Jack Henry & Associates Stock

All right. We are going to get started, kicking us off the afternoon session. Greg Adelson, President and CEO of Jack Henry. Greg, thanks for joining us again.

Yes. Thank you for having me, Will.

Taking time being up here, particularly ahead of the upcoming Investor Day. I know that's a big lift for the team. So I appreciate you carving out the time.

Absolutely.

All right. So maybe we will talk about the year that you guys just ended, just reported. You closed the books on a strong year, 7% non-GAAP revenue growth, a record 58 core wins, over 90 basis points of margin expansion, third straight year of 60 basis points or more. And coming out of that, you set up 2027 more or less in line with the long-term growth algorithm. As you sit here today, what are the 2 or 3 strategic priorities you're most focused on? And what does the organization need to get right in order to hit them?

Yes. So yes, thanks for that. So we did have a record year. Some of the priorities that we still have today are in place from the day that I took the seat about 2 years ago. So one of them was to go upmarket and be more strategic in core wins with larger institutions. Over the last 3 years, we've had 45 of those multibillion-dollar wins compared to 22, the 3 years prior to that. So that's one example. Our SMB strategy, which we actually came out with 2 years ago at our Investor Day, which we've been very successful at rolling that out.

We now have over 900 institutions live on our Tap2Local and about 150 on our Rapid Transfers, which is all part of that. We're going to actually talk a lot more about SMB next week at our Investor Day. And then I think the Jack Henry platform itself, which has been an announcement that we made 4 years ago, where we talked about building on top of our existing cores and having full integration that's far different than what anybody else in the space has been doing.

We've built almost 30 components onto that platform today over the last 4 years, all public cloud native, API first. And it's created a nice headwind -- or a nice tailwind for us with going upmarket and the overall success of the company. So those are the 3. There's other ones. But as you know, it's all about execution. And so one of the things that we pride ourselves on is doing what we say we're going to do, and we've been very successful with those 3 initiatives.

Yes. So let's maybe pivot to the Investor Day. You've got them coming up in Dallas. Maybe you said the 2028 outlook is going to be a big part of that story, along with some live demos. You said publicly that '27 looks a lot like '26, but you're more bullish on '28. So without front-running the event too much, what are the main messages you're hoping investors will walk away with?

Yes. The main message is that we are going to kind of put our money where our mouth is, where we talk a lot about culture, service, innovation, strategy and execution being the 5 differentiators for our company. We're going to showcase those 5 things. We're going to show live demos of the technology that we have built and again, especially show the progress that we've made since the last Investor Day 2 years ago and to give a strong indication.

We're not only just going to show a preview of what '28 looks like. We're going to give a preview into '29 as well at a top line. Those are something we've never done before at an Investor Day. We've never really looked past the current year. So again, back to the excitement that we've had on the year we just had and where we think we're going, and we've been signaling that '27 would be similar to this year, but '28 and '29 would have some step-ups, and we're going to show that.

Yes. No, it sounds exciting. We're looking forward to that. One of the things that you've been highlighting is the momentum on the core side, 58 competitive core wins. You've continued to stress the move upmarket at the same time. I think you're talking another step-up in core wins this year, 58 to 65, I believe. Given the lag between signing and revenue, how should investors think about when that accelerating backlog starts to show up in the financials that we see?

Yes. So a typical core win is usually, there's contract term left. So one of the gating items of even going live is how much contract term is left, and it's usually 12 to 24 months or so. And then you actually have to train the bank or credit unions personnel, their staff and everything on what products they're buying. So when we sell a core deal at Jack Henry, it usually comes with about 40 complementary and payment solutions. So it's about a 12- to 24-month lag for those reasons. It has nothing to do with any other thing other than contract term and training and things like that.

We are using AI to speed up some of the data conversion stuff. That's great, but it doesn't necessarily help us in a new core win. So you can use the math there to realize that the deals that we're implementing this year were deals that we sold last year or the year prior to that based on term. So we have good visibility. We know exactly when a core is sold. We know when they plan to go live. And so we can map that out, which, again, part of the reason why we're going to be able to show that level of guidance for the next 2 years.

But again, that's just standard. And people ask me all the time, well, isn't AI going to help speed some of that out -- up? It doesn't necessarily help speed up the contract term size or the training size. It does help with the data conversion. And where it does help us immediately is in a Jack Henry to Jack Henry merger where we can actually have a shorter time frame to bring them live with that.

Yes. Makes sense. Okay. The public cloud strategy has also been a big talking point over the last couple of years. It's been deliberately incremental, I think componentize the core, integrate each module back to the existing foundational cores. Could you just provide an update on where you are in the investment cycle and just how you think about the pace of product adoption from here?

Yes. So the investment cycle continues. We -- 4 years ago, we announced it. We had started it roughly a year before that. We've been on track, actually have been building it ahead of schedule and ahead of budget from both of those standpoints, which I think is, again, another strong indication of our level of execution. So we -- as I mentioned earlier, we have roughly about 30 components that are live today. And basically, what we're doing is we're decomponentizing the core.

So the key things that run the deposit functionality, the lending functionality. We've done what is necessarily on the deposit side, the lending side, which is the more difficult side to build. And if you look in the industry today, nobody has built out the lending side in a public cloud native philosophy. So we'll be talking more about what we are going to do to accelerate the lending side later this year. We actually won't be talking about it next week because we're still finalizing some details, but we will talk about it later this year.

And then from a client adoption standpoint, we have roughly about 100 clients that have adopted some portion of the components. So these are existing Jack Henry clients that have said, I want to replace my wires platform with your new wires platform. I want to use your new general ledger to replace your general ledger. So we have roughly 100 that have done that. But what it has been is a true kind of driver of opportunities with these larger institutions. We're talking to $50 billion institutions and $30 billion institutions because of the incremental strategy that we put in place that allows them to take on changes within their core environment without going through the full heart and lung surgery, which is a core conversion.

Yes. Makes sense. Speaking of some of the ancillary products around the core, you've emphasized the momentum in trifecta wins this year. This is core wins that come with both payments and banking. I wanted to make -- I was hoping you could talk about how much of that change is coming from improvements in the product versus changes in the distribution and just how you think about continuing that momentum?

It's a combination of both. So I keep going back to Investor Day 2 years ago because that was an important time frame for us, where we actually made an announcement that our digital offering, Banno was lacking in business capabilities. And so we were going to go fill the gap between us and the larger digital-only competitors that are out in the space, and we went and did that.

And because we built out the features and we now have feature parity, we've been much more successful in winning digital deals. So our trifecta win rate, which is core, digital and card, our card processing solution, went from 39% last year to 59% this year. We're expecting to be on about that range or better for this upcoming fiscal year. So we changed a little bit of the focus of the teams, and we made it a lot more impactful for the sales team to be successful selling the trifecta, but most of it starts and always starts with the product itself. If the product isn't up to speed, you can't sell it. So we had to build out the feature parity. We've now done that both in card and in digital with the advancements that we've made in that product.

Makes sense. There's a lot of investor focus earlier this year on AI as potentially a disruptive force in bank tech, particularly whether banks that historically couldn't manage a long tail of vendors might now have more ability to do that and stitch together different vendors that are on their own. You talked about how you're seeing the opposite, more trifecta wins, more people buying a bundle from Jack Henry. So how do you think about the way that AI could reshape the industry and the way people think about technology decisions?

In our industry, in particular, regulators play a big part in everything that we do. So as AI and public cloud and other things have become more prominent, the regulators have really become much more impactful in decisions for institutions. They're actually looking for institutions to have less vendors than more vendors. So that best-of-suite mindset is really starting to come back. And so that's back to my point about -- your point about trifecta wins.

So what we're seeing is that if a core provider like us can provide the AI capabilities, the AI guidance, we're actually doing consulting services now as well. It's enabling them to have more trust in that provider, meaning they don't need to look for other alternatives. And so that makes the regulators happy. It makes the bank or credit union happy as well. So that's a big part of driving that, and we're going to continue to double down on that. And we'll talk more about AI I know in a minute. But the reality is if we weren't proving those points out, then you would see our customers looking for more third parties to work with.

And how are banks just responding to this desire to invest in AI in such a regulated environment? What do they look to Jack Henry to do? What do they want to do? And what are you helping them accomplish?

Yes. So they're looking to, like everybody, build efficiencies. A lot of our customers don't have large development groups. So it's less about the speed of development, more about building efficiency. Efficiency ratios are really one of the highest-rated things that a bank is measured on. So we're always looking for ways to make them more efficient.

So we build kind of automated workflows that they can utilize. We've built our own AI solutions that allow them to utilize those within the institution as well. So things that we can sell, things that are part of our existing product set. And so that's really what they're looking for. So speed and efficiency, opportunities to build out a product set that is a differentiator from -- so if a lot of them compete with the Tier 1s. And so they want to have something that's on par or a differentiator from them.

Yes. Makes sense. Let's talk about the opportunity for Jack Henry on the efficiency side. R&D was up 16% in the fourth quarter, mostly on headcount. Mimi has framed some of the benefits as projects taking 2 years instead of 3 rather than an in-year cost takeout. As those gains compound over time, does that change the level of R&D spend needed to fund your existing road map?

Yes. So as of right now, I mean, we've been averaging about 14% to 15% of kind of reinvestment from a top line over the last 7 or 8 years. And that's made up of really 3 components. So pure expense that's in the development side, the capitalized software of that development and then some of the additional internal use software that we have. And that's all aggregated into a single number, which equals to the 14% to 15%.

With the speed of innovation and change in our market, in particular, whether that be stablecoin, tokenized deposits, embedded finance, things along that line, and the way that we are building our own technology ourselves, I don't see that number going down, at least not in the next couple of years. What Mimi's point is a really good one, which is, Mimi, by the way, is our CFO, is that you have the ability to do things faster. So projects that used to take us 3 years now are taking us 2 years or 18 months.

That's where the speed and the efficiency is, and it allows us to do what we call more with the same. That's the mantra that we have across the organization. It's not about doing more with less, which is why we have such a strong culture and background for our associates to feel empowered to come up with great AI ideas because they don't feel like they're going to lose their job because they came up with the idea. So I think with the way the advancement of our industry is, the components that we need to do, it's going to speed up the time, but not necessarily change the dynamic of how much we're investing.

Got it. And then as it relates to how AI can reshape the product, you mentioned having 22 AI-enabled products in market, more on the way. How do you measure what AI-enabled products do for the business from a monetization perspective? Like do banks get enough value for these features to pay a premium? Are they table stakes? Is it an engagement and a sales momentum?

So a little bit of all 3. So of the 22 that are already in market, a large majority of those are embedded in the product to make it a more palatable product and a differentiator in the space. It isn't necessarily becoming an accelerator of cost or revenue, but a differentiator in penetration. So our ability to penetrate more of the product, obviously, will drive longer-term revenue. There are other products and features that we are able to necessarily upcharge. A lot of those live in the platform that I mentioned earlier, whereas we're building out core modules, all of the 30 core modules that we built all have AI built into them.

So some of them as big differentiators from what we offer today. So if -- let's just take our general ledger. If you're replacing our existing general ledger with our general ledger that has AI built in, we can sell that at a premium. So it's going to show up as a core module add and not necessarily AI generated, but the reason why we're able to upcharge is because of the AI component. So it's a mix of all of those and will continue to be. But what we're trying to do is make sure -- the one differentiator I will say is that I mentioned AI consulting. So we are going in as a separate line item to sell AI consulting services to our institutions, whether it be governance or building the efficiencies. We've been doing AI for 4 years. We built a really strong framework with the regulators. And so we're able to kind of pass that on to our institution.

Yes. Okay. I want to shift over to card and payments. Payments grew 6% in the fourth quarter, still at the low end of the 7% to 9% range, I think, driven largely by a little bit slower card growth. What gets payments back to that historical range? And which of the pieces of that business is going to do the most work looking ahead?

Yes. A lot of that came from some onetimes that happened with -- we talked about incentive dollars and other stuff that we get from the card association. So some of that driver of growth and differences came on onetimes. We're seeing back to our normal transaction growth this year at this point. We think consumer sentiment has actually remained pretty strong.

If you look at our overall card business, about 98% of the transactions are debit-based. And so debit continues to be very strong. All you have to do is look at Visa and Mastercard's analysis of that. But where we think the growth is going to come from is the differences we've built into our credit side of our business. So as I mentioned on the earnings call, we had our best year ever selling credit actually by double of any other year. And that continues because of feature functionality we've added.

So I think a lot of the growth in the card side of our business will come from the additive credit versus the debit. Payments in general will be driven by a lot of things in the faster payments world. So if you look at Zelle, real-time payments through The Clearing House, FedNow, things along that line, they're all truly drivers today of what we call receive-only transactions. And as the government and others start to change the mindset of use cases for send transactions and there's a better balance on the risk mitigation of that, which we're working on as well.

I think that's where you're going to see another lift in growth. So between card, between the faster payments, between what we're doing in SMB that I mentioned earlier, that's where I think you're going to see -- and you'll start to see some of that this year, but you'll definitely see more of it in '28 and '29.

Yes. Maybe talk a little bit about the SMB opportunity. I know that's something you've been passionate about, long history with the payments segment. What is the opportunity as you see it over the next couple of years?

Yes. A lot of it is just to go after a market for all financial institutions that are being disintermediated by the Stripes and Squares and others of the world. So what we wanted to do is build a solution set that was sold through the institutions and not around them. So unfortunately, for our institutions, as the Stripes and Squares and others get into their market, they're pulling customers away, they're pulling deposits away.

So we wanted to build a solution that had a level of differentiation. I don't have time to go through all the differentiators here, but we have a couple of key ones, actually 2 that we're patenting that are different today, but also to drive the ability to bring deposits back in and create more lending capabilities. So next week at Investor Day, we'll talk about some new initiatives that we've added to that SMB functionality.

But today, it is our Rapid Transfers, which allows for real-time transfer of money from foreign bank accounts into your current bank account, either in or out. And that creates a real-time component that only Tier 1 institutions have. And then Tap2Local is our answer to merchant acquiring within the institution, which allows them to not have to buy a device, using their phone and has a bunch of really cool differentiation for the small business itself.

Yes. Makes sense. And then just on the faster payment side, it sounds like that's a big driver in the near term. How are banks approaching just this kind of broad set of alphabet soup of ACH, RTP, what are they looking to their technology providers to do to help organize that into a kind of a coherent offering for clients?

Yes. A lot of them want these hubs that we created, which is our -- what we call our PayCenter hub, where you can have all of the flavors in a singular platform. And the good news, bad news is in payments is that no payments ever go away. That's why we still have check and we still have a lot of other things, but we keep adding to it. So not only faster payments, but now stablecoin, tokenized deposits. And so we're working on all of those initiatives as we speak. And so the key is that for us to give a complete offering that gives them optionality, and that's what we've been building and continue to provide.

Yes. Makes sense. Just on the card side, I think one of the questions that we've gotten is just around the competitive dynamics. Visa and Pismo is now marketing an all-in-one debit and credit offering. Pismo plus the DPS product. DPS has long been a large player on the debit side. Pismo is more nascent. You said you haven't seen Pismo in core deals, but you've seen them in cards. So how do you think about competitive risk in the card processing business going forward?

Yes. And just one to clarify. So to your point, we have not seen them in core, but we've only seen them in one card deal this whole past year. So today, they're marketing as a single platform. It's not a single platform today. So Visa DPS is a debit, as you said, and Pismo gives the credit options -- the good news for Jack Henry and our clients is that we operate on a single transaction platform today that has a debit and credit already integrated into that platform. So they operate on a single platform.

One of our other competitors has made a recent acquisition, and they're pushing to meld their debit and credit together as well. So at this point in time, we're really the only one that is operating besides one other competitor operating on a single platform. So do I believe that they will continue to evaluate and move into various parts of the market that we're in? Yes, at some point, I do. But at this point in time, we haven't seen them other than one deal.

And when you think about just the bundled offering that you have that maybe some of the new entrants don't, like how does working with Jack Henry for debit, credit, core, digital, like is there a compelling message on the go-to-market side that you have that kind of articulates why those should be together under Jack Henry?

Yes, the compelling message is really the integration. So the advantage you have of working with at least Jack Henry, maybe not all core providers, but with us is a very tight integration. And so when you look at those key products, so digital, card and core, especially digital and card work very, very much hand-in-hand, including bill pay and other aspects of that. Everything is driven off of the front door of the digital offering.

So you need that tight integration. So that's one of the advantages. And there's key features that every provider has. We're pretty bullish on the things that we've created as differentiators. But back to the original question, our trifecta wins have significantly increased this year because of those things.

Yes. Makes sense. Okay. Pivoting to another big topic. Cybersecurity has moved up the priority list very quickly. The focus on increasing frontier model risk to just broader security environments has been a big topic of this conference so far. How is that changing purchasing behavior, conversations with clients? Maybe where in the portfolio do you have products that might address some of those concerns?

Yes. So it definitely has changed. And so for those that don't know, so we operate today, about 79% of our clients live inside the Jack Henry private cloud where we operate. And so of the 21% that are still left, a lot of them are larger institutions that like to run their own shops and things like that. Well, that's changing. We are having a lot more inbound requests because of the frontier models kind of scaring folks of the speed of vulnerabilities and the speed that you have to address those.

We've been part of Glasswing for the last 3 months, which is less than about 100 companies in the world that are operating with that today. And so we've been able to get a front door seat to see how fast you have to actually adhere to vulnerability management. I won't get into a whole bunch of detail on what it entails, but speed is of the essence and the utilization of AI to fix it is of the essence, all things that we're doing and all things that most of our institutions that we support are not capable of doing on their own. So it's going to create opportunities within our in-to-out market, and we're already seeing that.

