, did that make a meaningful difference, I guess, in the conversations with clients and the overall win rate for the company?
It, you know, it's, I don't want, won't say it's meaningful. Like I said, our card business is basically 90-10, right? If you look at debit to credit, but the part it does do is it allows, in some competitive situations, for folks to again agree, even depending on if, how big their credit business is, to at least have it with the same provider on the same platform. That has been a big part of winning even debit business with that as well. I will tell you there's a lot more focus going into some of the feature functionalities on our credit side, as we speak right now.
We're always looking to improve our modeling. I wanted to ask about complementary. I mean, it feels like a little bit of a black box because you have a lot in there in terms of, you know, Banno is in there. You have Financial Crimes Defender, you have fraud and AML solutions. I, we're not asking you to be specific, but I guess as we think about what's important for the complementary business, you know, and sort of the, you know, what's biggest and what's driving the most growth in that business, how should we think about that? Because it is one question that we get quite a bit.
Yeah. I mean, as I mentioned earlier, if it's not core and it's not payments, it's complementary. There are literally hundreds of products that live in that space. I would say you really kind of define it this way, which is digital is more than just Banno. Digital Banno or the digital component includes our treasury products. It includes a couple of other products that we've acquired over time that we've actually integrated into the digital offering into Banno. That would be the bulk of what makes up the complementary from a largest perspective. You have products like you mentioned Financial Crimes, Yellow Hammer, which is the predecessor to Financial Crimes. You have other AML and BSA type products that we have kind of focused in there.
You have our account opening solutions and you have our lending solutions that are also, those if you kind of break it into three separate categories, digital treasury, everything that falls into that, into our account opening and lending solutions into financial crime, AML, BSA. Those would be the three biggest categories.
No, that's super helpful. Maybe, maybe we could touch on bank M&A. I think we have about 10 minutes left. I wanna hit on a few topics. I mean, historically, how much of a net positive or negative has bank M&A been historically, Greg?
Historically, so for 40 years, right? It's been declining at, roughly 4% a year over 40 years. And we've continued to grow at, at decent, you know, growth rates from 5-6% to now 7-8%. At any point in time, and I don't wanna avoid your question, but at any point in time, it can be a headwind or it can be a tailwind depending on the time and, and who's being acquired. We were just talking earlier in a meeting earlier this morning about several years ago where we had two of our larger clients get acquired at one time. It became a headwind. We have continued to grow through that and, and doing really well. I think what positions Jack Henry better than where we were several years ago is what we talked about earlier on the sales side.
We are selling to larger clients than we ever have, and being more successful. We sold 23 institutions over $1 billion in the last 18 months compared to only seven the 18 months prior to that. So again, going upstream and not just $1 billion, but we're winning $7 billion and $10 billion customers that we did not win, you know, years ago, at that point in time. So I would say that as of right now, it's a slight tailwind, but at any point in time, you know, we, it depends on what got acquired and who.
Do you see, I guess, new administration, you know, they're sort of pro business, you know, pro, less regulation, obviously, you know, does that sort of change at all in terms of who's doing the acquiring, who's getting acquired, or is it, I mean, is it, I guess, hard to predict, but what's your, what's your best guess on that?
I don't think it changed who gets acquired or, or that. It more is about the timing of the acquisition. Under the prior administration, approvals for acquisitions would run somewhere between eight to 10 months. You know, right now they're going back to about four to six months, which is where they were previously under Trump. You know, we'll see it, you know, how that does, but that allows folks to move at a faster pace. That unknown that was happening, you know, in the past was causing a lot of challenges with getting slots to get conversions done, to get the approvals to get conversions done, so things along that line. Regulatory, less regulatory scrutiny in general is good for the banks, good for Jack Henry to a certain level.
You know, that's the part that remains to be seen is, you know, how much do they loosen the reins? Some of the CFPB type announcements and things like that have been good for Jack Henry. I will tell you that it is absolutely a daily ebb and flow with the announcements that happen and do not happen.
I wanted to ask one on, on margins, Greg. I mean, last quarter you saw very impressive margins across the business. You know, good margin expansion. I mean, how much of that outperformance was driven by mix, right? We talked about sort of lower hardware revenue, presumably, maybe some of that is lower margin versus just cost control across some of the discretionary items. And then I guess related to that, I mean, a lot of focus on macro, we do go into a slower environment. I mean, what are some of the areas that you could pull back on in terms of cost and OpEx?
Yeah. I'll save you. The hardware piece really is slight. I mean, the hardware itself has some margin, fairly much in line. We have a great relationship with IBM. It's really, that's a non-starter. It's all about how we operate. We are very, very intentional about how we do headcount. In fact, just to kind of give you the summary, we only had a 2% increase in headcount last year. We're targeting right now to be less than 1.5% increase in headcount, and we're still growing at 6-7% plus. The reason why is that we're very intentional about how we do business process automation, how we, you know, so kind of continuous improvement type initiatives. 35% of Jack Henry associates are trained in Kata in the classroom. The Toyota way of doing things.
We have a lot of black belts. We have a bunch of green belts. And so they're highly incented to find ways to do things better and faster. We like to use the model doing more with the same, instead of doing more with less. That is a lot different mindset for somebody that's thinking of a way to not thinking they're gonna lose their job because they found a better way to do something. That's number one. Number two is the One Jack Henry initiative that we started about five years ago when I became COO, which is about building things once across the company, doing things more looking like a single brand instead of a bunch of, you know, different groups and companies.
