All right, I think we should get started here for our next session. We are pleased to welcome Mimi Carsley back. She is CFO and Treasurer of Jack Henry. Mimi joined Jack Henry in 2022.
Yeah
after holding several senior finance roles at Blucora and serving as Treasurer and EVP of Corporate Development at LPL Financial. Earlier in her career, she also spent more than a decade at Microsoft. Thank you, Mimi, for joining us and for coming back.
Thank you. Welcome, everyone.
Awesome. I want to start with sort of a high-level question. You have been CFO at Jack Henry for multiple years now, and you have kind of seen the evolution of several technology spending cycles at banks. What has changed in the demand environment or in Jack Henry's own positioning that is driving the strong core momentum that we have seen over the last couple years, probably the strongest that I remember.
Yeah
at the company? Just curious from your vantage point, based on the technology cycles, or maybe it is just your own positioning competitively.
Yeah. I think first, banks are fundamentally in healthy positions. I think we have gotten past a lot of post-COVID concerns of like, okay, what happens when that stimulus leaves? You have had the fear of real estate, commercial real estate, auto loans, bankruptcies, and so we are on the other side of that. And so overall, bank balance sheets are quite strong. The higher for longer is an interesting kind of play for them. And what we are seeing in the survey data relative to what we saw even just a couple of years ago, the average response for, "Are you going to be spending more?" was a lower level in absolute response, and the amount they thought they would be spending was lower.
A couple years ago, if we got a response that said 4%-6% increase in spending, we would be pretty excited about that, and now they are saying 88% of the respondents on the recent Bank Director survey said they plan to spend upward of like 6%-10%. And so that is obviously not at all in software, that is across their IT spend, but a very healthy sign for demand. The robustness of our pipeline, we see that. Also some of the what they are looking to buy has changed a little bit too. For the first time in our Strategy Benchmark survey, AI as an area of spend and investment has risen to the top, and then secondarily, around digital and then data analytics.
You are changing some of the composition of some of those solutions as they have already made some of those technical foundational journeys to have, for example, online branch experiences, digital banking, build-outs. Now they are able to get to the next level on their journey.
Great. As core wins have accelerated over the last 18 months or so, how prepared is Jack Henry for what could be a notably larger implementation cycle? What should investors expect for contribution of this acceleration in wins that you've seen flowing through our results?
Yeah. First of all, our pipeline is bigger than ever. I think we said just on the last call here that our pipeline, and Q1 is usually a lower cycle quarter for us for wins. We had nine core wins versus an average of six. But our pipeline is really at elevated robust levels. The interesting thing around that is we've seen no elongation, we've seen no pause in demand cycles. From an implementation perspective, the sales cycle is still roughly around 12 months from a sales, benchmarking, and a product evaluation period, and then the implementation time is usually anywhere between 12 and 18 months. We're seeing some of that compress to revenue, to having implementations live, but there's really like three main drivers of what causes the implementation timeline. One is the readiness of the bank.
You're talking about every process change, every system change, procedural change, and you're not really just looking to flip the switch from take out that tool, replace it with this tool. You really want to do an organizational transformation to leverage the new tool set. So that change management curve is quite intense for the customer, and they'll set the pace of that. We can help, obviously, with knowledge enablement and training, but they set the pace of that friction for their institution. The other is how much custom code they have, and this is where I think AI could really shrink some of that time, because if someone uses a completely out of the box experience and they may like fine-tune some of the settings, that's super easy. We've done that data mapping to every client, every core that exists kind of in the marketplace.
But if they've done a ton of custom code for their organization, that's where it's more of a one-to-one mapping, because you have to figure out what is that custom code? Is that in out of the box functionality in our systems, or do they need something custom as well? That's where I think AI could help us compress. But the last component, and this is the biggest, longest tail, highest pole in the tent, is the remaining life of the contract. Typically, they don't want to pay an exit fee from their existing provider. So even though we could do it earlier and we're starting to see that timeline compress, they're still going to probably do a just-in-time delivery to synchronize the timing of their existing contract ending and the start of the new Jack Henry contract.
