All right. Good morning, everybody. We're gonna go ahead and get started. My name's Madeline Sturm. I'm the payments and fintech analyst here at Raymond James. I'm happy to be joined by Jack Henry President and CEO, Greg Adelson. It's great to, great to have you here.
Yeah, good to have me or good to be here with you, Madeline.
Awesome. I wanted to kick things off here and just. Sorry, I have a mic problem.
I raised it. Is that better?
Off here for those in the audience that are less familiar with Jack Henry, can you just give a overview of the companies, what you do, and customers you serve?
Yeah. We consider ourself a company that builds technology for banks and credit unions. We do everything from a core processing solution to all types of payment solutions, to all types of complimentary solutions. really everything that runs the bank from the deposit side to the lending side and everything in between, that's what we do. We operate in three segments, core payments and complimentary, and that's how we report. We're actually be our 50th year this year on June the second, 50th year as a company and 40th as a publicly traded company.
Okay, that's great. I wanted to dive into what's been the most topical debate in the market recently, and of course that's AI. Would love to just hear your kind of high-level thoughts, how you think about, you know, AI, both, you know, from an opportunity standpoint, but also which risks you're assessing as it relates to AI?
Yeah. It's the number one question that we're being asked for sure.
Mm-hmm.
We actually consider it both, and I'll tell you that we think it's more of an opportunity than a threat. I'll get to the threat component in a second. We've been operating with AI for about 3.5 years at Jack Henry. We built a really strong foundational, kind of a baseline of what we call a responsibly bold and balanced approach. Getting our chief risk officer, our CISO, and the regulators involved with us as we built out the foundation of how we were going to operate in an AI environment. Right now, today, we have over 100 tools that we're using within the company, that we've been approved, that allows our teams to have a level of flexibility.
We change out the LLMs literally quarterly based on the higher performer LLMs and how we operate on those. We have over 500 use cases that we've been working through, a variety of ROIs and a variety of different opportunities there. Things all the way from legal, where we've actually had 58% of our contracts never even touched an attorney in a quarter, to HR improvements, to customer service improvements, to 70% development execution improvements on what we've done since we've incorporated that. We actually just had, you know, a lot of vibe coding that's going on today within the organization, and we just had somebody over the weekend code something in Claude coding in one hour that used to take, you know, several days. We're using it.
We think it's gonna be a huge opportunity for us to continue to do what we're pretty proud of is our level of innovation. We drive our company on culture, service, innovation, strategy, and execution. Those five words as a differentiator in the space. From a competitive threat, you know, I'm gonna tell you that there's a lot of other industries that people are gonna wanna pick on.
Mm-hmm
... than the banking industry to try to get in, based on the regulatory scrutiny and the things that you need to do with network certifications and a variety of things that happen with custom that you build into a core component. Could there be things in the complimentary segment that, you know, maybe get infiltrated? Absolutely. That happens today. There's fintechs every day building out a variety of different solution sets that are trying to infiltrate and get into the distribution channel of a core processor. That's what we bring to the fintech. We bring, you know, lots of banks and credit unions out to the open market. Today, Jack Henry embraces that, and we have for the last 50 years.
We have 1,100 fintechs that are integrated at some part of our company, all the way from the core to the payment side, and in between there. We're gonna continue to embrace that, and we'll continue to see things that, you know, potentially are opportunities for us to partner with or even acquire as those are built. The part that I wanna tell everybody here is that we are very far down the AI road ourself, I don't see anything that's going to be done or built that we won't be on top of. It's only gonna make us a better company as well.
Okay. Yeah, that's very helpful color. If you could just touch on kinda your pricing model, what does a typical Jack Henry contract look like? What's the duration? Just remind investors, you know, kind of breakdown between or if you have any exposure at all, I guess, to seat-based pricing?