That's allowed us to be much more efficient in how we build our software, how we do things, literally just across the company operationally and using business process improvement. Lastly, talking about AI and what we've been able to do in AI, both inside the company and with what we're doing with our product sets, where we're adding more efficiency on a bunch of mundane tasks, but we're also building efficiency into not having to hire, you know, people at the same pace that other companies are. I think it's important to look at, you know, we zero base every single role. When you look at 1.5% growth rate for headcount, we're very, very cautious because what we don't want to do is we don't want to have mass layoffs. That's not the culture of Jack Henry.
By managing the way we do, we're able to hire strategically and at the right times without having to do layoffs to be able to get there.
I remember Dave used to say that he used to sign off on every hire. I think you guys are very careful about building out the headcount and making sure it's done at the right pace. Maybe we could touch on capital allocation here, Greg. I mean, you have been in the seat, CEO position for a little under a year now. Obviously you guys have thought about potentially divesting some products, some solutions. You know, how close are we to either, you know, selling those, sunsetting them, sort of milking them for cash? I guess have you guys made some decisions around that? Should we expect anything to come out in fiscal year 2026? I think you said you were working through the budget recently.
That's correct. One of the strategic initiatives that I wanted to put in play when I became CEO was really, I think we have too many products at Jack Henry. We have over 300-ish or close to 300-ish kind of SKUs. For us to be the company that we wanna be, which allows our institutions to win, we need a level of product rationalization. That has already started. We have already announced the sunset of several products that you've never heard of, because, you know, they just don't move the needle for us, thus they don't move the needle for our customers. We've announced some of those sunsets. One that you have heard of that we'll announce next month is NetTeller. We're at the process of almost moved everybody over to Banno, and so it's time to sunset that.
Those are about a two-year process for us when we announce a sunset because that's how we operate with our clients is to give them time and focus. Again, they respect that. Sunsetting has occurred, started to occur, and more will happen as we build out more newer products. We're not selling Yellow Hammer anymore. We have not sunset Yellow Hammer, but we're not selling it anymore. That's another example of a product. Cash cowing, there's several products that we've looked at where we've taken kind of our foot off the gas to put the resources other places to help us move faster. That's occurring. We have several, several being three, solution sets that we're looking as what we would call candidates for divestiture.
We will be starting processes in fiscal year 2026, and looking at an opportunity of where those might make sense, either strategic buyers or, or PE type firms. All three phases of product rationalization is underway.
A lot happening. I guess on the NetTeller front, I mean, is that, I forget, I do not know if you know how many clients are still on that.
Less than 100.
Less than 100. Okay. I guess there's, there's a remind us of the lift, I guess as you convert those to Banno, is it?
Yeah. We see anywhere from 20%-25% lift, and most of those have occurred. Again, there's still, because there was over 1,000 at one time. Yeah.
Right. Right. Totally. So you're working, working through that. Maybe, maybe last couple of questions here. We have two minutes left. I mean, I wanted to ask about the top line growth of the business. I mean, this year I think you'll be close to that sort of 6-6.5% range for fiscal year 2025 on a non-GAAP revenue basis. The prior couple of years, I think you were closer to 7-8%. Obviously some macro impacts here, but the core business still doing fine. I guess I'm curious to get your thoughts on, you know, whether we could see Jack Henry return to that type of growth over the next fiscal year, and just maybe give us a sense of the sustainability of this growth. You're obviously growing faster than peers.
I mean, is this something that we're still gonna be talking about in three, four, five years down the road, and any puts and takes on what you might push you above that sort of 7-8% range?
Yeah. And I, I think, you know, we're, we're in the budgeting process for fiscal year 2026 right now. I mean, you, you know, I can't give you any real, real guidance there. I can tell you that we're still gonna be cautious about some of the things that are happening in the macro environment, some things that could, you know, again, a $4 million push in hardware last quarter was 80 basis points, right? It is a significant movement in just for a small amount of money for a $2.3 billion company. Part of what you'll see is some changing in how we do guidance, and kind of how we look at some of the ranges to kind of help with some of that.
To answer your question, I mean, we are highly incented, the entire leadership team, but specifically myself and Mimi, our CFO, for revenue growth and for margin expansion. Those are the two biggest things that we think align perfectly with what shareholders are looking for. We also, you know, measure ROIC as well, but that's not one of the exact metrics today. The reality is, all of the things that we've been working on, the SMB strategy, the tech modernization strategy, the individual product sets that we've talked about, financial crimes, Banno business, applications in our payments piece in general, those are all things that we are very confident will continue to help us differentiate and win for years to come. Does it happen in 2026?
I don't know if it all happens in 2026, but over the next five years, there's, again, there's nobody doing what we are doing right now. Even if our competitors take a pivot, they got some time to catch up on some of that stuff as well.
Absolutely. All right, Greg, I think we're up against the clock here, so we'll have to leave it there. Thank you so much for doing this. It's great to see you again and good luck with the second year as CEO.
Yeah. Thank you very much. I appreciate you having me.
All right. Thanks everyone for joining. Really appreciate it.