That makes sense. I had a question on that AI compressing the implementation cycle, but maybe we will come back to that later.
Sure.
Just keeping on the theme of the core wins, another dynamic has been that you are not just winning more, but you are also winning larger deals.
Yes.
Those often come with more cross-sell potential. Maybe you could talk about how that dynamic of cross-sell has been playing out, and are you beginning to see it support growth across other parts of your franchise?
Yeah. No one buys core in a vacuum. There is a lot of functionality that is associated with core, whether that is your document retention process, your connectors, whether that be some of the kind of meat and bones, your e-statements, like all of the workings, inner workings that work so well with the core. On top of that, you have your payments offerings, your fraud offerings, your account opening offerings, lending, et cetera. The typical new core, and when we say core wins, I want to be really specific because the way we talk about it is somewhat unique in the industry. When we talk about a new core win, historically we have done 50- 55. This year we are on track to do 58- 65. It is a completely new logo to core.
That's not a switcher from one of Jack Henry cores to another or an on-premise to private cloud. That's a completely new core customer. When they buy core, they don't buy core in a vacuum. They typically buy somewhere between 30 and 50 other Jack Henry products at the same time, and then as they mature and age and tenure with us, they add in more products at that cycle. As you're talking about that opportunity to have a more collective basket, we've seen that as we've gone up market, that is across our user base. It's important. The core is important because not only do you have that drag along of those other products, but you're also in a pole position of any other product they need down the line.
They already know you, they already know the service, they know your solution will integrate exceptionally well, and that also gives you opportunities to win other product offerings. We've talked recently a term we call trifectas, which is when they get core, but they also get our cards from payment, and they get Banno, our digital offering. Why trifectas are so important is you think about those three anchor capabilities. When you get all three of those, that really deepens the relationship. You know you're not likely to sell the institution. If they're willing to make that big of a commitment, A, they're unlikely to be acquired, and two, just the depth of that relationship and the revenue, because each one of those could almost be the same magnitude depending on the composition of the financial institution.
That is a much bigger breadth of a product span, and we've been roughly around 58%-60% in those win rates. That's partly because of some of the efforts we've been making internally around sales structure, go to market, a One Jack Henry unified sales approach, but it also talks to the maturity and the parity of the card now that we have credit, and on Banno having the business side in addition to the retail side on Banno. We think that trend will continue, and it's something we're measuring quite often.
I guess you guys are clearly taking share in the industry, but you're also operating in an industry where the number of banks continues to decline. I think competition from modern providers, from fintechs remains quite intense. To your point earlier, AI may help. One of the sticky points for the industry has been like conversions are very hard to do, and once you get a client, it's a sticky client. But AI potentially can help with conversions both ways, you converting clients away from someone else and vice versa. With that backdrop, what gives you confidence that this sort of acceleration you've seen in wins and sustainability of revenue growth, that's sort of sustainable for the longer term?
Yeah. The first, I will call out a metric, which is over 55% of our core customers have been with us over 20 years. I like to say a core experience is both sticky and it is not. It really depends on what core you have. If you are on a modern core and you are getting good quality service and you can have dependable level of innovation, it is pretty sticky, right? The differentiation you are going to get of going somewhere else is pretty low. But if you are on a non-modernized core or if you are on a core that has not seen that level of innovation, that really precludes you from being able to go after your growth strategy, then it is really not sticky. I mean, we say it is sticky, and yet we win 50- 55, and now almost 65 wins a year.
It cannot be all that sticky. I am not concerned that AI will all of a sudden put more banks in flight of willingness to kind of switch cores, because if you are on the right core and it meets your strategic needs, you really do not need to go anywhere else. In terms of fintechs, we have been competing with fintechs for years. We have a very open philosophy. You can do best of breed or you can do best of suite with Jack Henry, and we let that up to FI choice. As a result, if you do not choose our solution, we want to be the easiest solution to plug into our core ecosystem. We have been competing. If you went last month to our Jack Henry Connect conference, you would have walked through a huge convention hall and over 280 vendors.