The other question or the other comment was around specific products that we have. So we have a whole suite of products that are in what we call our Gladiator suite, and there's a bunch of hosted solutions and things that we do to help manage fraud and cybersecurity and other components that we already sell to the banks. And we're starting to see an uplift in those products, and we expect those -- most of the products in that suite to be some big drivers for us for this year.

And something we chatted about earlier is this idea of the core processing stacks being these, like, major choke points in critical infrastructure in the country. There's a lot of focus on hardening those systems as quickly as possible. So how do you think about this process kind of near term and longer term, the investment cycle required to harden those systems versus the opportunity in the new business that brings in the door?

Well, I think one is the other. If you don't spend the time and the money to do the investments, you won't have the opportunities for the others. So one of the things that -- and I'm sure it's not just us, but just speaking from our perspective, is that we are taking the time and attention to invest in working with the models, understanding the models, making the changes, making the right investments in the infrastructure, talent that we brought in. All of those things are extremely important because if you're not shoring up the walls, there won't be any future opportunities.

But because of that and because of the level of differentiation where there's only a handful of core providers that truly are doing what we are doing, it creates a competitive differentiation as well. For some of the smaller core providers, most people don't know, there's really 26 core providers that are out there today. Most of them you've never heard of, but they're out there, and that creates a level of differentiation for us and some of our competitors as well.

Yes. And just on the broader demand environment, clearly, fraud and cyber and things that address these specific issues are top of mind. Have you seen any kind of rising tide where kind of everything related to Financial Crimes Defender, for instance, just sort of a rising tide demand environment for anything related to fraud detection, management of risk? And over time, like I don't know what the 4 version of Trifecta is, but does Financial Crimes Defender become a bigger part of the selling story?

Yes. And you actually -- we've talked about that as FCD being a part of the quadfecta or whatever quad. Yes. So yes, but you're right. And we had a very successful year with our Financial Crimes product last year. We sold 189 in the year. We actually have a more of a foundational product that we've had for a while, Yellow Hammer that we have a chance to start to flip some of those clients as we built out feature parity.

But as I mentioned earlier, it's not just about Financial Crimes, it's also the solutions that sit in our Gladiator suite. So if you kind of take each of those from a fraud perspective, from a cyber perspective, from a hosted network perspective, all of those, we think, have some nice upside, not just this year, but for years to come.

Great. Okay. I wanted to pivot to Banno. Banno signings were up 24% this year to 219. You have 15.8 million registered users, and you said you're close to announcing your first true outside the base win. So how are you thinking about the momentum in digital, the competitive positioning of the product? You talked a little bit about that earlier and maybe the growth runway ahead.

Yes. So I mean, 219 wins is significant when you -- we're about 70% penetrated into the Jack Henry core base. And as of today, we were only selling only into the Jack Henry core base. But a lot of those 700 other institutions are using competitive products, which gives us more bites at the apple. And to the point we made earlier, the advancement of the product, especially on the business side, is allowing us to go back and win some of those deals that we didn't win on the first round.

Outside the base is important for us to grow the digital presence for non-Jack Henry core clients. So that's going into our largest competitors and other competitors to displace the digital provider they're using, whether that be the core provider's digital solution or some of the digital-only companies that are out there. And so part of our strategy is not only to go in and have opportunities with the core base, but to sell the platform and the digital as part of an overall offering.

So it allows us to give them some of these larger institutions, in particular, if they want to move 1 or 2 core components at a time, but they're also not happy with their digital provider, we can bring them a blended solution to do all of that at the same time. So digital is only one of those key products that we're planning to take outside the base. All of our core modules we'll be able to take outside the base, meaning they can integrate with any of the competing cores.

And so that's going to create a lot of opportunity over time, not just within the Jack Henry base, but the full TAM of the market of the 8,000 institutions that are out there. And remember, we have over 7,000 clients today that are using at least one of our products. So each of those becomes an opportunity in and of itself.

And as you think about just the next 2 years, it sounds like a lot of momentum on the top line heading into the next 2 years, how significant is the outside the base strategy?

In the numbers you're going to see next week, it's not meaningful because it does -- it is a slow process. But what you need to do is have some wins in a couple of core opportunities to create momentum. And honestly, I mean, once you built the integrations out and things like that, it creates a lot, but it's not meaningful in the numbers you will see next week.

Got it. You're starting fiscal '27 at 20 to 40 basis points of margin expansion. Mimi saying it sounds like cautiously optimistic that, that range could move up over the course of the year. Margin optimization has been, I think, more of a focus for you since you took the role. How should investors think about that 20 to 40 basis points relative to the last couple of years being north of 60?

Yes. So to your point, the last 3 years, we've done 60 basis points or better, 60, 70, 92. And -- but we also guided those years at 20 to 40. So our message is at this point in time that 20 is what we consider a floor minus a macro event, 40 is not a ceiling. And so as we continue to operate, we do have additional costs. We have some headwinds this year from -- that we publicly announced with where our -- we're self-insured. So from a medical claims side, our medical claims got kind of out of whack where the first half of the year, they were way lower than we expected. The back half, they were more.

So we got to kind of normalize that. Same thing with the way we did commissions where we had a much higher base of wins in the new versus renewals, and we were commissioning those. Those have got to balance out. And then a big project we have called EC 2030, which is the consolidation of our data centers to actually move out of our own data centers into public cloud or into colos. So with that being said, Mimi's point is being, hey, we're a pretty conservatively based company. We do what we say we're going to do, and we don't try to get out above our skis.

So we believe we'll do north of 20. And if everything goes right, we'll do north of 40. But at this point, we're guiding 20 to 40 as we did every other year. But the one thing that I think we do a good job of is that we update every single quarter on how we believe that those numbers can move or not. And so this year being another one. But as we continue to grow the revenue side of it, again, which we'll talk about next week, you can pretty much ascertain that the margin side will continue to move up to.

Yes, makes sense. Okay. Final question here on capital allocation. Free cash flow was up pretty significantly last year. You returned over 100% of it to shareholders. M&A recently has been a relatively small part of the capital allocation framework. How are you thinking about M&A from here? What would it take for you to do something more sizable? And in the absence of M&A, what's the framework for capital allocation?

Yes. So we were very aggressive last year with buybacks. So we did roughly $445 million compared to $35 million the year before, mainly because the stock was much lower than what we believe it should be. So we took advantage of that. We have 10b5-1 plans in place, and we continue to operate. Mimi and her team do a great job. So we'll continue to look at things that are advantageous to take advantage of that in the market.

But we are still very active in the M&A. We got kind of down to the 2-yard line with an acquisition opportunity recently as little as the last month. We ended up walking away mainly because of some concerns we had on rebuilding the technology. And -- but the culture -- we really focus on culture, technology innovation and where they are in their evolution because if we're going to rewrite a bunch of things and to be public cloud native API first, we want to make sure we get the right price point.

But as you know, price valuations still continue to be a challenge. But we're very disciplined in our approach. We've done 51 acquisitions in 50 years. So we've always been very acquisitive, but we're not going to just buy something to buy something. But I will tell you that though we've typically done tuck-ins, we're not afraid to look at something that's a little bigger if it fits the strategy.

Makes sense. Well, I think that's about all the time we had. Greg, thanks for joining us today.

Yes. Thank you, Will. Appreciate it. Good to see you.

Good morning and welcome to the Jack Henry Fourth Quarter and Full Year Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead.

Thank you, Drew. Good morning, and thank you for joining the Jack Henry Fourth Quarter and Full Year Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide a summary of our quarterly and annual results, along with updates on our operations and strategic initiatives. Mimi will then discuss the financial results and fiscal 2027 guidance provided in yesterday's press release, which is available at the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session.

Please note that this call includes forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements refer to yesterday's press release and the risk factors and forward-looking statements sections in our 10-K.

During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release.

Now I will hand the call over to Greg.

Thank you, Vance. Good morning, everyone, and thank you for joining us today. I want to start by recognizing our associates. Their hard work and unwavering focus on culture, service, innovation, strategy and execution helped deliver an historic year for Jack Henry. Today, I will cover 3 main takeaways from the quarter and fiscal year before diving deeper into our overall business. First, we delivered record financial performance in both the fourth quarter and full fiscal year.

In Q4, our non-GAAP revenue was $633 million, up 7% over last year's fourth quarter and significantly higher than the implied guidance we provided for the quarter. Our non-GAAP operating margin was 21%. For the fiscal year, our non-GAAP revenue was $2.5 billion, up 7% over last year. Our non-GAAP operating margin was 24%, a very strong 92 basis point increase over the prior year. This was our third consecutive year of margin expansion of 60 basis points or greater and each exceeded our initial guide of 20 to 40 basis points. Second, we set new sales records for the year. Our sales and marketing team delivered an outstanding 58 competitive core wins for the year, up from 51 last year and surpassing our previous record of 57 wins achieved in both 2019 and '24. This is the largest number in over 20 years when growth was largely driven by de novo institutions rather than competitive takeaways. Just 6 of our 58 wins in fiscal year '26 were de novos.

Our public cloud native modernization strategy and innovative new solutions have helped us continue to attract larger institutions. Of the 58 wins, 14 were institutions with more than $1 billion in assets. Over the past 3 fiscal years, we have won 45 core deals with institutions over $1 billion in assets, representing approximately $98 billion in total assets. That compares with 15 institutions representing $26 billion in assets signed over fiscal years '22 and '23 when we started to initiate our upmarket strategy. As we briefly mentioned in our Q3 call, we signed the largest new bank client in our company's history in Q4, Woodforest National Bank with $9.2 billion in assets Woodforest was 1 of 15 competitive core deals we won in the fourth quarter.

Third, we continue to win higher-value trifecta deals that include core digital banking and card. Of our 58 core wins for the year, 59% included all 3 solutions. Last year, only 39% of our 51 core deals were trifectas. This success reflects the strength of our solutions on our collaborative One Jack Henry approach to all we do. One final point about our sales success. You may remember that at the end of last fiscal year, we implemented a new sales process to achieve a healthier balance of new sales and renewal contracts. This was the first full fiscal year operating under that process, and the results exceeded our expectations. 60% of our sales were new contracts in fiscal year '26, up from 45% the prior year.

Now for more detail on our overall business, starting with some accolades for the team. We were recently recognized by 3 prominent publications, U.S. News & World Report Best Companies to Work For, Time Magazine's Best Companies and Newsweek's America's Greatest Workplaces. Additionally, we were the largest and the second oldest company included in American Banker's Best Places to Work in financial technology rankings. This is particularly meaningful because most companies on that list are smaller, specialized fintechs. This recognition reflects both the strength of our culture and the innovation we continue to deliver for our clients. Our commitment to innovation remains a key differentiator for Jack Henry. And during the fourth quarter, we built on our momentum through several important advancements.

Starting with artificial intelligence. We announced our expanded collaboration with Google Cloud to provide AI-driven security capabilities for banks and credit unions. Building on our 4-year strategic partnership, we will use Google's genic defense products to develop a proprietary AI security platform to strengthen cyber resilience for financial institutions and help them defend against emerging threats. We also joined Project Glasswing, Anthropic's collaborative cybersecurity initiatives. Together, these efforts reflect our ongoing commitment to leveraging advanced technologies to help financial institutions operate securely in an increasingly complex threat environment. In addition to cybersecurity, we are bringing creative AI capabilities directly into the solutions that our clients use every day. A great example is within our Financial Crimes Defender platform where we are using AI to streamline the labor-intensive process of drafting summaries for suspicious activity reports or SARS.

Once an investigation wraps up, an AI-driven summary is generated for review while keeping the fraud investigator in full control. This can reduce tracking time by 75% to 85%, allowing investigators to dig deeper and spend more time stopping fraud. Other examples include Banno conversations, where AI translates over 200 languages to help bankers better serve diverse communities and our flagship CRM tool, Synapsys, where AI will instantly generate client relationship summaries and provide actionable next step guidance for more impactful account holder engagement. We currently have 22 AI-enabled products in the market and have identified more than 20 additional AI capabilities for release over the next 6 months. In all cases, we will maintain strict risk management, compliance and governance frameworks to ensure our clients always remain in control. These client-facing capabilities are driven by the rapid AI adoption across our own internal operations.

Today, over 100 AI tools are approved for internal use, supporting more than 890 documented use cases. We've also internally deployed more than 50 AI agents through our custom developed AI platform leveraging Gemini and other Frontier models to provide specialized expertise, workflow automation and self-service supported scale. Through our associate enabled by coding platform, our teams have built more than 100 AI-powered applications that eliminate manual processes automate repetitive work and empower business teams to rapidly solve problems without traditional development cycles. The impact is meaningful and expanding. Engineering teams are doubling productivity through AI-assisted development workflows, operations teams are reducing recurring reporting processes from days to hours and analysts are cutting research and document creation from hours to minutes.

Beyond AI, we are also advancing next-generation money movement capabilities for financial institutions. In Q4, we announced that we are part of Open USD, a new stable coin for global money movement backed by over 140 leading financial companies, including BlackRock, Mastercard and Visa. We will begin integrating Open USD when it launches later this year. This complements the work we are doing in beta testing for send-and-receive USDC capabilities. Together, these solutions will provide our clients access to additional capabilities such as cross-border and treasury payments. Additionally, we are seeing strong momentum across our newest solutions, including our tap to local SMB merchant payment and Rapid transfers digital money movement offerings.

Since our last earnings call, we've added tap to local for over 200 banks and credit unions, bringing the total number to more than 900. We've also more than doubled the number of merchants who are now enrolled and we expect adoption to continue growing rapidly in the coming months. Rapid transfers is now live with over 140 banks and credit unions with an additional 150 in various stages of onboarding. As consumer adoption accelerates, transaction volumes continue to grow. The average transaction size is more than double our original projections, driven by stronger-than-anticipated inbound transfers. One example we have heard from clients is that before rapid transfers, customers would go to an ATM to withdraw cash from one institution and then immediately deposit that money on the same ATM into their bank or credit union account.

With rapid transfers, that same transaction can now be completed in seconds with a few clicks on a phone or a computer. While these initiatives address different client needs, they are all enabled by the Jack Henry platform, our public cloud native platform that connects seamlessly to our core systems. The platform serves as an integrated bridge between our foundational cores and modern solutions. This is increasingly important as the industry enters an error defined by AI, open banking, real-time data, tokenized money and embedded financial experiences. Banks and credit unions need architectures that provide the flexibility, connectivity and scale required to compete in a rapidly evolving financial services landscape. We began building the platform over 4 years ago, and it is a key driver of our competitive wins, especially among larger institutions.

Moving on to our reporting segments. In Core, in addition to the 15 competitive core wins in Q4, we also secured 13 on-premise to private cloud contracts, including 7 institutions over $1 billion. For the year, we signed 36 in-to-out contracts with 15 being institutions over $1 billion. Today, 79% of our core clients are operating in the private cloud. In payments, we continue to see strong growth in faster payments. Over the past year, our clients' adoption of Zelle grew by 25%, RTP by 24% and FedNow by 29%. In the fourth quarter, payment transaction volume across these channels increased 45% year-over-year. We also saw healthy card activity signing 17 debit and credit card deals in Q4 that brought our full year total to 65, up from 63 in the prior year.

In complementary, we signed 61 new Financial Crimes Defender and faster payment module contracts in the fourth quarter and 183 for the full year. As of June 30, we completed 189 Financial Crimes Defender installations and another 57 are in various stages of implementation. We have also installed 191 faster payment modules with an additional 231 in progress. The Banno Digital platform had another strong quarter with 26 retail and 34 Banno business signings. That brought the full year total to 219, up 24% over prior year. The platform now serves more than 15.8 million registered users, up 11% from a year ago.

Another area where we are seeing strong momentum is in treasury management. We signed a record 17 new treasury contracts in Q4, bringing our full year total to 45 deals, up 25% over the prior year. In addition to higher volume, our treasury services are attracting larger clients. Over the last 2 years, the average asset size of clients signing with treasury deals was $2.1 billion, up 43% from fiscal years '23 and '24. We are looking forward to seeing many of you in our Investor Day at September 15 in Dallas, where we will share updates on our overall business key strategies and innovation, including some live demos. We are also excited about our annual client conference, Jack Henry Connect in mid-October. This is a great opportunity every year for us to meet with prospects, clients and partners.

Last year, 23 of our new core wins were with prospects who attended the Jack Henry Connect Conference. Prospect and client registration for this year's conference is currently tracking 36% ahead of last year's pace, and we already have over 250 registered for our CEO Forum which would shatter last year's record of 211 attendees. In closing, fiscal year 2026 was a milestone year for Jack Henry. In addition to celebrating our 50th anniversary, we delivered record sales and financial performance. We continue to benefit from the strength of our innovation strategy, differentiated solutions and disciplined execution. We are attracting larger institutions and winning an increasing share of higher-value trifecta opportunities. Interest in technology investments across the financial services industry remains strong as reflected in our robust sales pipeline. Looking ahead, we are well positioned to deliver consistent revenue growth, margin expansion and long-term value for our shareholders.

With that, I will turn it over to Mimi for core specifics on our financials.

Thank you, Greg, and good morning, everyone. I'll begin by thanking our associates who continually deliver value and industry-leading service to our financial institution clients. The result is another strong quarter, concluding a fiscal year of solid revenue and earnings growth. We exit a positive year with meaningful momentum excited as we start fiscal '27. I will begin with our impressive fourth quarter and full year results, then conclude with our fiscal '27 guidance.

Q4 GAAP revenue increased 5%. Non-GAAP revenue increased 7% for the quarter and full year, a continuation of consistently strong performance. Fourth quarter deconversion revenue of approximately $9 million, which we previously announced, was down approximately $11 million for the quarter, reflecting M&A activity among financial institutions. As a reminder, the dollar amount of deconversion revenue has little correlation with a number of transactions or impact to Jack Henry's annual revenue. and the absolute amount of deconversion revenue can vary greatly quarter-to-quarter. We continue to see industry consolidation as largely neutral to slightly positive for our business.