Yeah. We don't do any seat-based licensing at all, so there isn't any exposure there. It really depends on the type of contract. A core contract typically is six to seven years. Most of the time those are account-based priced and sometimes asset based, but most of the time they're account-based priced. You have payment contracts that are typically three to five years, complimentary product contracts that are typically three to five years. There are a lot of customers that like to have co-terminus contracts. If you sign a six to seven year deal and you throw in, we typically see 50 different products that go with a bank deal and about 35 with a credit union deal, and you'll see a level of co-terminus there where-
Mm-hmm
... the payment contract may be a six or seven-year contract instead of the typical three to five, depending on the particular client and their thing. As I said before, no exposure to seat-based licensing.
Mm-hmm.
Typically, you know, everything else is transaction based or what we call subscriber based.
Mm-hmm.
There isn't anything that's seat based.
Okay. I know, you know, I've been following the company for a little bit, maybe behind the scenes until recently, but I've always known you guys as a company that keeps a really good pulse on the customer market trends, do a lot of conferences, surveys, things of that nature. Would love to just hear what you're seeing from overall bank tech spending environment and macro trends.
To your point, we actually either sponsor ourselves or co-sponsor, three different surveys throughout the year. Actually, ours is in process right now that we sponsor that go out to bank and credit union CEOs. Then we do one with Bank Director, and we do one with Cornerstone, or Cornerstone just had one that came out. Each year, each milestone throughout 2025, actually the amount of expectation of spend in our space increased. During our survey, it was around 5% was the average. The Bank Director one was 6%-8%, and the Cornerstone one that just came out was closer to 10% of an increase in spend in our space. A lot of that is for the reasons we were talking about.
The need to innovate and to drive opportunity inside the bank or credit union is driven by technology. It's not driven by people.
Mm-hmm.
You know, our banks and credit unions rely on Jack Henry to provide those type of services. A lot of them don't have the same staff that they would need or the larger banks have to be able to go facilitate that, so they rely on Jack Henry to provide those type of solutions to them. In the survey that just came out by Cornerstone, it was about 84% on the banks and 83% on the credit unions that expected to have an increase in spend in 2026, and again, the average was close to 10%.
Okay. Is that pretty typical in a standard year is about that 10% range?
No, no. Great question. Over the last couple years it was really more around the 3%-5%.
Oh
was the average, so it's almost doubled, from a year ago. We're starting to see that play out in our pipelines and the opportunities that we have, really in all three of our segments.
That's great. I did wanna dive in a little bit to each of the segments, starting with core. There's been a, you know, very well documented competitor that's going through a core migration consolidation phase. You know, it's viewed that this could potentially be a tailwind for Jack Henry. I mean, how are you know, changing the organization to just make sure that you're capturing the, you know, potential opportunity that this presents and, you know, what gives you kinda confidence, what are you seeing in the pipeline that makes you think, "Okay, this could be a real tailwind for us"?
Yeah, let's go back to our last quarter reported.
Mm-hmm.
We did 22 new competitive core wins compared to 11 last year during that quarter. Eight of those came from that competitor in question. You know, none of them were part of the announcement that they made just recently.
Mm-hmm
... because these, you know, to sell a core deal it takes anywhere from 10 to 12 months on average to win, and then it's another, depending on the timeframe, you know, 12 to 18 months to actually implement. The timeframes of these new core win opportunities will happen in fiscal, late fiscal 2027 or 2028 for us. We're a June 30th fiscal year. From that standpoint, what are we doing? It's the number one priority at the company right now.
Mm-hmm.
You know, this particular competitor has announced that they're gonna consolidate from 16 cores down to five, creates a nice opportunity with roughly 1,400 customers in play. It, you know, it is getting attention from all aspects of our business. Our sales, our operations, our legal, our finance teams literally meet once a week to go through various things that we can do to accelerate and create the opportunities that we need and want. Right now we have over 110 opportunities just in the core pipeline from 90 days ago.
Mm
... when the announcement came. We have a lot of opportunities in payments and complementary, as I said before. I expect that number to increase as the amount of time, you know, kinda lags with announcements that they've made, promises that they've made, you know, which creates, you know, some pause from some clients that say, "Hey, I'm gonna give them a chance to prove out what they say they're gonna do.