We do not allow core competitors, but anyone else can get a booth there. Digital providers, account opening providers, lending providers, fraud solutions, ATM machines, like everything was there. Because we feel like we have to be able to shoulder to shoulder compete for that solution. Yes, I do think there will be a lot of new entrants of AI neo fintechs, but this industry, in my mind, is less of a technological hurdle that is now unlocked. Yes, development is much easier. We are getting huge productivity wins in development. But it is not, oh, you needed to get to this size chip or this size speed or this size resiliency level. It is, do you know how a bank or credit union works? What is your uptime reliability?
It is a deep industry, knowledge industry, and to me, it is much around execution and operational is almost more important than solving a new technological widget, because it is around the dependability of mission-critical systems.
Makes sense. So I know you talked about AI moving up in a bank's tech priority, and that's what we hear a lot about in a lot of discussions these days. Where is Jack Henry in terms of delivering practical, turnkey AI solutions to clients, and what is your AI-led product roadmap?
Yeah. So our philosophy around AI, because we are a highly regulated business serving highly regulated institutions, is to be responsibly bold and balanced. So we want to be able to provide tools and choice to our clients to set whatever pace they want to be installing that AI, but also have a human in the loop. We talk about a five-step framework from everything from letting it read and return research to step five, letting it, without a human intervention and approval, send money around, right? And we don't think we're at those upper stages yet from a protections perspective, from a fraud perspective, from an identity management perspective. Ultimately, that will be the bank's choice, and we'll be providing the tools to help them around that and safeguards around that and governance around that.
But I think the expectation is, from our customers, the same way as it is for me for the solutions I use in-house, is enterprise-grade software should have AI and features enhanced in it. We're actually going through an ERP system change ourselves. We're a year into what will be a three-year journey. So I can definitely feel the sympathy for our clients and what they go through, but that's a lot of change management, that's a lot of transformational processes, and that's a lot of thinking how I want them to come with AI inherently within that solution. So we think there'll be AI throughout our products. Some will be just helping us win and helping the stickiness of that product and helping expand the velocity of the innovation on the product. Some will be monetized specifically because of the value it creates and generates.
We think there'll be a whole range of outcomes of how those solutions are delivered and monetized.
If we just pull up and sort of think about what this would mean for your longer-term growth algorithm, I know you shared medium-term targets at your investor day recently, but as I think about what AI would play as a role there, is that factored into your guide, or do you think that's an accelerator that could potentially drive upside to the targets you've set?
It's an accelerator. It's not part of the growth algorithm that we think gets us early to an accelerating rate of growth. We think it's on top of that because we think it's still a little nascent just to know the adoption level. I don't want to get too far ahead of ourselves in saying, "Okay, what could be the impact in FY 2029?" yet. But one of the things we're doing in addition to having AI throughout our products is helping our customers on that journey. We're a little bit in front of some of our customers. Our customers, some of them are very technology progressive, some of them are still fast followers, some of them may be laggards.
We are also packaging up the toolkits, whether that's how to talk to your board, what are governance frameworks, how to think about data management, how to think about data catalogs, how to think about setting up sandbox environments to go from vibe coding to production, how to think about AI token controls and actually small models. We're starting to package some of those tools ourselves, AI consulting, and selling that to our clients as well to help them on that journey, because a lot of our clients don't know where to start.
Right.
It's a very confusing time. It's a very dynamic time. Helping them figure out how to, knowing how banks work, knowing how credit unions work, help them on that journey and also make some things from an out-of-the-box, easier to set up and run with toolset.
As AI raises the stakes around cybersecurity and operational resilience, how are customer priorities evolving, and where is Jack Henry in that investment cycle? Because a lot of what we have been hearing this earnings cycle is cyber-related investments.
Yes.
Where are you in that cycle, and should investors view those investments primarily as a cost of doing business for you, or is that also a revenue opportunity?