Now let's more closely at the details. GAAP services and support revenue increased 3% for the quarter, while non-GAAP increased 6%. Services and support growth during the quarter remains consistent primarily driven by strength in data processing and hosting revenues for both private and public cloud. Private and public cloud offerings continue to drive robust growth. Cloud revenue increased 7% in the quarter. This recurring revenue contributor is 32% of our total revenue.

Shifting to processing revenue, which is 44% of total revenue and another strategic component of our long-term growth model. We delivered healthy performance with 7% GAAP and non-GAAP growth for the quarter. Consistent with recent trends, quarterly drivers include increased card, digital and transaction and faster payments revenue. Completing commentary on revenue, I would highlight total quarterly recurring revenues was 91%.

Next, moving to expenses. Beginning with cost of revenue, which increased -- sorry, increased 8% on a GAAP and 7% on a non-GAAP basis for the quarter. Drivers for the quarter are consistent with recent previous quarter results and include higher personnel costs, direct costs growing consistent with lines of revenue and higher internal licenses and fees. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter.

Next, R&D expense increased 17% for GAAP and 16% on a non-GAAP basis for the quarter. The quarterly increase was primarily due to net personnel costs driven by trailing 12-month headcount growth, ending with SG&A expense. For the quarter on both a GAAP and non-GAAP basis, it increased 19%. Results reflect higher personnel costs, including increased medical costs from second half normalization trends and increased compensation tied to trailing 12-month growth. As we previously shared, Q4 was a higher expense quarter, primarily driven by nonrecurring activity. We remain focused on generating annual compounding margin expansion. Q4 delivered non-GAAP margin of 21%. More importantly, fiscal year non-GAAP margin improvement was 92 basis points with a non-GAAP margin of 24%. This is the third straight year of compounding non-GAAP margin expansion as aligned with our commitment to investors.

Non-GAAP margin for the full year reflects inherent leverage in our business model, management's continued focus on creating AI efficiency, strategic cost management, leveraging our existing workforce and enterprise process improvement. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.57, down 10%. For the fiscal year, GAAP earnings per share was $6.98, an impressive increase of 12%, with the largest contributor being operations. Reviewing the core operating segments for the quarter, we see positive performance across the board. Core segment non-GAAP revenue increased 6% for the quarter with non-GAAP operating margin contraction of 139 basis due to temporary product mix of lower margin revenue sources such as implementation where we added 2 new conversion teams and customer work orders.

Payment segment quarterly non-GAAP revenue increased 6%. The segment again has been topic non-GAAP operating margin growth with quarterly results of 174 basis points. Card Processing revenue showed steady growth and was partially offset by atypical lower incentive revenue. This segment also benefited from continuing large percentage growth from FaaS payments. The complementary segment quarterly non-GAAP revenue increased 6% with non-GAAP margin growth of 16 basis points. Quarterly revenue growth benefited from digital solution demand beneficial product mix and additional sales sourced from new core wins, existing core customers and noncore financial institutions.

For the quarter, Corporate Services non-GAAP revenue increased 31%. This is primarily the result of meaningful increases in hardware sales. This segment reflects expenses not allocated to other segments, we will not be discussing non-GAAP operating margins as it provides no meaningful insight. Now a review of cash flow and capital allocation. Q4 operating cash flow was $303 million, a 7% decrease over the prior fiscal Q4. Quarterly free cash flow of $245 million delivered a 10% decrease over the prior fiscal year Q4. This was primarily the result of lower deconversion revenue. Full year free cash flow of $539 million was a substantial increase of 31%, primarily due to operations and cash tax NPAT. This was an attractive increase over our recent fiscal year results that were negatively impacted by the expiration of a tax provision.

Our consistent dedication to value creation resulted in a trailing 12-month NOPAT return on invested capital of 23% compared to the 21% in the prior year. We are very proud of the durability of this metric and how it reflects our high-quality allocation of capital for our shareholders with this fiscal year, including significant share repurchases and lower average debt. Additionally, I would highlight the following significant fiscal year capital decisions resulted from our strong cash flow generation and cash on hand. We purchased $448 million in shares, representing a 4% reduction in shares outstanding, paid $170 million in dividends plus the asset acquisition of Victor Technology. We're proud to return 122% of free cash flow to investors while maintaining a conservative, flexible balance sheet. The average purchase price of shares repurchased was $152 versus the average share price during fiscal year of $161. We ended the quarter with debt of $40 million, consistent with normal course revolver usage.

I will now discuss our guidance for fiscal 2027. We are positive on the early outlook for fiscal '27, which is expected to be similar to the healthy results delivered last year. As you're aware, yesterday's press release included fiscal '27 full year GAAP and non-GAAP guidance. Full year GAAP revenue growth guidance is a range of 5.5% to 6.5%. Revenue on a non-GAAP basis is expected to be within a range of 6.3% to 7.3%. Conversion revenue guidance will continue to follow the conservative methodology introduced in fiscal '24, with initial fiscal '27 deconversion revenue guidance of $23 million. First quarter is forecasted at $11 million with the remaining $12 million being evenly spread across the remaining 3 quarters.

Full year non-GAAP margin is projected to expand 20 to 40 basis points, consistent with the last 3 fiscal years, but we are cautiously optimistic that we can increase that range as the year progresses. Full year, we expect tougher non-GAAP revenue and non-GAAP margin comps in the first half, reversing in the second half to allow us to achieve our full year non-GAAP guidance target. Expense comps in the first half of fiscal '27 will reflect pressure from self-insured medical costs returning to historical levels. In addition, increasing cyber and infrastructure investments related to frontier models, AI innovation and our data center consolidation project, EC 2030, will pressure margins in fiscal '27.

In a traditional modeling assistance, please recall that our Annual Client Conference Connect will be in our fiscal second quarter compared to the first quarter in fiscal '26. We expect Q1 non-GAAP revenue growth to come in modestly below the low end of our full year guidance range, driven primarily by a 1% impact from the shift in our client conference, along with the timing of certain onetime revenue items. As a reminder, we see fluctuations in quarterly results relating to software usage license components, along with the timing of implementation. Therefore, the correct performance indicator for our business is a consistent strong fiscal year financial results. All presented results and guidance metrics were indicative that our business operation remains robust with growth opportunities across all our operating segments. The full year GAAP tax rate for fiscal '27 is 23%. A discussed guidance metrics produce stronger full year outlook for GAAP EPS of $7.33 to $7.38 per share, a growth of 5% to 6%. As a reminder, conservative deconversion guidance potentially understates GAAP EPS growth. Full year free cash flow conversion outlook is for 85% to 100% in fiscal '27.

In conclusion, our fiscal 2026 results reflect another fantastic year. We're pleased by the continued performance momentum and upbeat fiscal 2027 year outlook. We appreciate the contributions of our dedicated associates that produce these superior results and our investors for their ongoing confidence.

Drew, could you please open the line for questions?

[Operator Instructions] Our first question comes from Nik Cremo with Barclays.

First, I just wanted to start on all the momentum you've had with record core wins in FY 2026, which is really impressive. So first, can we just get an update on how the pipeline is looking today? And as we look into FY '27 and FY '28, do we see potential for you guys to continue to accelerate that number as you capitalize on the well-known ongoing disruption at one of your competitors. So I guess it looks like 10 to 12 months to win a deal. So I think we have yet to see any benefits from that description.

Yes. Thanks, Nik, for the question. Yes, I mean, we're seeing benefits of the disruption, but it isn't just coming from one provider. We're taking share really from everybody right now. And so I would say that from a momentum standpoint, I can tell you that we are already -- we've already exceeded what we had done in the first quarter of last year, already in the first month of the quarter. So for core wins. So I can tell you, we are tracking really well. We're continuing to have momentum.

The one thing that will be a little bit different this year is that there seems to be lesser credit union opportunities coming available this year as compared to the year previous and the year previous to that. So we'll see how that kind of plays into the overall. But I can tell you, and I'm sure this is going to be a question from somebody, so I'll go ahead and answer it. We're anticipating to do as good or better this year somewhere in the 58 to 65 range is kind of where we think our core win total will be this year. So somewhere in that range, we think is a very legitimate and reasonable number based on not only the amount of opportunities we have in play, but the momentum that we have in those opportunities in play.

And just for my follow-up, I wanted to ask on how your conversations with customers are going as it relates to these increasing cyber threats from all of the frontier models such as Mythos. So what products is this driving incremental demand for on the Jack Henry side? And do you see benefit from this being an incremental catalyst to drive the customers that aren't on Jack Henry private cloud to the private cloud in the future?

Yes, Nik, that's great insight, and we agree. We are having more significant in conversations. And as you can even tell by the numbers that we talked about in Q4 where we had 7 multibillion and we had 13 of the 36 were multibillion. We're getting larger institutions to kind of start to come around. We're doing our best to inform them about the frontier models and some concerns that they have, the expense that they should have concerns about with running those. And so candidly, we're having much more success. So I don't know we have less -- obviously, less deals to bring over into the private cloud. But the reality is we're continuing to have momentum there. We expect to have momentum. And so we'll see how that plays out this year.

The other thing you mentioned was around other Jack Henry products. I do believe our Gladiator solution set, we believe we'll have a -- could have a really good year based on some of the interest level that we've had in early -- later parts of Q4 and the early parts of Q1 of this fiscal year. So we'll continue to watch that and report on it, but that product set definitely will play into this the printer model and concerns in that space.

The next question comes from Rayna Kumar with Oppenheimer.

This is Anthony Cyganovich filling in for Rayna. You've had a lot of success selling Banno to existing core users. Could you talk about how close you think you are to selling Banno outside of the core and what you believe the revenue opportunities?

Yes. Thanks, Anthony. The revenue opportunity is still really early to talk about, but I'll give you some updates on kind of where we are. So 2 significant things have actually happened. If you all recall, we really started to build out the sales traction and things along that line in January. So really the last 7, 8 months. So since we're reporting on this quarter and this year, I can tell you that 2 things have happened. One, we're very close and probably we'll be announcing in the next -- the signing of a an outside the base deal, with a pretty decent sized opportunity for us, again, not using any of the Jack Henry products.

But the other thing that we've done, and this is all part of the overarching innovation strategy that we have with the Jack Henry platform, which is we have sold a client that is going to use Banno and the Jack Henry platform that currently, and they're going to do it for a digital-only core and they're going to use it and they're not connected with any of the Jack Henry core today. So both the platform and the Banno application will be used in this particular client. And that contract has been signed. So things are -- honestly, it takes some time to build the momentum in that space. The momentum is starting to happen. But the thing that you're going to see that we're able to do that I think a lot of our -- well, not I think, I know a lot of our competitors can't do is we're going to be able to leverage both the platform and our digital offering as a combined solution set, which should make that even more attractive. So more to come on that, but that's where we are right now.

Great. And just as my follow-up, maybe you had 3 straight years of at least 50 basis points or more of non-GAAP operating margin expansion. Can you walk us through some of the puts and takes that might prevent that kind of margin expansion for FY '27 and maybe touch on what came in better than expected in FY '26 versus your original guide?

Sure, Anthony, happy to. First of all, we're quite pleased, as I mentioned in my prepared remarks, the consistency, being able to do what we said we were going to do, we were very focused on the compounding nature of margin expansion versus the 1 year kind of one-off. It's important, as you well know, that compounding effect and the consistency of that as a value driver. So we have been very focused to Jack Henry for a long time on efforts around consistent improvement, whether that be AI efficiency, automation, just general workflow, very thoughtful around head count growth. So doing all the things that we have the skill sets and experience on doing that just manage the overall expense base of our organization. So we will continue those efforts.

The '26 results as we talked about, have the windfall of some benefits that we don't expect to continue in '27. There were some things in the first half, in particular around lower-than-normal cost expenses related to medical expenses, commissions that were more second half weighted and a little lower overall that led to that really strong 90-plus kind of number that we don't expect is a year in, year out type of delivery. Part of that is also some of the projects we've talked about that will be a slight headwind around infrastructure, around security, around the Braintree models that type of work that -- some of that started in late '26, but most of that is a '27 number. So we think the prudent thing is to start with a number that we think very strongly in our ability to execute on it. And then as we continue to see the year, we see the product mix et cetera, that will drive that margin component, we hope to overperform.

The next question comes from Dan Perlin with RBC Capital Markets.

Greg, I wanted to I wanted to kind of tie a couple of things together. So clearly, the backdrop right now is incredibly strong for you guys. It's very evident in the core wins and your ability to pull this together with these transfected deals. But you also mentioned your new sales process that you put in place this year, and that's driving 60% new sales versus 45% in the prior year. So I guess part of it is maybe a reminder of what that new sales process was and how important that is? And then how does that dovetail into the trifecta opportunities because those also are stepping up pretty meaningfully here?

Yes. Thanks, Dan. I will say that the 2 things really don't necessarily go hand in hand. The trifecta opportunities are really more about the work that we've done in those products to get the products on par or better than our competition, which again was something we promised at our investor meeting 2 years ago, especially around Banno and our card solutions. So those 2 don't necessarily go hand in hand. The emphasis on the new versus renewal is this, that in years prior, there was the ability for our sales team to pull in a renewal if it was going to help potentially benefit quota attainment. And so benefiting quota team, it doesn't necessarily help the company. And so we made significant changes to how that could occur, what would happen if it did occur, things along that line. And thanks to our Head of Sales and his team of leaders. They listened, they adhered to it. And what I'm the most proud of is that, that team killed the numbers this year and did it by winning a bunch of new deals and not by pulling in renewals. So that's really the benefactor. So if you think about that, we're just going to have more and more new revenue versus revenue that could have some level of compromise -- what's the word I'm thinking of is where we're -- I can't think of the word I'm thinking it. But please? No, no. Anyway, where we're having some lost revenue tied to that. So the reality is we have been really heavily focused on that. And honestly, the team has done a good job. Now part of it is although a byproduct of how many renewals are in "the pipeline." So you have to kind of work through that as well. So do I expect to hit 60% again this year? It will be tough, but I do expect it to still be north of 55% on the new side. And again, we got a lot of great processes we put in place to ensure that, that doesn't happen going back and forth. So that's really the driver of that is our ability to manage it better, which ultimately becomes more future revenue for Jack Henry.

No, that's super helpful. And just quickly, Mimi, would you mind just kind of double clicking a little bit on the commentary on revenues modestly below in 1Q and what the drivers and timing shift there was? I know you said the conference obviously going back to 2Q, but -- and just making sure I understood the magnitude and any of the key components to that.

Sure. Sure, Dan. So we expect the first quarter non-GAAP revenue growth come in modestly below the low end of our full year guidance range. primarily driven from that 1% impact from the shift in the timing of Connect Conference to second quarter this year versus first quarter. And then there's just some onetime revenues. But just for also modeling clarity, just to give folks a little bit more detail, the Connect Conference typically runs around $6 million in revenue and about $10 million of expense.

The next question comes from Jason Kupferberg with Wells Fargo.

So I wanted to hone in on the theme of moving up market. We've seen that playing out for a while now. And I was hoping you could talk about what the average asset size of the 58 new wins in fiscal '26 look like versus fiscal '25. And then as you consider the 58 to 65 target new wins in the current fiscal year, would you expect the average asset size to be up again versus fiscal '27?

Yes. So thanks, Jason. So a couple of things there. So the average asset size this year was basically on par from last year. And the reason why is that in the credit union wins, they were significantly lower in asset size than they were the year previous. So there was several institutions were in the $400 million to $500 million range. And -- but the important part was that those $400 million to $500 million credit unions bought all 3 of the key products to make them trifectas. And so some of those deals were -- if we're not selling all 3 of those products, we may not spend as much time on them, but as long as we sell them, they become revenue opportunities that are worth chasing. .

So from a year-over-year, not significant, right almost on par. But the part I do want to go back and reemphasize is that in the last 3 years, we've won 45 multibillions worth close to $100 billion in assets versus the 2 years prior to that, which -- the reason why it's only 2 years because that's when we started to really focus on this for $26 billion. So that's really where I think you ought to see when we look at the number of [ 3 ] and [ 5 ] and [ 7 ] and now a $9.2 billion opportunity, we're starting to win more and more of those deals in that range. We now have over 52 -- over 50, I think it's exactly 52 over $5 billion in assets at the company now and again, significantly more than it was several years ago.

Understood. Okay. That's helpful. And just as we think about -- I mean, you talked about the fact that you feel like Jack Henry is taking share, not just from a single competitor, but more broadly. As we think about the elevated number of new wins that have started to trickle in, and it sounds like it will accelerate in fiscal '27. Any way to start thinking about incremental revenue contribution from those as we look ahead to fiscal '28? Obviously, there'll be a lag there between when you book them and when you start recognizing revenue?

Yes. I think, Jason, you'll see some good insights into that at Investor Day. That's one of the things that we're going to do differently this year. We're going to give more insights into to a future year. And I think if you go back to some things that we've been saying on the road as well as these calls where was going to look very similar to this year, maybe some upside, and we'll see, but there are a few things that we got to continue to overcome. But we remain very bullish on '28.

The next question comes from Kartik Mehta with Northcoast Research.

Greg, obviously, you talked about the 58 wins, which is a record in the 14 institutions that are over $1 billion. Is the number of wins or the size of the institution have an impact on implementation timing and therefore, revenue timing?

It really is more about the timing left on the contract itself. So when we win a deal, it really depends on how much time that particular institution is left on their existing contract to when we go live. Like our large win that we just had they're going to go live in early '27 where a lot of institutions could be anywhere. As you've heard us say this before, it's usually anywhere from 15 to 24 months. Sometimes it's less, but very rarely is it less than that time frame, especially on a new core win. If it's a merger or something like that, especially a merger of Jack Henry to Jack Henry, I mean, we've done those in 6 months or less. So it really depends.