Mm-hmm.
That's fine. Our pipeline opportunities are moving fast, and I expect us to... Our typical win rate for a year is about 50 new core wins a year. This is an important distinction just so for some of you that don't know. These are 100% competitive takeaways. They're not moving from a Jack Henry core to another Jack Henry core. We have three banking cores, one credit union, we don't announce those as competitive wins 'cause they're not. They're already Jack Henry clients. These are logo changes for us, and we average about 50 a year. We will do north of 50 this year.
Okay. Interesting. I, one of the things I often get asked is the market in general how to think about how many kinda core deals come up in a given year? I think maybe you guys have talked about, you know, there's roughly 200. 100 of them end up leaving. Jack Henry wins 50. I mean, is that, you know, how do you think about a typical year within, you know, core?
That is on average, right?
Mm-hmm.
Every year is different. I will tell you this year there's less credit union opportunities, that are open, more bank opportunities specifically because of the,
Mm-hmm
... the news by the one competitor. you know, I don't have the exact number...
Mm
On average, you're right, 200, roughly 100. We win roughly 50 of those, a year and have been for the last four or five years on that roughly one a week.
Okay
... kind of mindset.
Have you seen any changes around your typical win rate? I know you just mentioned about 50%. Has that changed at all over, you know, the last several years or?
I think the speed of the win rate has changed. As I said, we will win north of 50 this year.
Mm-hmm.
I'm not ready to sign up with two more quarters to go.
Yeah
I can tell you we will win north of 50. It'll depend on that. The other part is the size.
Mm-hmm.
We have made a very concerted effort to move up market. Typically in years past, and I heard the prior presenter talk about this isn't your father's company, and we always say, "This isn't your father's Jack Henry either.
Mm-hmm.
Because five years ago we made a big decision to get a lot more innovative in the technology that we build, and we are far exceeding others, which is helping us move upmarket. Just to put this in perspective, we won 31, what we call multi-billion dollar, opportunities in the last two years. The two years prior to that, we won five. That is creating opportunities for our customers in a, in a consolidated market which because banks and credit unions continue to consolidate at roughly a 4% clip over the last 40 years, accelerating right now to about a 6% clip.
Mm-hmm.
We're still growing in a market that's consolidating because of the number of wins that we have. That, that concerted effort is allowing us to now take our average asset size, which was about six, seven years ago, $750 million in average assets. It's now $1.4 billion. That will continue to grow. We have some nice win opportunities that are in the pipeline right now. During M&A, there's times when the acquirer is buying one of the Jack Henry institutions that are smaller-
Mm-hmm
... and we're able to flip and actually get the acquirer to flip to Jack Henry. Those are all happening because of what we've done and the focus we put on the innovation.
Okay. That's very helpful. The other thing that you touched on last quarter was, I think what you described as trifecta wins.
Yes. Mm-hmm.
…which is, you know, essentially you described an attach rate of 68% versus 45% last year. Not only are you seeing kind of accelerated wins, but you are seeing better cross-sell and attach rates. You know, maybe just dive into that. What's, what's driving that? Why are you seeing success on attach? Do you kinda expect that to continue?
Yeah
with what's in the pipeline?
Just what you're referencing.
Mm-hmm
... just for everybody else, is that when we win a core, our digital banking, which is called Banno, and our card business, we call that a trifecta. Those are the three biggest revenue opportunities for the company. When you win all three of them, it makes a deal look significantly better when you have those three. Of our 22 core wins, all 22 bought our Banno digital banking product, and then 15 of the 22 bought card as well. It becomes a nice opportunity. Yeah. The reason why there's a level of differentiation is I promised a year and a half ago that we were gonna put a significant amount of effort into our digital banking solution to become more commercially oriented.
Mm-hmm.