Yeah. I think we are in a very fortunate position. Roughly five years ago, we really ramped up our cyber CISO organization, both from a talent and from a tools perspective. We did a foundational architecture approach, and we wanted to have zero trust, a resiliency level of our organization. We knew we needed more endpoint-access management. We needed more identification. We needed to know when data moved laterally and across our organizations. We needed to know all of the plumbing and where it was at. We did a ton of investment over the last five years to get us where we are now. We have rolled out FIDO tokens to every associate. We put a lot of safeguards in place that, to me, create a better line of defense.
We are all, as associates, the first line of defense, and we have done a lot on training, reminding our associates, the deepfakes, the vishing attacks, they look so compelling these days. But we are making sure even when there is human error in judgment, that it is containable, right? That someone cannot get in without biometrics. If they get those biometrics, they cannot get past the lobby. They are not getting into production. They are not laterally able to move data around. They are not able to extract data. A zero-day event has gone from weeks down to five minutes. The reaction time of these organizations have to work at computer speed, not human speed, and that requires investment. We have made a lot of that investment. That investment has grown at a rate greater than corporate growth over a number of years.
I think it has already put us in a better posture for what we are dealing with today, which is certainly an intensified cyber threat environment. I do not see that rate of growth changing very much. Eventually, I hope that rate of growth slows from an investment perspective, but all of that is in our earnings guide, is in our margin guide. It is not a surprise from a headwind perspective to margin this year that some of the others are talking about. It was always part of our plans.
Do you think that becomes a revenue opportunity because you can share some of these investments with clients, or is this more hygiene and cost of doing business at this point?
I think today it is more hygiene. I think where AI is, it can be more of a revenue because you can start to sell some of those tools. There are some things that we use that some of our clients may want to use that we can help from a reseller perspective, from a vendor management perspective. The interesting thing is what might be the positive kind of result of some of these trends we are seeing, which is we have been on a very steadily march from people hosting on-premise to hosting in the Jack Henry data center. We are roughly 80% on Jack Henry data centers today. We have said, "Hey, we think that that runway is still another seven to 10 years, and you get to the upper 90s." In the current environment, that risk is greater if you are hosting yourself.
It may make some CIOs question whether they want to be in the data center management, the data recovery, the resilience, the cyber threat game or not. I think you are going to see a potential acceleration of that. You may even get to the point where regulators step in and say, "Below a certain size threshold, we do not think you can operate a safe enough environment to the financial system of the U.S. You need to be in a hosted environment." All those would be positive trends for Jack Henry. Additionally, we have other solutions that touch upon that kind of hosted environment in our Gladiator or managed cloud services. So whether that is managing laptops in the branch, whether that is managing their infrastructure in the branch of IT infrastructure. We have seen an increase in demand, 3x, of those solutions as well.
Again, helping our clients bring our scale, our partnerships to the table on their behalf.
Great. So maybe staying on the topic of margins, since we were talking about the cyber-related investments, you've also highlighted meaningful productivity gains from AI implementation. How much of that benefit or efficiency ultimately provide upside to your long-term margin framework of 20- 40 basis points?
Yeah. So we think about the 20- 40 basis points as the floor. Certainly, we aspire to more. The last three years, we've been able to deliver more. I'm goaled on delivering margin expansion. We know it's a very important part of the investment thesis, is margin expansion. We certainly have an aligned interest in driving that. I would say one of the things to look at is we've been able to hold headcount growth nearly around 1% for the last five years. And that's whether that was continuous improvement, whether that was automation, whether that was AI, and now using different types of AI tool sets. What we're seeing is on some of the business unit developer case study work is like up to 90% productivity gains for developers. We've been able to do more.
We've been able to accelerate some of the roadmap development, but keeping headcount very modest. If I extrapolate that out, it's not unforeseeable to think that you get pretty soon to a position where maybe we don't need any new headcount to support scaled growth because of the enhancements we're doing and the tools we're using in AI.