But on a new core win, it's usually around that time. But the size itself, honestly, is less impactful than what it is, the 2 main things. contract term left on the contract as well as their willingness to get engaged on the education and reeducation of the things that their staff needs to do. Those are the 2 longest poles in the tent on everything that we do.

And then you said, obviously, you're anticipating fewer credit union credit union win, sorry about that. I'm wondering if there is a reason for that, if something is changing in the industry or this is just a year that fewer credit unions go to market.

Yes. And -- I'm not saying we're going to have fewer credit union wins. I think actually, we're going to have more credit neon wins this year than we had last year. I do think -- because I think we're going to win more of the market share than we have. But there are fewer credit union RFPs, and it is a cyclical thing. That's really more of what it is. Now there is one provider that could open up a lot of credit union opportunities depending on what happens there. But the reality is based on what we -- our conversations with the consultants and our conversations with our sales team, we do see fewer quote bites at the apple. But I am bullish that we will actually win more credit unions this year than we did last year.

The next question comes from Will Nance with Goldman Sachs.

I wanted to follow up on the earlier comments on the margin outlook for the year. Maybe, I think you called out a couple of different things that you guys are overcoming this year, including the big investment initiative that kicked off late last year as well as some of the comps around employee health claims, et cetera. So I guess coming off a really strong year absorbing some of those headwinds and you're still guiding to the long-term margin outlook seems to suggest like a stronger rate of underlying margin expansion or expense control and kind of carrying the trend over the last couple of years, especially if you're able to potentially outperform that over the year. So can you talk just a little bit about maybe stripping away some of the tough comps, how you guys are feeling about operating leverage over time? And are we at sort of a new normal for operating leverage looking at the last couple of years?

Great question, Will. I think if you think about '26, had we not had some of that onetime benefit in nature probably would have looked similar to the historical range that we start on. Similarly, '27 if we didn't have the headwinds that we anticipate we would expect it to be higher. So I think they kind of offset each other a little bit. Your point in terms of the track record pointing to an elevated I think at this point, we're going to be consistent without the starting gate. Now that doesn't say our ambition is to not produce more. Certainly, it is. And I do think that over the near term. There are a number of tailwinds that should lead to higher margin expansion whether that be AI efficiency, whether that be once we're complete and the transition of the data center business, the way our FinOps team is managing AI compute cost the third-party arrangements we have with a number of partners, et cetera, and just the overall product mix.

And as we have the new and emerging segments start to represent a larger percentage of the total revenue, those are at very attractive margins as well. So I think there's a number of catalysts that could increase that margin on a sustained basis at a higher level. We'll go over some of that at Investor Day. I think it's a little premature. I don't think that '27 is the year you're going to start to see it though.

Got it. That's very helpful. And then if I could just maybe follow up on the payments segment growth algorithm. I think there have been a couple of quarters where I think specifically the card revenue growth within payments has come in a little bit lighter than it has historically, a little bit stronger this quarter, obviously, a good spending backdrop. How are you thinking about the growth algorithm and payments going forward and the contribution of card versus some of the other products in the segment?

Yes. I think it's a fair observation, Will. Certainly, the last couple of years, payments while being strong and reflecting the resiliency of the U.S. consumer spending and some really attractive new sources of revenue has been a little shy of the historical growth algorithm I think if we think about the underlying components of that, we've seen a great resurgence in our bill pay, still a bit lower numbers relative to our total growth profile, but coming off a very mature base and being resuscitated through the pay rail acquisition. So that's been a really nice end to see -- the card business is in line with the industry and U.S. debit numbers. I think we've all been pleased over the last 2 years to see the resiliency of the U.S. consumer despite geopolitical inflationary and other kind of macro factors, we expect that spend rate to remain modestly strong.

The other thing that we're starting to see, whether it be the small business efforts or faster payments as a whole, Greg talked about stable coins and tokenized deposits and Open USD and other sources. As we start to see the use cases for that continue to rise, I think that could be an attractive percentage of the business within the payment segment. So we're seeing not only a healthy adoption in those but increasing the dollar volume of those transactions, which is a great indicator for the future growth rate that, that could be a contributor of.

The next question comes from Timothy Chiodo with UBS.

Great. This question is probably mainly for Mimi. It's about the '27 guide you did a really nice job calling out a couple of the headwinds to Q1 and really the first half, but what that kind of implies is that the second half is going to be much stronger and specifically the Q4 exit rate really both on revenue growth and margin expansion. And I was hoping that you've been a business like yours that has a reasonable amount of visibility that you could talk a little bit about what's implied in your planning and then the guidance for the exit rate for both revenue growth and margin expansion, at least directionally and what that kind of spits out for the earnings growth exiting the year and heading into '28?

Yes. Happy to, Tim. I would say, on a reported basis, we expect a gradual ramp throughout the year. You have some of the first half tightening issues between Q1 and Q2. We talked about due to the conference timing and other onetime revenues. We expect it to improve over the course of the year, not a dramatically dependent year, but just a gradual upslope as the year goes on. That should leave us exiting '27 with great momentum. One of the things we have highlighted that is a talking point for our Investor Day is that '28 and beyond outlook. And '27 is an important year as we continue in some of the new and emerging space. And so as we continue to see volumes and adoption in '27, that will give us greater confidence for that '28 and beyond kind of run rate. But I think it's still very much fair to say that the accurate metric for our business is still full year versus kind of an annualized exit rate or any particular quarter. .

The next question comes from Dominick Gabriele with Loop Capital.

If you look at complementary the growth there, I think it's growing on a 2-year stacked basis, almost 10% still, which is actually really strong, especially with the commentary out there that some banks or credit unions or everybody that could build a software solution themselves is going to build is going to try to do that. But here you are growing on a 2-year stack 10%. So I'm just curious if you could talk about the strength of complementary and what you envision is going to drive that business moving forward.

Yes. The beauty and the challenge of complementary is that it's a full portfolio of products. And so there's some products in there that are beautiful anchor tenants, as I like to think about that are just mature growers but a bet at lower levels. And then you have some exciting areas. Greg talked about tremendous growth in treasury management, for example that is within digital. Digital itself continues to be a tremendous grower for us. We are continuing to add new product functionality within our digital product suite you have areas like Financial Crimes Defender, that's very hot from a spend perspective of cyber and fraud prevention.

So I think the complementary portfolio as it's designed as it's intended is to meet the more fulsome needs of the credit union or bank. And I think that's reflective of the overall IT spend I think your comment on the current environment and a lot of start-ups and a lot of fear of do-it-yourself, I think, has a lot more cost than people maybe would have envisioned a year ago with AI compute costs going up and also the robustness, the scalability and the compliance of known execution that Jack Henry delivers an institution, I think there's some things that they're going to do themselves, but I think it's much more on the customization side than it is a full-scale end-to-end solution.

Right. And then just for my follow-up, I guess, when you're thinking about partnering or outsourcing potentially different products to AI companies to help augment your own products. Talk about the build yourself, partner with an AI company or fully outsourced that a potential new service to one of those AI companies and what the kind of competitive dynamics and moat that you have depends on which kind of path you choose there.

Yes, Dominick, this is Greg. I'll take that. So I think there's a couple of ways. We do look at by partner, build in really everything that we do. And so we actually have a team a fintech biz dev team that works on building relationships and some of those relationships end up being just pure integrations into our product set. They may integrate into our digital or our core, our payments offerings. And I think as you know, we have over 1,000 fintechs that are integrated with us today. Some of those end up being relationships that could end up growing into a variety of different modes. So whether it's a reseller mode or a referral mode and then some of them could end up being potential acquisitions. And some of the acquisitions we've done through the years have come through that way, including vigor, our most recent one. So all of those are taken into account.

From an AI-specific Candidly, we have been working and talking with several AI companies, people that we believe potentially could accelerate. But I will tell you -- and I say this, hopefully, in a humble fashion, our team is really talented and the people that we brought on to build out our AI and the things that we're doing, we're finding are really advanced. And so there's very little that we're using from the outside versus the what we're able and capable to do on the inside. So if we do find something that we think would accelerate that, of course, we're partnering in those various tools that would allow us to do that.

But from a product set, it's been -- honestly, it's been infrequent at this point, but that doesn't mean it won't change, and it doesn't mean that we're not constantly looking. We have seen of people that are truly on the phone every week talking to -- as you can imagine, we get a lot of inbound calls with people that want to partner or whatever with Jack Henry. So we evaluate that and continue. But it is 100% on every one of these opportunities. It's a build partner by mindset.

And Greg, if I could add on, if I may. Our clients are looking for our help in this kind of chaos and noise to help them think about what solves their needs and who those vendors might be. And it's -- AI is on a built-in, not a bolt-on. So it's around how do we help them with their data find the right partner, find the right solution and make that seamless. So it's not just a bolt-on experience. .

Yes, I'd like to add one other point just because we're talking about this. We have actually started to engage in consulting engagements with our clients to help them build out governance, help them build out a variety of things that allow them to utilize AI within their environment. You can imagine a lot of our customers based on their sheer size don't have the wherewithal to do that or the talent. And so we have started to do engagements, consulting engagements to help with that. So not only bring fintechs and AI people to them that we know, but also help them build that out themselves.

Looking forward to 2028 and beyond. Great quarter.

The next question comes from Brett Huff with Stephens Inc. .

Two questions from me. One, a little bit bigger picture on the platform. Greg, I think you mentioned this both in terms of kind of future proofing all size FIs as they buy from you, but also particularly on the moving upmarket. It seems like you all have a really good solution. I know it's modularized. I know things are rolling out over time. And it seems like people aren't just going to buy the full Monty all at once. It's designed to be kind of a progressive thing. Can you give us any new anecdotes on how that's working, new GAs that might be coming out, particularly strong adoption of a particular feature function?

Yes. Sure, Brett. So a couple of things. So while you were out, we did progress that platform. So we roughly have about 25 modules that have been created that are kind of core specific things like general ledger, exception item processing, authorization management. There's a whole host of things that would fit into the core in deposit functionality that we built out. So we now do have a full deposit-only core. We have several clients that are in what we call closed beta testing that right now. We're working on the lending to finish out that. We actually hope to have some announcements at Investor Day on some of that as well. But the reality is, to your point, there's very few people that are buying -- they're not buying the actual solution set today, they're buying for the future, and they're making sure like the $9.2 billion win that we had with Wood force, they exited from one of our large competitors modern platform after several years of not being able to do what they wanted to do. They saw what we have done. We were able to show it. Again, it's all -- this isn't -- there isn't a PowerPoint being shown. It's all live demonstrations and an actual ability to utilize the solution set. So they're interweaving some of the modules in with our SilverLake platform, which is the way we built it. So it's all integrated. So some of the higher mover modules today right now are domestic wires. We just finished our international wires. We had got that all done. We have the general ledger out. We have a lot of the things that we were talking about earlier with exception item processing.

And the other part of this breadth that's important is that it isn't just about the monetization of what Jack Henry is doing out in public. It's our ability to end up utilizing those services inside the company. So part of our ability to move more quickly and honestly, more quickly than anybody is our ability to build things once now, where each of the individual groups may go build exception item processing and their own specific product set. Now it's built once in the platform and they all utilize the APIs to access that. And so it just makes everything we do faster and more efficient and longer term. So we have several large institutions, ones I can't name yet, but big ones, much bigger than what we've been talking about that are talking to us about future solution sets on how they could either use components or maybe it being kind of their core of the future. But right now, the deposit-only full solution is available, and that is an amalgamation of a bunch of components so you can buy it in a bundle or in an individual component. That's super helpful.

And then, Mimi, I think this is more for you. I know there's been a couple of questions on AI, but we concluded to try and kind of suss out additional spend, particularly on the COGS line for supporting AI efforts. And as you know, everybody is really worried about token costs and things like that and paying close attention to gross margins. Can you just walk us through I know you mentioned there's some additional spend on AI development and things like that? Can you -- any more specifics on that for us to just give us a sense.

Sure. So while we are encouraging usage, we're also being very thoughtful and fiscally responsible. So access to the tools that Greg mentioned, over 100 tools we're currently internally using those come way off. And so we're managing some of that to where is the best return. Who are the creators, for example, do all of developers, internal audit, marketing, so what is the benefit depending on what the tool is, what is their greatest returns. So we are managing that spend we're also managing the spend in the ever arms race that is LLM models, we are staying -- we have partnerships with all 3 cloud providers. We do have a strong partnership with Google, but we're also seeing LLM model agnostic. So that allows us to think about when we use external models when we might use local models so that our FinOps team can manage that AI compute cost and optimize the routing for AI. We also have, depending on whether it's internal use or within a product. There's also clauses within our contracts if it pertains to kind of pass-through capabilities of certain cost arrangements.

So there's a number of levers. It starts with oversight. It starts with dashboards and monitoring and making decisions to inherently offer flexibility for the future given the dynamic pace of that industry. But also making sure that some of our arrangements with different vendors or partners allow for both growth of our organization, but also taking advantage of hopefully what will be pre-declined and certain elements of that cost basis.

And due to time constraints, the last question comes from James Faucette with Morgan Stanley.

I just wanted to follow up a little bit on the AI opportunities and initiatives and maybe how that -- we should expect that will flow through to earnings and margins in particular. I think you talked about how some of the token costs or you're having to spend there and some of the development you're doing, and I think more specifically, you cited roughly 90% developer productivity improvement in the organization, which is amazing and 70% to 80% reduction in exception processing time, but yet we still have these R&D expense increases and SG&A Help us think through like the benefits that you think you'll get from the AI spend in '27? And maybe more importantly, into '28 and beyond?

Yes, James, this is Greg. I'll start and let Mimi kind of bring it home with some of the margin components. But -- so there's a couple of ways to look at this. So first of all, from a revenue standpoint, some of the solution sets that we have created have less about immediate monetization as they do about increasing the penetration of the existing product into our client base, meaning we're adding AI capabilities, which we think will benefit the product and allow us to sell more of them versus less about adding some AI particular cost to it. So using Banno conversations and the things that we're doing in there as an example. Even the SAR development we've done in financial crime, those are not additive costs, they're just going to help the penetration because it makes it a better solution set. So there's some of those that balance both a level of monetization and a level that don't. So that is from a revenue standpoint.

From a cost standpoint, you're exactly right. We're seeing significant advancements. Now some of our groups, honestly, are further along than others. So there is a balance of that. But where we're seeing great utilization, we track the utilization by associate. So we know who's using it, who's not. We'll pull their license if they're not using it to the point that we think we're getting a benefit. We have 9 AI coaches that we have hired that actually go around the organization and train our associates. We've trained over 2,000 of our associates already directly on AI to continue. So that will continue to get better. And so some of the advancements that we've seen in certain groups or a byproduct of that. So you'll see even from a head count standpoint, we've been very light on headcount over the last 5 or 6 years. We've always been very disciplined on that. But even the headcount we're hiring this year is really more about certain projects that we have where we're still hiring less than we would have based on that, but we still have to hire people, right? So there's still some additional components that have to hit.

And then the flow-through of that, I'll let Mimi kind of talk about where we see, but this is where she emphasized where we were in the 20 to 40 to start and our continued focus on improving that.

Yes. So just adding on to what Greg said. I think some of the rewards you see are a little harder because they have visibility into because they span across multiple fiscal years. So one of the things we talked about in this year's budget process, for example, is a -- for a given project you may not see a cost reduction in 1 given year, but instead of taking 3 years to develop, it may now only take 2 years or 1.5 years. So that acceleration that velocity of development isn't necessarily an in-year cost savings but over the life of that project, you're going to accelerate the opportunity to monetize that sooner. You're going to lower the total cost of development of that project.

The other thing I would call out is to make a distinction between AI for security enhancements, for example, the project Glasswing efforts we're doing, the other around frontier model, security protection and vulnerability assessment in general, that spend versus the spend we're doing for both internal AI usage and product usage. So I would just make that distinction. I view the securitization efforts to be more of a short-term headwind. Obviously, we always spend on cyber. I don't see that declining anytime soon, but the fortification of our networks and products is of critical importance for our clients and ourselves. And over time, I see a declining rate of growth, hopefully, once we kind of get over the hump. But then as Greg mentioned, the product usage how we are tracking, how it's driving general adoption, it may not be specific monetization in each modular usage of the product, but how it's driving ancillary adoption of the products and the product family.

This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for any closing remarks.

Thank you, Drew. Management will be participating in multiple investor events over the next 1.5 months, and we look forward to those conversations with our investors. As we mentioned many times on this call, we will be having our Investor Day on the afternoon of September 15 at our office in Dallas. Please contact Steve Fine, if you would like more information about attending in person. In conclusion, we extend our appreciation to all Jack Henry associates for their continuous exceptional efforts, which resulted in a strong fiscal 2026 and sets us up for a successful fiscal 2027. Thank you for joining us today. Drew, please provide the replay number.

Thank you. The replay number for today's call is (855) 669-9658, and the access code is 8041677. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Anyway, we'll get started here. Thanks, everybody, for joining us here at Morgan Stanley, and we're joined by Greg Adelson, CEO of Jack Henry. Before I get started with Greg, I'm James Faucette, Senior Fintech Analyst at Morgan Stanley, and I do have a quick disclosure to read. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So Greg, great to have you back. Appreciate it.

Good to see you again, James.

So maybe for investors that are newer to the story, and it's just kind of hitting some of their critical screens, et cetera, can you quickly frame Jack Henry across at least the way we think about the business, core, payments and complementary? And then maybe take that opportunity to explain what has changed most in the business over the last 5 years as you've moved from back-office infrastructure into more facing -- customer-facing, particularly on digital payments and fraud.

Okay. Sure. So let's start off just kind of the segmentation. So we segment our business as you described. So core is about 31% of our overall revenue. Payments is about 37%. Complementary is 28% and then there's roughly 2% or 3% that's left that goes into a corporate bucket of a variety of things, mostly hardware, things along that line. So just to give you a quick description, so in payments, we run a big card issuing business. So that has debit and credit in there. We run faster payments, so everything from Zelle to TCH, The Clearing House, to FedNow.