We were really already known as one of the best, if not the best retail banking platform, based on, you know, ratings in the App Store and things like that. We were lacking in some of the functionality, we put out, you know, a focused effort on that. We are now winning. We actually had 84 wins in the quarter. 50 of those were the Banno business application, 34 were the retail application, and 12 of those were competitive wins from the names that you know in the space. That is a proof point that now we've gotten to a point where we are on par.
The other thing I mentioned was taking that product outside of Henry base and selling it to our competitors, of course, we needed to get on a competitive landscape with those products, again, we're now ready to do that. All of those are indications that our product set is improving. We've added a lot more commercial card capabilities on our c-card business. We're a 98% debit today, you know, 2% credit, we wanna change that dynamic as well. We have a lot of focused efforts on card. All of those are by-products of why we're continuing to win.
Mm-hmm
... at that pace.
Okay. I know you mentioned on it briefly before, but just remind investors the sales cycle again. I know the pipeline's very strong. You're seeing these wins.
Yeah.
you know, how long does this take to actually translate to, you know, revenue-?
Revenue
on the P&L?
Yeah. A core deal, like I said earlier, is about 10-12 months to sell the core, depending on how much time is left on the contract. Most customers and prospects look at about a 24-month to 30-month window before they really start negotiating. Then, the longest pole in the tent is really the education, 'cause when you change core, you know, it's compared in this industry as heart and lung surgery. You know, you're basically taking every single person at the bank or credit union, and you're having to get them to learn a brand new tools and solutions. That's really where the time is the education and the time it takes. To your point. Well, I'll give you an example.
We're gonna close a nice deal this in the next week or two, and their live date will be June of 2027. We will close it this month, but they won't go live till June of 2027. That puts some of that in perspective. Now, on the digital and the card, if it isn't tied to a core deal and it's just being sold independently, so the 12 competitive deals I just mentioned for digital.
Mm-hmm
... those 12 are already Jack Henry core clients. All of those could actually be implemented as soon as 90 to 120 days. It's more, again, dependent on the customer and the term left on their contract. More realistically it's nine to 12 months from contract date because of time there. That's really how it works.
Okay. Just remind us on M&A, how it impacts the business. You guys disclose the conversion revenue ahead of the quarters. You know, for investors that aren't as familiar with the M&A dynamics in the industry, can you just walk through, you know, how it impacts you?
Yeah. Some of what I tied before.
Mm-hmm
... you know, this 4% consolidated market that's happened for literally 40 years. At that point in time, Jack Henry is, like I said, continued to grow at a 6%-8% top line growth throughout that entire timeframe based on the number of competitive wins and the number of M&A deals that are Jack Henry wins. Either we flip the acquire to Jack Henry, or it's a Jack Henry to Jack Henry win, which happens. And we have, you know, we have a couple clients, I think, in the room today that are bringing a lot of acquisitions to us on a regular basis with that type of formula. That's an important aspect of that.
The other part is, what I said before is, our ability at this point in time while, you know, there was a pent-up demand for acquisitions in our market under the former administration.
Mm-hmm.
The timeframe to get an approval for a deal could be as much as a year or longer. Right now it's running at three to four months. That's. There's a, not only a pent-up demand, but an acceleration. It's extremely important for Jack Henry to continue to really taunt the amount of innovation, and that's allowed us to be the winner more than not. We usually view it as a slight tailwind for Jack Henry.
Mm-hmm.
It has been for many years. Just give you a couple quick proof points. In the last seven years, Jack Henry has grown the banking business by 17% market share. Not 17 percentage points, but 17% market share, and 40% on the credit union side in a consolidated market that was decreasing at 3% overall. That puts some numbers to the perspective.
Okay. You touched on kind of winning business with larger FIs. I mean, can you just help us understand, are there differences in economics when you sign a core deal with a larger FI versus smaller one?
Yeah, and it really depends, so it's a lot of it's the attach rate.
Okay.
you know, you're gonna pay for accounts. It's gonna be whether the bank, or credit union, particularly in this case, the bank is more commercially focused than they are retail focused.
Mm-hmm.