So maybe switching gears a little bit to the SMB payments business that you guys have talked about more recently. That is clearly a newer growth vector for Jack Henry, and that is also an industry that is pretty intensely competitive, both from a fintech and lots of merchant-focused providers. What gives you the confidence in your ability to win in this market? Also, what has customer feedback been so far?
This is a partnership we have done with Moov, who has helped from the payments perspective, a knowledge of small business perspective, from a risk mitigation perspective. So it has been a beautiful partnership between predominantly our Banno team and the Moov team, doing some joint engineering work to really accelerate the time to market for these solutions. We are aimed really more at the small side of SMB, so big S, I would say, small MB side of it. A lot of sole entrepreneurs. Think about a lot of vendors who come into your house, whether that be the piano instructor for your child, the HVAC repair guy for your AC unit, your landscaper.
A lot of small business owners who come into your house, but instead of sending you an invoice or pulling up some tablet or calling into the office with your credit card number in some unsecure way, they can now tap right on the spot payments. We also think that businesses will be multi-payment, multi-modality. We do not need them to be complete switchers from their current solution. I like to use the example, if you have a bakery, your bakery might use a device plugged in at your countertop at the bakery or coffee shop, but on the weekends, you like going to the farmer's market and selling. Well, then you can just bring your phone. No extra hardware required, and it is also a nice emergency backup to your other payment mechanism. So, it is new. We just really launched in the last six months.
Uptake has been really interesting. The other thing is, this is an underserved area for our customers. Rather than other merchant acquirers who are going around the banks and credit unions, we are empowering banks and credit unions to serve these vital customers. There is a lot of small business hiding in retail accounts. My husband loves creating LLCs, and he is horrible about commingling funds and what he funds from what account, right? There is a lot of hiding deposits, and those small business deposits are eight times the size of a retail deposit. So these are really valuable. Everyone is searching for deposits right now. This is a really important underserved marketplace for our clients.
And then I guess in terms of just the metrics or milestones that you are sort of benchmarking yourself to see how successful the strategy is.
Yeah. So we've rolled out Tap2Local, so that's the tap payment to all Banno users, so over 1,000 Banno FIs, and have started to see some fantastic adoption. The volumes are really attractive from a dollar size, and that's with zero marketing. We just really have been getting the enrollment cycle finished. So now, as we turn on the marketing engine, helping financial institutions to identify where those hidden business accounts are within, because we have the core information, we have payments information, so we can help them identify who those businesses are. All of the adoption of the businesses thus far have been self-discovery, just from the pane of glass of Banno. So really exciting, and now we're expanding. We're using AI as well, so there's like an inventory system on the app.
You can send invoices, you can do QR codes, you can do dispute resolution, like everything within the application on your mobile phone, which is really exciting.
And I guess the marketing investment you were just talking about, are you co-marketing with the banks? Are you leading a lot of the marketing on behalf of the banks?
So this is where sometimes the power of Jack Henry to bring larger players to the table on behalf of our FIs has really come into play. We have partnered with Visa and Mastercard on this. We are leveraging their deep knowledge of marketing to small businesses, as well as some marketing resources to bear in these campaigns.
Got it. Maybe switching a little bit to the investor day and all the messaging there and the long-term growth framework. I think the message coming out of that investor day was that you set these targets, but they incorporate a prudent set of assumptions, and there is some level of conservatism baked in there. Maybe you could remind us what those targets are, but then also just the key drivers of acceleration that are already contemplated in that framework versus what are some key sources of upside that you see could play out?
Yeah. First of all, I think even looking out two years in the current environment is a bit of crystal ball, and that is for a predictable, like we have over 92% recurring revenue business with long contracts. It is still a bit of a crystal ball prediction. We think we get to in the target of 8% revenue growth with healthy margin expansion over the next couple of years in a steady state accelerating growth environment, and still think that there is more on the table. What we have not baked in. What we have baked in is the known pipeline of wins that we know are coming into the conversion slots. We have baked in the new products that we are already starting to sell and the momentum, and when we know those are coming online. I would say a healthy-ish consumer.