We run our Bill Pay business, and we run a lot of the things that we're doing with our new acquisition called Victor, which does embedded finance. In the core business is what you would think. It's all the core solution sets that we sell directly to support the bank or credit union. And then everything else is complementary. So really all of our digital and fraud and other things. What's kind of changed in the last 5 years really is more about -- less about what we've done in the back office versus the front of the house type stuff. It's more about our -- kind of getting back to our roots of how Jack Henry was started.

So our founders, by the way, this is our 50th year in -- we just celebrated last year, our anniversary. And our founders were very innovative, and we got back to really back to our roots of being innovative. So we're building a lot of our own technology, less on partnerships, less on acquisitions. We've been much more vigilant in making sure that we are being more of a leader in the industry than being a close follower. And so I think that's really what you've seen in some of the technology that we might be talking about today. But what we've been able to do in stablecoins and SMB strategies, what we've done in a lot of our digital applications in general are kind of examples of that.

That's pretty exciting, and I appreciate the overview. So let's talk about some of the places where you've had historical success and continue to do so. And I know we were chatting beforehand that this last year, in particular, has been a great run financially for Jack Henry. But let's talk about like the drivers of that. So core sales momentum, you are tracking above kind of your normal 50 to 55 annual core win range with more larger institutions and more product attached. As you look at the pipeline, what is changing most, whether it be number of RFPs, Jack Henry's win rate, size of institutions or breadth of products with which you win? Just help us understand like how you're winning more than you have historically.

Yes. it's a great question. I think, honestly, it's a little bit of all of those. There are more RFPs than typically. If you look at a traditional year, there's roughly about 200-ish RFPs that go out. About 100 folks actually make a decision to leave their incumbent, and that includes folks that are on Jack Henry's platforms as well. That number has inched up a little bit. So we're probably more at around 225 to 230 this year, which has helped us, but our win rate has actually gone up as well. So when you look at where we are today, so our fiscal year ends in here about 20 days.

So June 30 is our end of our fiscal year. So we reported Q3 back in May, we had already closed 43 new core deals for the year compared to 28 the year before. And to your point about larger deals, we had closed 11 multibillion-dollar institutions compared to 8 the year before. To put that even to kind of expand upon that, we just did a press release a couple of weeks ago where we announced Jack Henry's largest core banking deal ever that we won. It was a $9.2 billion institution. Now we have institutions that are far greater than that, but we had never bought -- we had never acquired one at that size.

And more importantly, they had 1.5 million accounts. And so that's about 30% bigger than any Jack Henry Bank client today. So very large win came from one of our competitors and a great opportunity there. So that kind of gives you a little bit of a flavor of not only the number of wins, the type of wins, the type of opportunity. Candidly, there's some things and disruption going on in the industry with our competitors a little bit. Some things that have been said, some things that have been walked back, but that's created an opportunity.

Lastly, it's back to what I said before, innovation. So if you ever hear me talk, whether it's on an earnings call or in a customer or prospect meeting, I talk a lot about our 5 differentiators: culture, service, innovation, strategy and execution. We believe that we're doing those 5 things as well as anybody in the industry regardless of whether it's in the banking industry or not. So we do what we say we're going to do. We built a great strategy, and we've built some really cool technology. All of that has helped us win larger deals and be involved in some larger deals that we haven't even talked about yet that are in the $50 billion range as well.

Wow. So I want to go back to the RFP count. It seems like it might be up around 10% from what we normally see. Like what do you think has been the motivating driver there? Like is there a common thread that you can draw through that and...

Yes. I mean, look, I don't want to say anything negative about our competition. That's not what I do. But the reality is there's been disruption. And so one of our competitors made an announcement that they again have walked back that they were going to consolidate their cores from 16 to 5. They've now said they're not going to do that, but that opened up the kimono a little bit for folks to start thinking, well, if I'm going to be one of these that's going to be kind of replaced, I might as well start looking. So we have a very large pipeline of opportunities that are specifically in that particular competitor's base. And we've seen RFPs in that particular competitor's base open up to a greater number.

So you feel like in a lot of ways beyond just like -- I think that most people felt like there was going to be an okay investment year from a bank perspective. But it seems like you're saying that, that announcement actually immediately catalyzed an increase in RFP activity.

Absolutely. And to your point about spend in the banking space, so there's been a multitude of surveys over the last 12 months that we are part of, one that we run ourselves, a couple that we co-sponsor that have shown that about a 6% to 10% plan for spend from the banking world. And honestly, I think that's going to go up. When you look at the challenges with opportunities in AI in the community bank space, you got Mythos out now from a data and cybersecurity, folks are going to be making sure that they got the right vendor to keep them protected because most community banks just don't have the wherewithal to do either one of those things without the support of folks like Jack Henry.

So let's talk about that incremental pipeline and opportunity you have there. Like how should we think about as investors those at bats, if you will, that increased frequency of -- or higher RFP number turning into signed deals? And then when can those signed deals show up in revenue? Kind of what's that time frame look like?

Yes. So typically, from a core standpoint, and again, when you're selling outside of the core, those time frames are a lot shorter. But typically, in a core, it takes about 9 to 12 months. So the one I referenced, the very large one, we actually started that process last June, closed it in April, and that was a very large deal, but it took about 9 or 10 months, and that's about average. So it takes about that long to close the deal. Depending on how much contract term is left on their existing provider, that also has a big bearing of when they will go live.

So we typically say that when we close a deal, it's usually 12 to 24 months before it becomes revenue for the company. And that's pretty accurate based on a lot of factors. The 2 biggest factors are contract term. And also these institutions have other projects going on. So they got to get their staff all trained up on the new technology, and that takes time. So you typically see 12 to 24. Now it's much different in an M&A environment, which we can talk about later. But in core itself, that's kind of the time frame.

Got it. Got it. So you mentioned also opportunity in upmarket, et cetera. You've had some larger wins recently, including -- you mentioned institutions well above $1 billion in assets and one with meaningful more accounts than your current largest customer. So you just talked about the size of that. But as Jack Henry moves upmarket, what becomes the gating factor to continue to win there? Is it sales credibility, implementation capacity, referenceability, integrator support, product breadth? Just help us understand like what additional things you need to add to the capability of Jack Henry to continue to move upmarket.

Yes, it's a great question. Honestly, with where we've been playing right now, it's 100% credibility. It's not any capability, scalability, any of those things. And I'll give you some examples. But from a credibility standpoint, as I just said, this $9.2 billion institution is the largest institution that Jack Henry has ever won. We have 40 institutions that are over $9 billion today that have grown up with us and built over the years. So again, it isn't the $1 billion in our largest $53 billion, and we have several in the $30 billion.

But the reality is when you're going after these types of opportunities, you have to be able to build that level of credibility. I actually just had an inbound from a $12 billion institution who said they weren't -- we weren't even on their radar, but somebody actually referred them based on their experiences with us. And so those are things that we have to overcome. To give you some examples, from a product standpoint, we don't -- we have everything that we would need other than one particular thing as you go really upmarket is wealth. So we don't really have a great wealth management solution.

We partner with some folks on wealth management, but we haven't built that out just because it hasn't been a need. But as you go further and further upscale, you need a better wealth solution. And so we're working through and thinking through how we're going to manage that as we go further upscale. Everything else, we're fine. And then from a scalability standpoint, we actually run annual tests on all of our products in our core and just this last year, we ran at $200 billion in assets. So -- and we ran just fine. It's an independent test run by IBM. And we do have some customers. We have a $200 billion credit union that we have products with. We have $70 million banks that we have products with. So again, we have examples of that already.

Got it. So let's talk about trifecta attach and how that impacts contract lifetime value. It seems like your core wins increasingly come with digital banking and card. But how much does lifetime value of a contract change when you win core, Banno and card together? And how much of the attach typically happens at signing versus later as kind of third-party providers on their own contracts roll off?

Yes. So just to explain, what we call a trifecta is, again, core digital and card. And those are really the 3 most complicated conversions you have to go through. So it's really important if you can win those 3 at the same time, somebody is making a big bet on the technology that you have bought. So to answer your first question, it's about -- well, there's a couple of reasons why. So let me tell you why. One is when it's sold with the core directly, a typical digital and card contract is 3 to 5 years.

But if it's sold with core, a typical core contract is 6 to 7 years, so it becomes coterminous with the core. So you've added a couple of years of value in that particular relationship. So that's extremely important. The second part of that is because of that extra value and the value of a digital and card deal to Jack Henry, it's about 60% additional total contract value to the company when we're able to sell that at the same time. So 60% increase.

So what had happened in years previously is you would see folks that would maybe make that at what we call a day 2 item where they would purchase core, say, I got x amount of years left on my digital contract. I'll come back and talk to you again later on. A lot of them are making decisions to end their digital contract at the same time they're doing their core. And again, a good indication that we're building out great technology to allow that to happen.

Got it. So let's talk about probably one of the noisiest things I've run into in a while, and that's Pismo. And Pismo is a core and issuing platform that Visa acquired. They had an announcement recently that Wells Fargo had selected Pismo, and that continues to be a common line of questioning for investors. So let's talk a little bit about what, from your perspective, Pismo is and isn't. I think you've said that Pismo has ledgering capability but lacks full deposit and lending functionality.

What capabilities maybe would you think Pismo would need to add before you would view it as a true competitive core? And how closely are you watching edge use cases? And maybe you could just help us understand why not necessarily Wells Fargo, but anybody might say, "Hey, I want a limited use core versus what most institutions might want."

So I think there's a lot to unpack. Let me give you a couple of components here. So first of all, I'll give you this perspective. We have not seen Pismo in a single deal that we have done of all the cores I just named or all the opportunities we won, we haven't seen them in a single deal. Now we see them in card, which, again, they're bringing DPS and Pismo together to bring a single platform for debit and credit, definitely have seen them in there, and that's going to happen. I'll talk specifically about the Wells deal.

So when you look at the Wells opportunity, so Pismo has a general ledger that was built as part of their commercial card platform, which is supposedly pretty good, more modularized, more componentized, which allows somebody like a Wells who's got a wherewithal of tons of dollars and people to build on top of. So my guess is, and I don't know this for a fact, but my guess is that they decided to take the general ledger capabilities and replace some general ledger capabilities inside of their existing core because it didn't do what they wanted it to do.

Again, don't know that for a fact. What I do know for a fact is that it only has a couple of deposit features. It isn't a full deposit-only core. So it does have general ledger and it may have a feature of being able to send an ACH or sending some other things or a wire or things along that line. But when you look at the full functionality of a deposit-only core, there's a much more that has to go in there. I don't know if that's their plan to build out more of a full core or offer this componentized to folks that could build it out themselves. Don't know that for a fact.

One thing I know they don't have is full lending capabilities. Candidly, there's very few people in the entire environment that have built lending capabilities into their core. One of the advantages that Jack Henry has is that we are one of the only providers that's ever built a full core. So even if you look at our 2 biggest competitors, they've only acquired cores, they haven't built them. So we built them from scratch, and we built out lending capabilities. So until somebody has the full core capability, we don't see them as a competitor in that environment.

Now I'll answer your last question was why would somebody pick somebody with just a module or 2 to build out. And this is what I would say. Again, if you have the ability and good for Pismo, they have the ability to be componentized, just like we built out all of our new core modules, and we're actually replacing some with existing clients and eventually with nonexisting clients. So that gives you the advantage to take advantage of new public cloud technology and have it integrated into your existing core and run through that.

The difference is we've already built all the integration. So for Pismo and Wells, they're going to have to build the integration themselves to have it actually operate as a single core. If it operates as a stand-alone core or what we call a side core, you have to operate that separately with separate compliance, separate people, everything else. And that could be a royal pain for your regulators. So until all of that comes together, to answer your question, I don't know of a lot of people that are interested when you have other options that would be fully integrated.

Got it. Got it. So I'll take a breath here. I mean, we spent quite a bit of time on the core products, competition, et cetera, but see if there are any questions from the audience before I move on to other areas. So let's keep going then. So let's talk about Banno, the platform, modernization and et cetera. So maybe I'll start with Banno, just maybe 20 seconds quick refresh on what Banno does and where it fits.

But more importantly, I want to ask about Banno outside the core base. Banno has more than about 15 million users and has historically grown inside the Jack Henry base. Are you beginning to push Banno outside the base? And what are those proof points that investors should watch to see if it's going to be able to become a real independent growth driver?

So for those that don't know Banno, so it is our digital application that we have built, so online banking, if you consider from that standpoint. So online banking application that we built from the ground up, public cloud native in 2018 and launched it in -- excuse me, 2018. We have now, as you said, over 15 million users. So it is the fastest-growing platform in the digital space today, to your point, only been sold to Jack Henry clients. We have roughly 1,030 of those clients live today out of 1,700 core clients that we support.

So we still have about a 40% runway inside of the base. But because we're getting to the point where we think that we have done a good job of building feature functionality to be on par with some of our larger digital-only competitors. So I won't give them their names for their justice, but the reality is there are some good ones out there. But the good news is that as we built out the feature functionality, and I think you were at our Investor Day 2 years ago when I said that was going to be a focus. So we are now winning deals from our competitors because of the Banno business application that we built that needed to be.

We were really good on retail. We lacked a little on business. So just in the last 2 quarters alone, we have won 19 deals that were existing Jack Henry clients that were on competitive digital platforms. So just in the last 2 quarters. And then back to your trifecta, we've won 39 new cores just in the last 2 quarters. And of those 39, 80% had Banno attached to it. So again, numbers that we hadn't typically seen. So we're starting to take it outside the base as we built the competitive differentiation.

We are targeting a handful of cores that makes sense based on disruption as we were talking about earlier, an opportunity where somebody may not be interested in moving their core tomorrow, but they may be interested in moving their digital application. So again, when I talk about the 3 hardest things to do in a conversion, core, digital and card, a lot of people call core heart lung surgery. I call digital appendectomy, and I call a card -- a root canal, right? So you're trying to get all of those done. So this is a good way for us to jump start an opportunity to build a relationship with this particular customer.

Got it. So let's talk about the platform itself. I think it's pretty interesting, especially since you spent roughly the last 5 years componentizing the offering and making it cloud native. And you've got, I think, at last count, 20 or 30 major components in market or beta at least and lending still being the largest remaining piece. What's the critical path from modernization work to getting visible and evident revenue acceleration? And when does the platform become more than an architecture story for investors?

Yes. So the part that I want to make sure I explain and hopefully, just I'll take enough time to do this. But the way we have built the platform, it isn't -- people view it as a public cloud core. It is way more than a public cloud core. It is -- as I described earlier, it's fully integrated into our existing foundational cores, which is different than what anybody else has built. So as we replace a module like a wires platform, we literally turn it off in the core on that day and turn it into the new platform, and it flows through the existing core that they're on today without any -- almost a seamless.

In fact, we had 5 of those happen in a single day and the CEO said, it was boring, right? Because that's the way it should work, right? It should be very seamless as long as you built the integration. So to your point, we've built 25 different modules. Not all of them are core specific. So what's important is the platform has been the foundation for Jack Henry to build all of our innovation. We built a stablecoin proof of concept to move USDC, both send and receive in 2 weeks. We're getting ready to have 3 clients go live. We're waiting on the regulators to approve it, but we built it in 2 weeks on the platform.

We talked about -- we're getting ready to talk about Tap2Local and our Moov relationship. And that Moov relationship was built on top of the platform as well. So there's modules that sit on top of the Jack Henry platform that aren't core specific, but they've allowed us to innovate much more quickly than we could otherwise. So back to monetization. So to your point, some of the core modules, in particular, we have some customers in betas, some -- we have about 75 customers that are using some pieces of the core modules today. So limited amount of revenue today.

But as I mentioned before, the larger deals we're winning, the number of deals we're winning, they're all because of the tech story. So we're able to show what we've built and not just talk about, right? It's not a PowerPoint. It's full demos of things that we've already built, and that gets us to win. So we're actually monetizing more than people give us credit for because it's actually part of our wins and the things that we're doing there and our SMB story and all of that kind of stuff. Now there is some other things that will be coming to your point, that we'll be calling out in '27 and '28. But we do believe, based on where we are, the lending piece of this, which is, as I already said, is the hardest, is still a couple of years away, but we are actively building that out today.

Got it. So I want to talk quickly about public cloud readiness and the regulatory path. It certainly seems like the strategy assumes clients can adopt cloud-native components now, but full public cloud core consumption likely takes more time. What specifically needs to change across regulators, bank boards, auditors and client risk before we can really start talking about public cloud for core adoption?

I think there's a couple of things, and they're happening as we speak. So one of it is AI. So being in the public cloud is going to allow the data consumption and the ability to use AI to be greater. You've heard the term no data, no AI. Well, you need to be able to have that. And being in the public cloud is the way to be. I can't speak for others, but I'll speak from a Jack Henry perspective. I mentioned earlier about Banno being in the public cloud since 2018 and now almost 16 million users.

So based on that fact, we've been working with regulators for a long time about operating in the public cloud and how we operate. We've actually written documents that sit in Washington, D.C. because of our experiences being in the public cloud. So we have a really good relationship with the regulators, and we have confidence that have been built with our customers because of how much time we spend in there and the number of applications that we move to the cloud. I think from an incremental approach that we have taken with our components is also helping customers get more comfortable in CEOs. Candidly, sometimes it's the age of the CEO that's got the level of comfort.

But a lot of that is part of what we've been kind of working through. So as we've gotten regulators more comfortable with how we operate, and we've been able to do this in an incremental approach, like I said, everybody that moved to our wires platform, they're now working at least one component in the public cloud. So that's helping them get comfortable, and that's what I think needs to continue to happen. But with what's going on with AI, what's going on with the cybersecurity and vulnerabilities and other things, being in the public cloud is absolutely the way to go.