More accounts in a retail, bigger assets in a commercial side, some of that could play into the equation. Most of it's the attach rate. That's why it's really important for us to get those trifecta wins because if we can tie those three things together, it makes for a really nice win for us. Even a smaller bank or credit union that could be at a $500 million in assets, if they buy those three products, it turns out... I will tell you right now, our largest revenue customer is not even in our top 10 in asset size.
Interesting.
It's pretty well known that we lost, and we're working through some things with Synovus on this, but Synovus bought Pinnacle, which was our largest asset size client. Pinnacle was an in-house client and not an outsourced client. Outsourced clients pay us more 'cause we handle everything for them, and Pinnacle wasn't even in our top 10 in our client base, even though they were our largest asset client.
Okay. That's a very helpful color. Then I want to switch gears a little bit to payments. Obviously, that space has continued to evolve. You're seeing strong growth in areas like Zelle, real time payments, FedNow. Can you just talk about how the landscape within payments has changed over the last few years? What are some of the key growth drivers that investors should think about moving forward here?
Yeah. Just so you all know from a payment segment, we really, have a handful of products. One is our bill pay solution, which is iPay and Payrailz. We acquired Payrailz in 2022. That's a low single digit growth opportunity. Since we bought Payrailz, it's almost tripled in growth, but it's still low single digit growth.
Mm-hmm
'cause bill pay just isn't a high grower. Remote deposit capture, we're actually the largest remote deposit capture company for banks and credit unions in the country. That's a kind of a mid-single digit growth factor. The big opportunity has always been card-
Mm-hmm
... which is the largest business. It's 22% of Jack Henry's revenue today is our card business. And that continues to be a kind of a mid to high single-digit growth and should continue, but you get to law of large numbers...
Mm-hmm
and you kind of get some of that as well. The highest opportunity for us right now in payments is really in threefold. One is faster payments, as we talked about. Faster payments is Zelle, the Fed, and the Clearing Houses solutions. We have roughly 500 clients live on all three of those. We're roughly 33%-40% of the total population of FedNow and the Clearing Houses network of banks and credit unions today. an opportunity continues to exist 'cause we have 1,700 core clients and only 500 live on those products. as you mentioned, we're growing at about a 50% clip on transaction growth-
Mm-hmm
in those three things, and we expect that to continue, specifically because most of those banks are only on receive. They're only getting transactions if transactions are being sent to them. We are really promoting and we're trying to get The Clearing House and The Federal Reserve to promote much more of the use cases to promote send transactions, because those are where big pennies become dollars. They replace things like B2B payments, and other B2C payments that could be going by check. They have a chance to replace those, and you get real money for that.
We've also bought a company in September called Victor, which allowed us to get into embedded finance. Embedded finance will allow us kind of a banking as a service, allows to do matchmaking between the fintech and the bank in bringing those relationships and using the bank's charter to generate payments, disbursements, across border solutions. We have stablecoin solutions that we're using through that as well. A lot of opportunity in the embedded finance, I think the largest opportunity for us in payments is something we just rolled out, which is our SMB solution. We were highly focused on creating a differentiator in this space from Stripe and Square to keep deposits within the bank, or credit union, instead of those deposits leaving the bank through a Stripe or Square relationship.
We created three distinct differences in our solution set. Right now we have 500 customers that are live in 3.5 months on our what we call Tap to Local, which is our merchant acquiring solution through banks and credit unions. We did a product called Rapid Transfers, which allows you to move money in real time from a local bank or credit union to an external account. There's only like six institutions in the entire country that allow real time payments to happen from an external account to an internal account, and vice versa. We've rolled that out.
We have almost 100 customers live on that in three and a half months. I expect that in the next five years to be the biggest driver of our payments business from a revenue growth. Here's why. Back to quick distinctions.
Mm-hmm.