We haven't been too over-optimistic in terms of the health of the consumer on debit and credit transaction growth. But the business as it is today, with a little bit more for some of these new and emerging things like SMB that we just talked about, products like Financial Crimes Defender that are still very young in their life cycle. But what we haven't baked in is some of the further opportunity. Like we talked a minute ago about what happens if you see an acceleration from on-premise to private cloud. Well, that is 2x revenue uplift at very, very attractive margins when those happen. It does not change the pace of that conversion that we have seen for many years now. It does not include if you really see more rapid volume adoption of faster payment rails use cases, which we think could happen.
It does not include really selling AI solutions at any big scale. It has a modest assumption around the SMB, just based on how nascent that is. So there's a number of opportunities that we can kind of squint and know that we're working on, but are just a little premature to kind of fully bake into the plan. But as we get closer and closer, obviously, we'll refine those plans. But we're pretty excited about what that base case has, and certainly there's kind of a plus asterisk at the end of that number.
Great. Maybe one question that we get a lot from investors. Visa recently acquired Pismo, which is a large modern card issuer, but also has elements of core banking. So, given the organization that they are and the distribution they have into banks, obviously, there is a concern. Does that sort of compete into your end market and what that means for the core processing industry at large? Any thoughts you can share?
Yeah. So first off, Pismo is a Brazilian core. It is very difficult to cross over geographies with a core. It is really built around the way banks in that each marketplace, the same way it is hard for, and we haven't seen a ton of success from the European core providers coming into the U.S., and we'd have the same challenge going the other way. If we tried to just bring SilverLake to Brazil, it would have to have a whole lot of refinements made to customize to that regulatory environment. So one, it does have some functionality of the core, but what they're really focused on is the credit issuing platform. So, I think that the concern and the just noise when they first bought it is, a lot of times people use the word platform.
You could use the word platform almost synonymous with like core or fundamental or strategic. Sometimes when people say, like, "It's a core thing," they just mean it's important to that institution. They don't really mean it in the way we mean core of like a system of functionality. So, what we've heard, and I think what you've seen out of Visa this last earning cycle of a little bit of clarification, is that this is really aimed at the Tier 1s and maybe take international. It is around payments where we expect a consolidation of Visa DPS and Pismo, and it is really aimed around bits of modernization, so whether it's GL modernization, but really tier 1s.
We don't expect them. Whenever there are people who are like, "Hey, if an AI native neo company wants to build a core tomorrow," I'm like, "Who would want to enter the core space if you're not in it today?" It's very challenging. There's only so many banks up for grabs each year. I really just don't see Visa coming into our territory wanting to be a full-scale core provider. What I do see is them putting Visa DPS from a debit rails and Pismo from a credit rails together, which makes sense, because that's what our customers want. We resell through Velera, the First Data platform, and the reason why we chose that is it's a single platform for credit and debit. That's the same that Worldpay and TSYS are trying to do.
We see Visa DPS from time to time as we compete for debit contracts. We would expect over time from time. We have not seen Pismo, certainly not in any core RFPs, but even on competing on payments. It's something maybe over time that they might be an entrant, but our solution also has a lot of other functionality built around it, not just a single platform.
Maybe in the last few minutes, I have two questions. One is, there was recent guidance from the OCC and some of the other banking regulators around just increasing scrutiny of the core banking ecosystem. I think some of the things that they emphasized were around data portability, third-party connectivity, things around conversion fees, and allowing clients to switch providers. Just what's your takeaway on these developments, and do you see any meaningful implications for the industry as a result of these?
Yeah. I think it's a healthy amount of regulatory oversight, and they're very important questions, so I think they're valid to ask. I just don't think some of those are relevant to Jack Henry the same way they're relevant to other core providers. I'll use some examples. At Jack Henry, our contracts are coterminous. If you have a core, but you also have other complementary solutions and you have a payment solution, that contract will end on the same timeframe, which eases. If you do want to be a switcher, you're not going to kind of, "Oh, I have some golden handcuffs, and I'm going to have to pay some exit fees on a certain portion of that contract." That's not the same behavior and practices at our competitors. I think that has always been a point of contention with the ABA.