Got it. So you mentioned some of the payments applications you've been able to build on your platform. So let's talk about those. That growth in that segment is still around mid-single digit, while faster payments, Rapid Transfers, Tap2Local and embedded payments, all as potential drivers are still really early. What milestones would give you confidence that payments can accelerate over the next couple of years?

Yes. So we're -- we typically have seen payments range in the 7% to 9%. We're kind of at the lower end of that this year. We're kind of at the top end of 6%, lower end of 7%. And there are some reasons for that, that we've called out on earnings call, a lot of them are onetime things that -- so we expect payments to get back into its normal range next year, in fact, and what we've been able to see related to each of the groups that you talked about.

The ones that I think have an opportunity to "juice it a little bit more" is the Tap2Local, which is our merchant acquiring solution that we have inside of banks and credit unions as well as Rapid Transfers. We're seeing roughly 45% to 50% growth in our PayCenter business, which is all faster payments initiatives. We've actually seen a resurgence in our bill pay business, which is interesting. It's still low single digits, but it's a lot higher, low single digits than they were before after we bought the Payrailz acquisition.

And then you mentioned embedded finance with the Victor acquisition. In 6 months -- well, I guess it's about 8 months now that we've owned it, we have a very large pipeline of banks and fintechs that we're lining up and already closed some of those deals. So I think all of those point to the fact that as you look into '27, we should be inching up into more of a normal range. But looking at '28, we feel pretty confident that you're going to see much more of an impetus of the driver above the normal ranges.

Got it. I like to hear that. So I know you've peppered the conversation thus far with mentions of AI and some of the things that you're benefit you're getting and where you see some opportunity. But let's spend the last few minutes talking specifically about AI and what Jack Henry is doing. And I want to kind of come at it from 2 directions, productivity and the fraud overlay and how you're improving products there. First, is it -- is AI already driving internal productivity gains for you? And what kinds of applications or uses are you finding to find the productivity gains?

Yes. So just to give you a quick backdrop. So about 3.5 years ago, we started our AI governance. So I was COO at the time, and we worked with our CISO, our Chief Risk Officer, our CTO and myself. We built out a really strong governance framework. And it really was built around the fact that we wanted to see how we were going to use tools within the organization and how we were going to govern that. Candidly, AI is much faster growth than anybody thought at that point in time.

But as of today, we have almost 100 tools that we're using within Jack Henry. We have limitations on who can use it, the number of licenses that we offer, but we're experimenting. There's going to be winners and losers in this. And so we're not putting all of our eggs in a certain basket. As a byproduct of that, we have over 500 use cases that we built for internal efficiencies, including 100 vibe coding cases that we built, including ones I've done. Yes, exactly.

So we have 9 AI coaches that we've hired in Jack Henry, and they're going across the organization, helping us build the level of efficiencies or vibe coding opportunities. I think we trained over 1,200 of our employees already on AI. And our message to our associates is this. We don't -- we never overhire. So we -- if you look at our headcount over the last 5 years, it's averaging about 1% on 7% growth. And because we've always been building efficiencies, whether it's process improvement and now AI. So there isn't a bunch of people to go "layoff."

So our message to our team is, you're not going to lose your job because of AI, you're going to lose your job if you're not using AI because we need you to be more productive in the roles that you are. So the opportunity here has been really, really great. So back to some of the examples, we've seen anywhere from 70% to 90% improvement in development, whether that's accuracy or speed of development. Customer service, we've been able to take like 3,000 cases and condense the time frame that we have where people get questions that are the same and they are able to access that via AI.

Legal, we had almost 50% of our renewal contracts never touched our attorneys. HR, you name it across the board. I mean we're using it in everything. So we have a group that kind of evaluates the ROI and which ones we're going to get the biggest bang for the buck. And we're doing a great job of building all that efficiency. On the product side, our AI coaches and our Chief Data Officer, who we hired are really pushing the product development. So we have 2 products that are live with AI today. One is in our Banno application and one is in our financial crimes application. One is SARS, so suspicious activity reports, we can do all that.

We just rolled that out last month. And in Banno, there's some things that we've done to build efficiency inside the bank or the credit union that they're utilizing. But we have 14 proof of concepts that we have just finalized that all will have the ability to either be monetized or will be included in the product set, but should help drive more adoption of the product set or we may end up building kind of a model where we can build efficiency into the bank or credit union and we take a cut of that efficiency.

So we have different models that we're going to experiment with. But we've been extremely active building out agentic AI agents and utilization. So we've been doing all this ourselves. We have a very talented staff that we've hired all around the country to help build that out. So that's what.

So last question here. I think there's at least among some of the investment community, some apprehension that whether it be AI labs or the hyperscalers or AI native-based solutions could start to bring in fraud and AML identity and scam detection solutions and overlay that at the bank that, that could adversely impact Jack Henry. How do you think about that and any potential impact to your bundling strategy? And how important is it to have that core system as a natural distribution layer? How do you think about that?

Well, I mean, the core system itself and really any system of record is really what the key is. So whether somebody is going to build agentic AI agents to come in, they still have to call the same APIs that any human has to call to be able to have access. So the real importance is the API side. So the way that you can control the access to the system of record is through API. So we've built out a full catalog. We charge for those APIs. So I don't see any disintermediation plus regulators are really difficult.

You can't have an AI conversation with a regulator, right? So that's a real protection from a core. Now are there complementary products that might make sense that somebody is going to come in and build something more quickly? Absolutely. But as I already mentioned, we're using AI to build all these solutions out as well. We have 1,100 fintechs that are integrated with us today because there are solutions out there that are better than Jack Henry's. We're not going to be the best at 300 products. We're just not, right?

So what we've done is given us an opportunity to embrace whether that's somebody that we might want to acquire, somebody that we may want to integrate with, somebody that we may want to do a rev share with, things along that line. But it is not the point that we believe any level of disintermediation into the core parts of our business, not just core, but digital payments, fraud, account opening and lending is what we call our 6 anchor capabilities. And we'll either augment that with AI partners. We'll build it out ourselves, but we don't see a level of disintermediation there.

That's great. Greg, that's all the time we have today. Thanks for joining us. Appreciate it.

Thanks, James. Good to see you.

Take care.

Thanks, you too.

Today, I hope you're partaking in the lunch and enjoying it. It's been a super productive day thus far. As I said earlier, at the breakfast keynote, this is our 11th year. We couldn't do it without the support of everybody in this room. So thank you. It's a heartfelt thank you. And we also have such a fantastic keynote for lunch with Greg Adelson, who's the President and CEO of Jack Henry, long-time supporter of the conference, supporter of RBC. And so it is just such a pleasure to have you up here with me today.

I appreciate you having us again. And our meetings this morning have been great. So the conference continues to grow. And so congratulations to you.

Well, thank you. Thank you. So speaking of growth, we'll start off at a very high level here. And if you wouldn't mind, I know you've done a bunch of surveys. You've been talking to a lot of CEOs. You've had your own conference. What's kind of the state of bank budgets? Where are they spending? What are they looking to invest in as they go into this next frontier?

Yes. So I think right now, we are a part of 3 or 4 different surveys that go throughout the year, and they've been very consistent in the answer. So this particular year, so if you take calendar year of probably last year at this point in time to this year, so kind of take that 12-month time period, we're seeing somewhere between 6% to 10% anticipated growth in the banking spend. That will come from a whole avenue of a variety of different products, but they're really focused on deposit growth, lending growth, opportunities for building better efficiencies, utilizing AI as part of that, utilizing payment strategies to drive noninterest fee income. So really, that's where the driving forces are. The good news is from a Jack Henry perspective is those are the products that we're really focused on, and we're seeing that kind of play out in our pipelines as well.

Yes, without a doubt, 6% to 10%, like that's a pretty meaningful number. How do...

If you look at a couple of years ago, it was more like 3% to 5%. So as it continued to grow. And I think the part that we like to say is that really, there isn't a problem that a bank or a credit union has in the industry today that can't be solved through technology. And so especially when you're looking at those type of things as your primary drivers. And so that is continuing to add to that.

Yes. No, it seems like it's been a step function up -- over time...

For sure.

When a lot of people, I think, would have thought maybe just the opposite that they would have been pulling back. There's an interesting, I think, dynamic in the market these days around the core upgrade cycle. And there's lots of things that are happening there. There's a competitive dynamic that's happening that we should talk about in terms of some dislocation that maybe exists. I'm just wondering broadly, but then also within the realm of maybe that dislocation, what are you seeing in the market today?

Well, there's -- just to be candid, there's some unrest with some of the competition that we have out in the space. There's been a variety of different comments made over the last 6 to 12 months from really both of our key competitors that in some cases, they've changed the dynamic of what they are focused on, whether that be a strategy standpoint or in other cases, where they've walked back some comments they made on consolidation. So that's opened up the market for Jack Henry significantly. And it isn't just as a byproduct of those comments, but also as a byproduct of the things that we've been building over the last several years that we'll talk about later on.

So if you look at the actual cycle, typically, you see around 200 deals come to play every year. I would say that this year, you're going to see more than 200. You'll probably see closer to 250 based on some of the early prognostications of where RFPs are right now. As a byproduct of that. Jack Henry usually wins 50 of those deals. About 100 make a decision. Jack Henry wins about 50 of those over the last several years. I've already announced publicly that we will win north of 55, and I'm very confident of that. And so that will be a better year for us, but also we're winning larger deals. So when you look at the size of the deals that we have won traditionally versus what we're winning in the market right now. But the overall RFP cycle is continuing to churn. At this point in time, we actually have the highest pipeline that we've had in recent years for all 3 of our segments, not just core, but also payments and complementary as well. So all of those are byproducts of the things that you're talking about.

Yes. It's interesting because Jack Henry has historically been thought of as much more smaller credit unions, community institutions. But the types of wins that you just described, they have gotten much larger. At a time when I think the bank technology has gotten more competitive, and yet you're winning a disproportionate amount of those. So what are some of those attributes that are...

So a lot of it is what I was talking about before related to innovation. So if you all have heard any of our earnings calls or any of the conversations I have, I've been talking about culture, service, innovation, strategy and execution being 5 words that truly define Jack Henry as a level of differentiation from our competition, not just in the space that we actually support in the banking and credit union space, but candidly, in general, across companies in the United States.

We're doing things better than anybody in our market right now. We've always had a great culture and a great service reputation that goes back 50 years. We're celebrating. We actually just celebrated last week, our 50th anniversary as a company. But the level of innovation that we've been bringing to the industry today and the type of things that we're building and as fast as we are building it is really what's driving these larger opportunities. And then we've done a great job of doing what we say we're going to do because that's a mantra that we're really big on. And so it's one thing to show PowerPoint slides, and it's another thing to show a level of execution by actually showing the technology and live demos and things along that line.

That's allowed us to win larger deals. So in the last 3 years, we've won 44 multibillion-dollar institutions. compared to only 15, in the 2 years prior to that. And there's a reason why we're in the middle of that third year right now, but we've already won 13 multibillion-dollar institutions this year.

The other thing is that we're winning larger multibillion-dollar institutions. There was a press release 2 weeks ago that we won the largest single new core win in the history of our company on the banking side. So a $9.2 billion institution with 1.5 million accounts. And so when you look at the size of the client, the number of accounts that they have, those are all things. And it came from one of our larger competitors that was on one of their state-of-the-art platforms. But when they saw our technology and the things that we had done, they made the decision to make the change.

Yes. That was a tremendous win. I want to talk about the trifecta wins as you have started to kind of coin the phrase, like I love the trifecta horseracing concept. It is a little different...

That's right. I grew up in Kentucky, right...

You did. Okay. Well, my grandfather was a bookie. So we're all in good company.

We probably know each other well.

Yes, we probably did, we probably did. But so let's define a couple of things. So there's core, there's digital banking and there's card solutions that fall, I think, underneath that trifecta.

Yes.

Maybe touch a little bit on how they all are intertwined, why now they're starting to fall into the success path, why are the banks really ready for them?

Yes. So part of it is back to innovation. So our digital platform, which we started in 2018, which we built from the ground up is public cloud native. It's the only digital public cloud native platform that's out there. So we now have 15 million users after 8 years of being in existence, but we were always known as a really good retail provider. So when you look at banks or credit unions that were more retail focused, it was a great solution for them. But it lacked a lot of the business capabilities for more commercially focused institutions.

So we've really spent over the last 2 years, in fact, at Investor Day 2 years ago in September I made the public announcement that we were going to get on par with our largest digital competitor. So I won't give them any props today by naming them, but the reality is those of you that know the industry know who they are. And so we've done that. We've now gone and built the feature functionality to be on par with those larger digital-only competitors. And so just to put it in reference, just in digital alone, we've won 18 deals outside of core deals in the last 2 quarters from those competitors where, again, we would never -- we would see 1 or 2 of those maybe in a year in years past.

On the card side, the exact same thing. We built out a significant amount of feature functionality, specifically on commercial card that would allow us to tie into the Banno business application. So when you take and go to a commercial bank, where they were maybe looking elsewhere in the past, they're now looking at those 2 products together.

So a trifecta win for us is significant because it brings about 60% more total contract value to the overall deal than just a core alone. And so when you look at the importance of that, it also becomes stickier. So a typical core deal is 6 to 7 years, a typical digital deal or a card deal are 3 to 5, but if you tie it in at the same time as the core, you pick up several extra years in the term because they like to make those particular things coterminous. So that also drives additional term in the agreement along with the stickiness.

So you take all of that, if we take the innovation, you take the things that we've been building on, 60% of our core wins this year have come with trifecta with both digital and card compared to 29% last year. So it is what we're doing is working and it's playing out in the overall number.

Yes. I mean it's just so much more holistic of a discussion than we would have had again, only even several years ago...

Exactly.

Only several years ago...

And we still have some things to work on that I think are going to help us even more, but as we've added various features and things that we'll talk about in the SMB space, that's also added to the value that we bring.

Yes. What's interesting about that discussion is that the importance of modularity in core technology is also occurring. So you've got like this broader context of pulling these things together, but you've got this modularity that's taking place even at the core. And so I'm wondering how do we interpret that dynamic?

Yes, it's a great comparison because what we're trying to do from an innovation standpoint, so that modularity is also what we call componentized. It's basically breaking apart the core into discrete components. And the reason why that's important is that as folks want to integrate and take advantage of public cloud offerings. We're building each one of these new components of which we've built 25 of them over the last 4 years. So whether that be your general ledger or wires platform, exception item processing, authorization management, there's a whole host of things that truly make up a core, right? So ACH features, things like that. But it allows our customers as existing Jack Henry clients, but also prospects of larger sizes to do this incrementally.

Meaning that you don't have to go through a big bang theory change to go through a core conversion. So most people, if you know the industry well, most people compare a core conversion to heart and lung surgery, so there's a lot that has to go into making that core. So doing this in a componentized framework allows us and our customers to take advantage of public cloud native things, but doing it in small doses. So a couple of examples. Our domestic wires platform, there was a big regulatory framework change ISO 20022, those that are in the payments industry know what that is, which is going to a standard format. Well, that particular change took place on July 14, 2025. And we had several customers that turned off their core functionality for domestic wires and turned it on in our new public cloud over that same weekend. That was a pretty gutsy move to make, but it went flawlessly because it was only one piece of technology that needed to change.

So as we've continued to build this out and we will continue to build more functionality that will be monetized, but also some of it is being built inside the company. In the past, just like a lot of large companies, we have a multitude of business units that would operate somewhat independently, and we've kind of worked on that over the last 8 years with a program we called One Jack Henry, which has made a lot of positive progress there, but also, it was about building the technology. So if you needed to build authorization management into a particular product, we would build it at 8 different products. Well, now we build it one time in a full API environment and it's being utilized as a shared service across the organization. So it's allowing us to develop our code faster as well and also at a lesser cost and price point.

So it's interesting. So the holistic view of these trifectas and then the core being modular in my words -- in my vernacular, I guess -- they don't -- they're not working against one another.

No, they're working in tandem, exactly. So -- and you could get core components that would be tied to a digital win or a card win as well. Because really, when you start to look at in the future, when you look at a traditional core win, we're going to have to look at it differently. Because we may sell 4 or 5 different core modules. And so is that a core win? Or is that just a complementary or core components? Because everything that we're building will allow us to sell inside the Jack Henry base and outside the Jack Henry core base. So we could go sell to one of the Fs and create opportunities there. So each one of those is building, like I said, an incremental way for us to sell in an incremental way for our customers to take advantage of new technology.

Yes. Would you you'll probably agree with this. When you think about the competitive dynamic out there and the products and what you're hearing from clients that are coming to you, I feel like you guys are quite a bit ahead of most of the competitors when it comes to that.

Well, I'm a little biased. But yes, I mean from that standpoint, I do think we are, but I'm also -- we're getting outside validation. So not only in the number of core wins that we're getting and the changes of even this large customer that we just talked about. We're getting validation from some of the largest consulting firms. So the McKinseys and the Deloittes have now spent time in our offices. In fact, I got inbound calls from senior partners from both of those organizations that made a comment. "I got people on my team that have never even heard of Jack Henry. We're hearing a lot about Jack Henry in the space. We want to come in and spend some time with you." And so the way those meetings have gone and we've had lots of subsequent meetings since they've happened. They've been so impressed with what we built and provided some level of context on how different of what we've built compared to others.

So it's not even just the level of component ties that we built. It's how we're building it. We're building it as a fully integrated stack on top of our existing cores that are all complete -- have the complete follow-through or process through as you would. So back when I said about domestic wires. When they turned the domestic wires off on the old core and turned it on the new one, all the settlement part of that went through the old core. It didn't matter because we built the integration.