We created an ability to do a real time approval, so if anybody has an LLC or a small merchant, we can actually load that merchant onto the system instantaneously on 75% of the applications that come through. Everything is done through the phone. Application is done through the phone. The notification for them to use their phone as a point of sale device. We are certified for iOS and Android to do tap to pay. We are the first U.S. company to get certified. Stripe and Square both certified in Europe prior to the certification. We became the first company to certify that. It was like 38 certifications to go through to make that happen. The second one is that Visa and Mastercard both have eight settlement windows, but really nobody uses them.
We're actually going to exercise the ability to use the eight settlement windows for the small business to get their money literally up to eight times a day, depending on what the bank wants to do. Worst case is they're gonna get it next day, and so that's up to the bank or credit union. The reality is we'll have that capability to do that. Nobody's using those windows today. In fact, we're getting Mastercard to build it out with us. Both Mastercard and Visa have invested in this solution set as partners with us, specifically on the marketing side to help our banks and credit unions be successful. The last part, and maybe the most important 'cause we're it's patent pending, is our ability to take all the transactions that occurred for that particular merchant.
When the deposit hits the, their bank account and shows up on their digital app, all the transactions that occurred that equaled that deposit show up in their app. If, again, if any of you have a small business, you have to go back and manually reconcile those. We've built solution sets that take all of the aggregators that are out there, the Plaids, the Squares, the Finicities, the MXs, you name them, and they all write APIs to our back end for digital. We do no screen scraping, and we can actually go into all of the accounting solutions, 97% of them, with Xero and QuickBooks being the two biggest, and we can actually automatically bring all those transactions into their application and with a push button, upload it, all of that, into their accounting systems.
That's a patent pending solution that we created, that's really cool. Again, this is bringing deposits and opportunities back to the banks and credit unions instead of having those leave them through Stripe and Square.
Okay, that's very helpful. I did want to switch gears to complementary. Obviously Banno's been a hot topic lately. I mean, you gave some stats around client signs. You now have more than 15 million users. I mean, clearly the product's resonating. Can you just talk about how sustainable the growth is within Banno, the overall strategy there, and then maybe kind of the mix between retail versus business?
Yeah, I'll make that quick.
Mm-hmm
'cause we have 1,037 banks and credit unions that are live on Banno since 2018 when we rolled it out. We went from 0 to 15 million users and 1,000 customers in literally eight years. It is the fastest growing. The mix between retail and Banno Business, every customer is a retail client, and about 45% are business. We have about 430 customers that actually have the business application out of the 1,037 that are on there, and that will only continue to go up for the reasons we talked about before. Absolutely I view it very sustainable.
Our SMB solution, which is tied to Banno, is helping us win a lot of opportunities because today the only way you can get that solution is through Banno.
Okay. I wanted to switch gears here to capital allocation. Only have a couple minutes left. You guys are known for being a skilled acquirer, plenty of capacity. I mean, how are you thinking about capital allocation in this environment right now?
A couple things. You know, we've been 51 acquisitions in 50 years, so we have been a serial acquirer, but as of right now, we have zero debt. We have a pristine balance sheet, and absolutely that $2.4 billion in revenue that's, you know, we're pretty proud of that. We are taking advantage of what we think is a unappreciated market right now for us. Not only did we have an incredible quarter, financially and with the number of core wins, but, you know, the AI stink and everything that's on-
Mm-hmm
... in our segment right now is dragging us down. We're definitely taking advantage of buybacks, and we'll continue to be aggressive in that. We had already signaled to the street that we would do $200 million in buybacks this year compared to $35 million last year. We're already above that. We're absolutely making a nice headway into that, and we'll continue. We will continue to look for acquisitions.
Mm-hmm.
The things that fit our sweet spots, they typically have to be public cloud native, 'cause we don't wanna rewrite, anything. We don't have a lot of gaps 'cause we're building a lot of our own technology, but if there's something that can accelerate us, then we will absolutely look for that.
Okay. Sounds good. We'll go ahead and leave it there, Greg.
Okay.
Thanks so much for being here.
Okay, thanks, Madeline.
All right. Yeah.
All right, thank you.
Yeah, thank you.