It's now a point of contention with the OCC. That's not a practice we do. The other is Jack Henry has been open since the founding, philosophically as a platform. Again, best of breed, best of suite, you choose it. We're going to have a product that meets your need, but if you have a very specific way your institution runs or something that another product serves you better, great. Go to it. We always believe in being open for that way. We work with 1,000 fintechs today to ensure an open marketplace. We never charge toll gating. At the end of the day, it's the client's data. It's the FI's data. We're not going to charge the client from a toll gating perspective to move their data around to work with a fintech or to put barriers up from a connectivity perspective.
A lot of those challenges are right to air. They're just not practices we have.
Got it. Before I ask my last question, I do want to open up to the audience if anyone has any questions.
You clearly gave an impression there's upside to revenue and you have all these potential catalysts, but do you assume, just given what's changed politically and the expectation for bank M&A, a certain amount of, like a gross versus net revenue algorithm where it is net with upside from these things? Do you assume a certain amount of client loss because of bank M&A over the next couple years in your guide?
Yeah.
If so, how much?
Yeah, it's a great question. Historically, over the last, I don't know, four-plus decades, the industry has consolidated at roughly 4% a year. Under the Biden administration, that came down to like 2%. We're now operating in a roughly like 5% consolidation environment. We do think that there was pent-up demand from the uncertainty under the past administration of getting deal approval and the elongation of the approval cycle. There was pent-up demand, and we saw that out the gate. But I know KBW has a very strong prediction. The M&A team here has a very strong prediction. I think based on as you get closer to the election process and you start to hear the polling and the pundits' expectation for a potential regime change or not, I think that's where you might see an acceleration. But right now, approvals are only taking roughly four to six months.
I don't see, like tomorrow after the midterms, any kind of mad rush to go do M&A. I think you'll see a continued pace with maybe a surge towards the next election cycle. I think the other two characteristics to watch as indicators of that pace is bank currency stock. What are the bank stocks doing? Do they have the currency for M&A? And I think the last is the increase in rising interest rates. I think most expect a December hike from the Fed. They've now talked about that not being their last because of the inflationary pressures. That cost, higher cost of capital, does make deals more expensive. I think banks are continuing to look at M&A as a way to gather deposits.
We have continued to grow at a healthy clip despite that consolidation, because at the end of the day, it's less about the number of banks. It's more about the number of members, the number of accounts they have. And over the long cycle of M&A, M&A tends to be a neutral or positive for Jack Henry because it's a source of growth. If I think about on the core side, our largest clients are roughly in the $50 billion ballpark. Our largest on payments and complementary are like $200 billion, but on core, our largest are around $50 billion. They all got that way through M&A, like through growth. And many of those clients are very acquisitive and want to continue growing.
In the short run, there could be a mix of M&A where Jack Henry customers are acquired away or Jack Henry to Jack Henry mergers happen, but over the long tail of M&A, it is a neutral to a positive. We have no concerns. We think it will kind of stay at this elevated rate with maybe, again, a surge going into the election, but we do not think it is like off to the races crazy activity.
With the [Inaudible], it is neutral to positive?
Yes.
Thank you.
Yes.
Maybe just one quick one before we end. You guys just reported 1Q results, pretty strong results. Payments and complementary segments were particularly strong. You did not raise the guidance to the same extent of the beat in the quarter, and just curious, were there some one-timers helping the quarter? Is the guide conservative at this point? Just some kind of-
Yeah. We did bake in about 2/3 of the beat into the raise, which I think is pretty healthy for Q1. There is still a lot of the year to play out. Some of that was absolute just win, and some of that is timing. I think just from a cadence of the year, we need a little bit more to play out. Some of it is just a timing shift. We expect the first half to be stronger than the back half of the year, both from a revenue and a margin perspective. Overall, we are really pleased to be able to raise the full year numbers.
Great. Thank you very much.
Thank you so much.
Thanks for doing this.
Thank you all for attending.