So it isn't a side core like some people like to talk about. It can be used as a side core, but it's not a side core. And that's really important. And again, a big distinction in the technology that we're building.

So let's talk a moment about the migration, really, of cores into the cloud. On a hybrid and private basis, it's been happening for a number of years. You've made a lot of progress there. I can't remember if it's in the 70s.

79%.

Yes, 79%. So you still have some room to grow there. But the -- what hasn't happened is really the migration to the public cloud. And so two things. One is, what was the benefit that you had in terms of the model, the financial mechanics of moving into the hybrid world? And then secondly, what's going to get everybody over the hump to go into the public cloud? And will there be another financial benefit that you get?

Excellent question. So we've been pushing the convergence from on-prem to private cloud for better than 20 years. So as I said, we're up to 79%. So just to put that in perspective, when somebody makes a move from their on-prem environment to the Jack Henry private cloud, they typically pay us anywhere from 1.75 to 2x. Why? Because they're eliminating staff, all of the burden of compliance and cybersecurity and all that falls on Jack Henry. We're covering all that. And so as we started to move clients into that environment, we still -- we used to get about 40 to 45 a year. We're going to get 30 to 35 this year, but they're larger because what's left of not moving are the larger clients in the Jack Henry portfolio.

What's happening today though is a lot of those larger clients are changing their mindset because of things like Mythos and things like AI where that burden of them having the cost to be able to run the vulnerability scans and the AI components that you need, that all, again, would fall on Jack Henry. So we're getting more and more interest from larger clients of making that change. And even this year, when you look at the number that we will close, the bulk of those are multibillion-dollar institutions that are finally making the change. That will continue. So I already gave you the financials there.

To move to the public cloud, there's a couple of things that happened. So one is what we just talked about, the incrementalism that happens when you move from the wires platform that sits on the existing foundational core today that goes into the public cloud. We get a lift because we're providing some additional functionality with that particular wires platform, usually around 20% to 25% is the lift for each of those products as we start to roll people out.

At the end, there's going to be some folks that say, you know what, I'm not moving to your private cloud. I'm going to wait until all your core is ready, and we're going to move to the full public cloud. We don't expect to lose any of that incrementalism to having -- so if it was one, let's just call it two to make it easy. So if it was 2 plus the 25, we expect it to be 2 plus 25%. So maybe it's 2.25% is the growth. Now we don't know what we don't know because we haven't moved anybody as a full core yet and won't for the next several years. But the good news is we're getting the regulators used to this because we -- again, Banno has been in the public cloud for -- since 2018.

We actually wrote some of the documents that live in Washington today because we were one of the first companies to really go public cloud in our space. And so we have a really good track record of having 16 million users today already operating in the public cloud. So that's going to help us not only with the confidence of the regulators, but also the confidence of our customers.

I did want to click on the regulatory because, I mean, we work at a bank, we understand the regulatory compliance framework. I mean, it's a high hurdle. So what do you think some of those things are going to be to get the regulators, as you say, you're building some of that framework with them. What is it that they're concerned about?

Well, a lot of it is just PII data and making sure that you're protecting that. So in a lot of the things in the core, you're able to protect that in various ways. The things that we've been able to prove out to them is the value of being in the public cloud. So not only the level of scalability, the level of incrementalism where you're able to do innovate faster. So like in our Banno platform, we can push to production a couple of hundred times a week literally because we do small increments of advancements in that. So you're not waiting for the big bang once a year or twice a year type of relief. So we're able to do things at a much more quicker pace.

The other one is just pure uptime and reliability. So we're primarily in the Google Cloud today, though we use Azure and AWS as well. But in the Google Cloud, you can get -- when you think about the number of platforms they support today, we're able to offer our customers 5 9s of uptime in the cloud, where traditionally in our space with foundational cores, it's 99.5%. That's a traditional number today. That's a significant advancement and opportunity for our customers.

So that makes the regulators feel better because the uptime is better. They get a little nervous about the innovation happening faster. So you have to kind of take them through that process. And the other thing is, is that as we build these innovations, we can build compliance and security as the code and so we actually have audit trails built into the public cloud that allows us to track that. And so that makes them feel better because literally at a beck and call, they can pull up all the audit trail for the things that happen, and you can't do that as easily in the traditional cores.

Yes. So let's transition to AI for a little bit. it's funny because like it wasn't that long ago, the cloud was like the new technology. And now we're here in AI. So the question really is what are you doing internally from a development perspective, what are some of the outcomes that you're seeing or expecting to see over the course of whatever time frame you're talking about? Is it a revenue enhancer or is it just a cost efficiency tool for you today?

Yes. So before I answer that, we've joked about changing the name of the company, the Jack Henry AI, just to improve the stock price. But -- so we're all living in this whole -- this whole...

It's new buttons.

Yes, we got a whole -- we're kind of bathing in it right now. But to answer your question, a couple of things. So one, we've actually worked on the AI journey for 3.5 years. We built out our governance framework. I was COO at the time, but we built out our governance framework with our Chief Risk Officer and Chief Information Security Officer 3.5 years ago. Did a great job of laying out the foundation of what we thought was going to happen. Of course, things have happened a lot faster than we originally anticipated. But the other thing is because of that, we now have roughly 100 tools that we allow our associates to utilize.

We have almost 1,200 associates that have been trained on how to use AI, including Vibe coding. We have 9 AI coaches that we've hired that are Jack Henry employees. That come in and work with each of the business units. We've done over 100 cases of Vibe coding where we've actually eliminated tools that we would have had to license out before or created a better pathway of doing things that were pretty mundane work. We've done a lot in development. We've seen 70% to 90% improvement in our development throughputs and accuracy.

We've done a whole host of things in some non-traditionally function areas like HR and legal and finance and building out a lot of improvements in those areas. But as a byproduct of that, we're also building it in our products. So all of those components that we talked about earlier we're building AI into every one of those components. So you can actually talk to our general ledger with prompts using AI.

So if a CEO or CFO wanted to ask a question of what our deposits were at noon at branch ABC, you can talk to the GL and it will give you the answer. We built in a whole bunch of various functionality into some of our existing products. But we have 14 proof of concepts that we have right now with new products that we're getting ready to launch this year, this calendar year. We're on a fiscal June 30, that's why I made the distinction. But -- so we're getting ready to do that.

So there'll be some incremental opportunity there with revenue, building out efficiencies, back to being one of the key things that banks and credit unions want in the survey was building better efficiency. We'll give them the tools to do that. And in some cases, already have. So it's a combination of both, but we're very bullish that we think that AI is actually going to continue to be an augment to what we're doing, an accelerator to what we're doing and not a disintermediator.

Yes. I wanted to dive in on that a little bit more because we always talk about system of record, regulatory framework. Like what are some of the main attributes that give you the confidence to say that AI is not going to be disruptive to the technology and software that we've been building for 50 years.

Yes, yes. And I think it starts with what you described. So system of record is a big component. We've also talked about regulators. You're not getting an AI bot to talk to a regulator, right? So when you look at things that you're going to disintermediate in the space of a variety of different industries, I think somebody would pick something besides banking to try to disintermediate at the core level in particular, because there is so much complexity that goes into building that out and things along that line.

The one thing that I'll talk about is that even as Agentic AI and other agents are built, they're just another point of reference to working within a system of record, right? You can point the agent to building some level of technology, but you still have to go through the system of record to get there. They're not the system of record.

As we give AI functionality to our banks and credit unions, it's creating more opportunity for that bank or credit union to be more efficient as we talked about. Maybe they're replacing people. In a lot of cases, they are. In other cases, they're replacing mundane tasks that allows their people just to be more productive and spending more time with their customers and creating that level of atmosphere.

What does a bank or credit union, especially community bank or credit union have as a true differentiator? It's service relationship and trust. You don't build that through AI, right? So that's what community banks have. So I don't think that's going to go away. So the ability to utilize the agents or the things that you need to do to build out the technology still has to go through all of the foundational things that we control, which is, again, the system of record and the regulatory. So UIs may end up being maybe less important in the future. We'll see where that goes. APIs are absolutely going to be important because that's what you're calling to be able to drive that level of innovation. And then one thing that we've talked about before is service in general.

So Jack Henry is known and has been, this is undisputed that we're known as the best service provider in the industry. And when you look at that level of service, we didn't get it by accident, right? We did it through a variety of white glove types of approaches. So we're using the AI to do the exact same thing that our banks and credit unions are, which is we're building a level of efficiency that allows us to worry less about mundane things and spend more time with our customers and their customers to make things successful. So I just don't see that being something that will disintermediate us. Because, again, you got to get -- you got to be able to get through the regulators and you got to be able to provide the service, you got to be able to handle the diligence to even get approved that some outside company is going to get approval from a bank or credit union to allow them to enter their infrastructure.

Yes. I'm glad you brought up service because you are known for that. Every survey we've ever looked at third party or otherwise, you guys have been right at the top. And a lot of, I think, people who are at the lower rungs of those surveys are suggesting that agents will help neutralize that process. But what I'm hearing you say is no way.

I -- like -- well, they may have their own philosophies. So I'm just going to say, from our standpoint, I think agents will help improve service functionality, but a lot of that's going to be self-service functionality. So -- which, again, that is a part of service. But I will tell you, I mean, we spend a lot of time with Gen Z and other trying to find ways to continue to really promote and work with the Gen Zers and others. But when you look at where the opportunity, again, for a community bank to thrive, it's not going to self-service. That's not what's going to thrive.

Larger institutions, yes, that's where they make the difference and where they can spend their money doing it. Customer service isn't necessarily at the top of their perspective. But for community banks and credit unions, that's what drives it.

Yes. So let's spend a moment on tokenization, deposits, assets, it's a growing topic of interest. What are you seeing from your clients? Are there opportunities for that to be an enhancement that you can provide to them? Or is there a threat in any way, shape or form to what you're providing to clients today?

Yes, I want to provide both context. So both tokenization and stablecoin because we're spending time on both. So the interesting thing with stablecoin, back to the platform that we built and the speed of innovation. We actually built a proof of concept in stablecoin to move, to send and receive USDC in 2 weeks, in 2 weeks. So we actually had 3 customers that were ready to go live. We're waiting on the regulators to approve it. But the reality is we built the technology in 2 weeks.

The other side of that is stablecoin is going to create opportunities by the fintechs to compete with our banks and credit unions where tokenization will be more embedded into the bank or credit union as an inherent. That's why they're very interested in tokenization. There are several big bank coalitions that are coming together. The [ Cari Network ] is one that's being formed. There's a couple of others. So we're spending time with all of them. And so we believe that tokenization is very important and will be an augmentation to our overall strategy related to, again, to combating the stablecoin piece.

So one of the things that we do really well -- and again, differentiated from our competition is we do not compete with our customers. So they've had some acquisitions through the years where they've actually competed with their customers as well. And our big mantra is, in fact, our #1 strategy as a provider is and it's as simple as this, we enable our clients to win in the markets that they serve. And so one of the things that goes back to our founder, Jack Henry, that he used to say that I love to quote is that "Our clients are not in business to make Jack Henry successful. We are in business to make them successful." And that resonates when you're going after and building a relationship with a potential prospect or client.

So back to my point about tokenization. Tokenization is something we need to deliver to our clients because that's what we do. And so by the end of this calendar year or first part of '28, we will have a solution in place through either a third party or some things that we're working on with Google that we think will allow us to do that more quickly.

That's great. In that same vein of that quote, let's talk about your SMB strategy because it's perfectly like developed for that, right. How do you help enable your banks competing against these fintechs and that's kind of the road map that you guys are mapping out. So maybe spend a little bit of time on that. Obviously, Tap2Local is part of that, but...

Yes, so I might go a little longer on this just because there's a little differentiation that I want to point out. So original premise of what we were doing in our SMB space was we wanted to create a solution that would allow our banks and credit unions to compete with Stripe and Square. So they partner with Stripe and Square, but some of the things that they were missing is that Stripe and Square take their deposits away. And once they take your deposits away, they start to lend and provide other services.

So it became a level of disintermediation and that they were kind of letting happen and we said, you know what, we can create a solution that we can build that we think is candidly better than some of the things. It's still early stages, but I'm going to talk to you about some of that level of differentiation in a second. But we built a really cool solution. It took us 9 months. We went to Mastercard and Visa, and actually, they both were so interested. They both have invested into the solution set from a marketing standpoint.

So that kind of started. We got through the process. They told us it would take 2 years. We built it in 9 months. We launched it in November. And it's -- just since November, we have 900 customers already live on our merchant acquiring what we call Tap2Local. I'll give you some distinction about that in a second. And a secondary product that we call rapid transfers, which less than 10 institutions in the country have today, including the Tier 1s. And that is a real-time money movement using the Visa and Mastercard debit rails to move money inside to the bank account, so a Jack Henry client to an outside account, whether that be E-Trade, Coinbase, RBC, whoever it is. And those are real-time transfers.

So think about today, wherever you bank, if you're not at one of those 10 institutions, when you do a real-time transfer from an external account, it goes through ACH. So it takes several days for it to actually hit your account. What we created is real time. So we are seeing a significant -- by the way, it's the #1 feature used at Chime today is to move money in and outside of the account. So we've now enabled 128 community institutions with another 180 in the queue to go live on this really cool technology that we've been able to create. And it creates deposit opportunities because more of what we're seeing are transfers from larger institutions like one of yours into these community institutions. So it now becomes deposit gathering for using that. So it's a great solution for that.

I'll go back to Tap2Local, which is our merchant acquiring. So again, Stripe and Square create these solutions for all different sized customers. Our focus initially was sole proprietors. Why? Because sole proprietors make up 80% of all small businesses in the country today. So we wanted to attack something that we thought would have some girth and had a real challenge. And here's what we did. So because we have all the data on our core, we're able to instantaneously approve 75% of everybody that goes through the process to be -- that wants to be a merchant.

If you think about again Stripe and Square it usually takes a couple of days, sometimes a week to get approved as a merchant. We can instantaneously approve you. As soon as we instantaneously approve you, we send you a message that says you're now eligible to take payments. I'll get back to that in a second.

The second part is -- and the only -- the other 25% are candidly gun dealers or marijuana dispensaries or whatever, right? So they go through a whole host of additional scrutiny. But we do this all in app, by the way. Everything that they fill out and complete is all in our digital application. So really cool technology. Second part is, is that once they're approved, they get a notification that they can start taking the payments on their phone. So we're fully certified for iOS and Android devices. So we're one of the only companies in the country that's certified on both of those devices, which creates -- again, you don't have a bifurcated group. And then once they're actually taking payments, we have a couple of really cool features.

One, so today, they get next-day settlement of their funds. So is that -- there are certain companies that give next day, not everybody but most of the Stripes and Squares for sole proprietors, they keep their money for several days. So next day is a big benefit. But coming in 2027, we're going to have 8 settlement windows a day, meaning that our small businesses can get their money up to 8 times a day based on the bank's preferences. That is unique, and nobody is doing that. And actually, we pushed Mastercard to build out the 8 windows because Visa already had them. So we'll be able to launch that in '27.

The other big one is this, and we actually have patented this process. So when you get your money again next day or 8 times a day, in the Banno application you will get the deposit amount, and that deposit will have every single transaction that occurred for you that equaled that deposit amount directly in your Banno application. So if any of you have a small business today, today, you have to go back and manually reconcile all of those transactions back to the deposit amount to see if they really equal. Well, we have it all in the application for you. So once you actually validate it in the application, we give you a button to push and it automatically uploads to QuickBooks, Xero, whatever your accounting package is. And we built all this out about 5 years ago. So if you think about -- if you know anything about 1033 and trying to actually get rid of screen scraping in the applications, we eliminated screen scraping in the digital application.

So Plaid, Finicity, Akoya, MX, all of them directly write to our APIs. So that you can't screen scrape our Banno application, which allows us to be able to pull all those transactions seamlessly in for the customer. So that's why we patented it with the things that we built there. So that's the distinction there. I think this is going to be the fastest-growing part of our payment segment for the foreseeable future based on the early returns that we have in the growth.

We've already added additional features. So not only can you pay with your phone, we have QR codes. We have payment links. We have the ability to add some other features. We do cataloging. We have a whole bunch of things. So we have an 18-month road map that we're going to be rolling out over the coming months that we'll have a bunch of new features. So as I like to say is that this is the worst the product is going to look. So...

That's great. Now I know it was a super exciting topic for you. So I'm just -- I just wanted to wind you up.

Yes, you did. So it didn't take much to wind me up. But the other part is just understanding that we're doing this all for our banks and credit unions. We're not competing against them. We're helping them sell. We're providing tools to help them sell. We're pushing notifications out to the merchants to help them sell. And we're not going around them and taking things away from them like Stripe and Square.

Yes. So it leads me to the next kind of expansion here, which is taking the Banno digital asset and banking solution, and starting to push it a little bit more outside the core.

Yes. So today, we have roughly 1,030 of our 1,700 core clients take Banno today. So we still have about a 40% opportunity within our own core base. But as we built out feature parity, as I mentioned a couple of years ago, where we put that into play, it's now given us an opportunity to go compete with the larger digital-only players out in the market. So even if one of our competitive -- competitors core is not ready to make a change, they might be ready to make a digital change. And so that creates an opportunity for us to sell that product. So we're targeting a few specific cores. I'm not giving anybody any insight into those yet, but we're already targeting and we already have a team that's out there focusing.

So I think the good news for us is that it will provide incremental opportunity for us within the digital space, while we continue to build out additional features that will grow our existing that we still have 40% penetration.

Yes, just all incremental.

Yes, all incremental.

Yes. Let's talk about M&A and banking. You have a unique lens from which you can see that. Oftentimes when these transactions, it sounds like, are in the works. They have to come to the technology providers first and kind of get in queue because that implementation cycle takes so long.

Right.

So what are you seeing in that context today given the fact that there is this expected heightened M&A activity? And then how does that play into your business?

Yes, good question. So just for those who don't know, over the last 40 years, you've seen some level of consolidation in the banking industry. Those of you that are old enough know that there was 20,000 banks and credit unions 30 plus years ago and now there's roughly about 8,000. And so as that starts to happen, again, about 4% over the last 40 years, we're seeing about 6% right now. A lot of it is the speed. The Trump Administration definitely allowed for faster approvals. So under the Biden Administration, it was going anywhere from 8 to 14, 15 months, and now it's around 3 to 6 months to get an approval. So you're seeing that level of speed.

To your point, we do get early notifications from our clients and say, "Hey, they won't tell you who it is, but they'll tell you the size, who they're coming off." Things along that line. So we prepare. We've actually added 2 new merger and acquisition teams as a byproduct of that over the last year to make sure that we have all the slots that we need to satisfy that.

To answer your question about how and what it means to us. Typically, over the years, if you just think about 40 years of consolidation, and we've been growing at an average of anywhere from 5% to 7% over those 40 years or even greater in the early years of Jack Henry we're continuing to grow at a very nice pace in a consolidated market and don't see that changing because we typically win more of these deals than we lose. We do lose some. Some of them can be of size, but we win some, and some of them can be of size.

The level of differentiation for us is this through the innovation that we've been talking about throughout, we're now -- we just had a $45 billion institution that was on a competitive core buy our $5 billion institution, and we're in talking to that now $50 billion institution about a whole host of things. That would not have happened several years ago. So that's a big thing -- but overall, it's a positive.

So we've outlined all of these great opportunities, new incremental markets, technologies that are going to come to bear over the next couple of years. And the question that I get a lot from investors is, can Jack Henry's growth rate, its actual algorithm accelerate or are we looking at a company that is going to just be able to run at these levels for longer? Which one is it?

Well, candidly, we think -- I'm not up here giving guidance yet, but I will tell you that so...

Structural.

Structurally, I can tell you right now, the things that we are building and where we have seen the amount of wins and opportunities. We believe that right now, we're averaging right around 7.5% for the last couple of years and believe even though we guided lower than that this year, we've already upped our -- raised our guidance all 3 quarters so far. And so based on the SMB story, based on going up market, based on a couple of our competitors struggling and opportunities in there.

We do see an incremental opportunity. I've used that word a lot today. I apologize, but an opportunity for getting closer to that 8% growth. And is that going to happen in '27? I don't see it happening in '27. I do see some nice opportunity for us. But could it happen in '28 and '29 and beyond? I do believe that and we're very highly motivated to make that happen.

Yes. I can definitely foresee that happening and also lengthen the duration of that growth as a result. So Greg, thank you so much. It's a pleasure. Congratulations on the 50 years. I've covered you for not that many, but it's been a while. So I really very much appreciate your time today.

Thanks for having me today.

Appreciate it.

Thanks.

All right. Good morning, everyone. Why don't we get started? My name is Dave Koning. I'm a senior analyst at Baird covering payments and services and thrilled to have Jack Henry with us today, represented by CFO, Mimi Carsley. Jack Henry is a core processor for banks, meaning they run the deposit and loan operations for many of the banks across the U.S. with one of the leading shares.

Mimi, maybe you can just kind of kick it off with a little overview of what you do and how you've been able to grow really double the industry for not just 1 or 2 years, but probably the last 30. So kick it off.

Yes. So as Dave was saying, Jack Henry is a technology provider to banks and credit unions in the United States. So we do -- we have 3 main operating segments, then we have a fourth corporate segment. But of those 3 main operating segments, we have core, which does the critical processing, think about account opening from an account management, posting interest, general ledger, wires, all of the major functions, calculating interest for loans, recording those, all of the major processing. We do that both on-premise, but 79% of our customers have it hosted from a subscription model in a Jack Henry data center. And then our payments business, we do card processing, both debit and credit card processing. We're not a merchant acquirer, but we do card processing for our customers.

We also do enterprise payments. So think about remittance, check processing, bill payments. And we have a payment hub around faster payments. So think about RTP, FedNow, Zelle, having all of the payment rails capable for banks, both core banks and noncore banks. And then we have -- and we have a small business initiative around payments as well. And then we have our complementary segment. And there, think about all of the ancillary services that a bank or credit needs to function. So think about lending capabilities, think about fraud capabilities, think about digital capabilities, account opening capabilities.

So a lot of different solutions, over 200 solutions. We have been in business. We're just celebrated June 2. We celebrated 50 years in business. 40 years as a public company. So a lot of execution. We talk about the 5 key differentiation points for Jack Henry, and that's culture. We're a very people-first culture. So it's culture, renowned for service excellence, then it's around strategy, innovation and execution.

Yes. Great. Thank you. And maybe if we look at the core processing segment, about 1/3 of revenue, there's maybe, what, 9,000 or so banks in the U.S. You work with 1,700 maybe. Every year, only about 100 really flip, right, turn to someone else. And you win half of those. You win 50 almost every year. Why do you guys win so much in the market?

Yes. So -- and as you said, this is not a 1-year phenomenon. For many years, we've been winning about 50 to 55. This year, we said we're confident to be at least at the high end of that, if not exceeding that with a pipeline that's been stronger than ever. And so part of how we win is that service and innovation. So Jack Henry is not the low-cost provider. It's a very competitive marketplace. There's a lot of formidable competitors in the space and an industry of consultants that are also very influential in the space that kind of keep pricing pressure on all of the players in the space. And yet it's our innovation, it's our service. It's the transparency of where we're moving to. So we have, for the last 5-plus years now, been talking about our public cloud journey from the core, our tech modernization efforts that we've been talking about.

And we now have over 20 components of that either in the market or in the hands of clients. So that's talking about moving the functionality, first of all, decoupling the functionality of a core system and then moving it into the public cloud. So the regulators aren't fully ready to do the surveillance and compliance today. We think that will take a couple more years to ready them, but we've started to put modules out there. But just the clarity of that from a road map strategy, Dave has really helped especially win larger clients. In the last 10 years, we've really been moving up tier. We announced 2 weeks ago a great win of a $9 billion institution. And part of the reason they chose Jack Henry in addition to the fantastic service was they knew that SilverLake would meet all of their needs today, but they knew the tech modernization journey story that could help them in the future.

And just to put that into context, I mean, the $9 billion bank, I don't know, have you said about how big an average bank is like that's probably worth what, 10 normal banks?

Yes. So our average is about 1.5, both on the credit union and bank side. Our business model, if they -- we sell today primarily in the hosted environment. Very few banks buy on-premise, if anyone buys on-premise today. But we're 79% in our private cloud, the Jack Henry private cloud. And that model is based on number of accounts or number of members. So $1.5 billion bank average -- so a $9 billion bank is big. We've been talking about how many we've won. We've won over 12 over $1 billion size institutions. Our largest institution to date is about $50 billion on the core side. We serve up to $200 billion institutions on the payments and complementary side. But -- and every one of those banks over $10 billion have crossed that threshold that's in a very important regulatory threshold, have crossed that threshold while being at Jack Henry. So we've been able to help support them from that regulatory duress and business model change of crossing that $10 billion demarcation line.

Yes. Where debit interchange, all of a sudden, they get paid...

Yes. Yes, it's a big change for a bank.

That is. Yes. Now the public cloud that you discussed, right, for years, it was a huge tailwind to go to the private -- your own private cloud from banks running -- used to run their own software that Jack Henry provide, they run it themselves in the private cloud. Now you have 79% on your private cloud. Now this moved to public. What does that do to the financial model? Does it lift revenue? Why do banks want to be in the public cloud rather than your hosted solution?

Yes. So when a bank makes that change from a revenue model implication, it's about 2x revenue. at very, very high margins. And you may say, why would a bank pay you twice as much? And the reality is from a net outflow from them, it's similar. But think about all they have to spend when they manage their own data center. You're talking about $1 million IBM hardware. You're talking about having all the data recovery, all the backup, all of the CIO work, all the CTO work done in-house. And it's interesting. So I've been at Jack Henry now almost 4 years. And when I joined, it was like we've been on this march for like 7 years of watching at a very steady clip around 40 to 50 clients per year making this change to being in the Jack Henry cloud environment.

And I was like, who wants to manage a data center these days? Like that's not what they do best, right? What they do best is serving clients. What they do best is creating bespoke lending to support small business growth, deposit gathering, et cetera, not necessarily like wanting to run a data center. But what I think is interesting -- so the ones that are left, we may only get to 30 or 40 this year, but the ones that are left are larger institutions, which makes sense because to still be running a data center in this day and age, you need to be near tech talent to probably near university. You need to be larger to have the economies of scale to be able to still be doing that. But the thing I think is pretty interesting is I think there might be extra tailwinds to accelerate that shift.

So we think you ultimately get to around high 90s in the Jack Henry cloud. So we've said, oh, we have 7 more years of this great tailwind of 2x the revenue. This is fantastic for revenue growth. But I think it could accelerate. And the reason why I think David could accelerate is think about -- and a lot of people are talking about ethos and frontier models and the vulnerability assessments and a high -- an increase in patching velocity that's going to come from the exposure of vulnerabilities in infrastructure, particularly around infrastructure and endpoints. That will make the burden of care even harder of managing your own data center. And I think whether it's the institutions themselves or perhaps even the regulators will get to a certain point to say, maybe you shouldn't manage your own data center to these institutions.

And so I think we could see -- typically, what tends to be the tipping point is when they have to make a refresh of hardware purchase or when a CIO is like retirement, that tends to be the tipping point where they rethink, hey, do we want to manage our own or do we want to move to a Jack Henry hosted environment. But I think we could potentially see over the next coming years an acceleration of that trend, which would be a great catalyst for revenue.

Yes, that's interesting. And as you go from private cloud to public cloud, how does that shift work? And what does that do for economics?

Yes. So it's about a 25 basis point uplift moving from the Jack Henry data center to the public cloud. Mostly because it's a similar product. It's a similar delivery mechanism. So it's not as much, okay, you're giving up all of these costs, therefore, you would pay more. But what you do get is better burst processing capacity. You get better uptime reliability today. We have very strong uptime reliability, but we think you could get to at least four 9s, if not maybe five 9s of uptime reliability in the public cloud. You get all the DevOps benefits. But if you think about Banno today, everything we've built over the last 5 years has been digital cloud native, API first. So a traditional core processor, and this is anyone in the industry, you get 1, maybe 2 upgrades a year.

So think about more monolithic kind of software releases. But Banno, you could have 10 a week, 10 a month. It's like your iPhone. Whenever there is new functionality, whenever there is an upgrade, it just comes straight through. And you get the same in the DevOps environment in the public cloud. So that's going to allow us in the core side of the house to increase the velocity of functionality and innovation into the hands of our customers. So you get a lot of -- you get enhanced security. Our security is great, knock on some big goals here. But even in a major cloud providers, we're a Google partner. We also have a very strong partnership with Microsoft. They know how to do this even at scale and for even more so than in Jack Henry.

So moving to the public cloud is going to be a continued uplift, but we also think it will be an improved margin. So we have a project underway internally we call EC 2030 or enterprise compute 2030, which is the journey to get out of the data center ownership ourselves where we're going to move to more of a colo facility. So it will be a public cloud plus colo facility, which we think will be near term, there's going to be a lot of work and spend to move that as part of the R&D efforts. But long term, it's going to be a great margin catalyst as well as we get out of data center ownership.

Yes. And then maybe turn to AI. Clearly, the market is looking at any software firm and saying this is going to be a problem. How do you see it in what you do, maybe describe if regulatory impacts help you, right, in AI that really AI can't come in and you probably save a lot on cost, too. Like how do you see all the different things?

Yes. I think that, unfortunately, the market right now is grouping everyone together and not seeing differentiation in business model, which is unfortunate. I do think that from a Jack Henry perspective, it's more of an advantageous situation. There's more opportunity than there is disruption risk. As you say, like I think about -- particularly in the core side of the business, there are 25 core providers that no one in this room has ever heard of, right? Like very small, maybe has 1 customer, maybe has 5 customers. It is not an easy business to operate in. There's a lot of regulatory duress. There's a lot of regulatory update requirements. There's a lot of functionality from a code perspective. And there have been new entrants over the years that have attempted to come in. If you think about the European competitors that have tried to enter the U.S. market and have not been as successful.

So I don't think it's been a technology challenge. It's an operating challenge. Like you need to be able to have service quality. You need to be able to have uptime reliability. You need to be able to know how to operate in a highly regulated world. So I don't think that the opportunities that AI presents will be disruptive to that because I don't think it's a technology challenge where all of a sudden you're unlocking compute capabilities or something else. And you really have to know how a bank or credit operates. And that is a key knowledge, institutional assets that a lot of firms wouldn't know. Like you have to ask the right questions. Claude is not just going to figure this out for you. So I think it gives us a benefit. We recently put out our annual client strategic benchmarking survey. We've been doing it for -- I think this is might be our second year, talks about it's CEO clients answering what are their top priorities. It's listed on the Jack Henry website.

So for the last several years, deposit gathering has been a top priority. Lending has been a top priority. Efficiency has been a top priority. For the first time, AI entered that list as a top priority. But AI, I think, will help drive efficiency. There's a lot of manual processes at a bank, a lot of workflow movement, a lot of duplication of tasks, a lot of silos of functionality that AI will help. But you have to understand the underlying processes under that, the human processes that occur in a bank to understand where those opportunities are. So we're using AI internally. Our developers have tools. We're getting over 70% efficiency from a code production velocity. So we're quite excited. We think that there's a ton of knowledge enablement tools and white papers and videos and case data from call centers that we have about our products that we can embed through AI and natural language to make the product easier, more intuitive, more automated steps to drive efficiency.

The reality is it helps us to drive efficiency at a bank. Nothing in the way we charge from a business model is tied to the number of employees at a bank. So we've always been aligned with our customers and helping them drive efficiencies from an institution. So I think there could be potential threats. I don't think it's on the core side. In the complementary side, we compete with every point solution that's out there. If you go to our client conference, you will see 300 booths of competitors on point solutions. So today, a vendor -- one of our clients could choose a third-party vendor. They could choose a Jack Henry. It's a very open architecture approach. We have a lot of APIs. But again, we compete with those today. So if there's a new incumbent based on AI, we will compete with them. And on top of which we know banking, we know our clients, and we have the data to be able to help them. So we're going to use AI to both enhance our products, enhance the efficiency.

We have a number of products already using AI, whether that be fraud detection products, whether that be AI Banno Assist conversations to help in the customer service area with AI, whether that be exception item processing. There's a lot in financial crimes around SARs reports or government reports that AI can help, the bank employee write and automate and save time. So there's functionality that we're releasing that has an AI embedded to help the bank or credit union.

Yes. That's good to hear. If we move to payments, about 1/3, give or take, of revenue. it's a very stable business in terms of more than half is debit processing, just Visa, Mastercard debit transactions grow reasonably stable. Little bill pay, some enterprise transactions you called out. Is there anything either from a share perspective or from a new product perspective, like the Moov partnership or RTP or some of the newer Zelle, all that stuff that could accelerate revenue growth?

Yes. So we've been selling a lot more credit lately. So our credit sales have been double what they've been in the past. Now it's not huge numbers. We've been in credit for a handful of years. And typically, a bank or credit wants to do debit and credit through the same provider. So we have a single platform that enables those transactions. But credit has been on the rise, I think as banks continue to feel comfortable in the tools, the risk tools, the dispute tools to handle that and on the lookout for more diversified revenue streams. So credit has been very strong. The health of the consumer has been, I won't say vibrant, but more stable than I think some of us a year ago would have maybe been nervous about.

Some of the areas that are very interesting from catalyst growth perspective are those faster payments. So if we think we have roughly, call it, 500 clients on each of the faster payment rails today, but very little volume is going through send right now on FedNow, but the government could turn it on more aggressively at any point. That's exciting. Zelle has been very strong this year, the adoption and usage of Zelle. So while still modest in terms of the size of the dollars and the faster payments, that's within our PayCenter hub functionality, it's been great growth rate. So I think that's something. You mentioned our partnership with Moov. So our small business initiative that we launched just this year, we have 2 main flagship products with the first kind of solutions out the gate. One is Rapid Transfers, which allows through the debit rails, tapping on your Banno on your phone, both iOS and Apple to move money.

So let's say, I could move money from my [ PNC ] to my IncredibleBank account. And it's instantaneous movement. And there's only 3 institutions in the U.S. that have that functionality today. So empowering community and regional banks and credit unions to have that at their fingertips really helps from an account opening perspective as well as from a deposit gathering perspective. The second is tap to local. So that's a merchant acquiring. But instead of going around the financial institution, it's giving the tools to the financial institution to hit their underserved business customers. So a lot of small entrepreneurial customers, smaller businesses. I'd like to think about like if you run a bakery, you may have a Toast machine in the cafe, but you're going to work at the farmers' market and you want to collect payments there or the piano teacher who comes to your house or your lawn care or your plumber, a lot of those kind of in-home where you don't send an invoice, you don't want to call and give your credit card over the phone, they can do tap to pay instantaneously.

So I think people in that space will be multi-acquirer. They don't have to switch from their existing provider, but it allows them to have an alternative or a backup system. It gets frictionless, very easy to turn on. It's automatically turned on for all of our Banno institutions. So we have 1,000 institutions turned on for that service, and it's a rev share for the bank or credit union. We partner with Visa and Mastercard. So we have yet to turn on the marketing engine behind that. So people have kind of just been self-discovering it through Visa, through Banno and already using it. And so it's been great to see that start, but we're going to turn on that marketing engine and really excited to see we have over 10,000 merchants using it already.

When is the marketing engine going to be turned on? And where does this hit your P&L?

So today, it's a rev share with Moov. And so you see that through payments and you see that in digital. It's not huge dollars today, Dave, and it's just growing. So even in '27, it's going to be modest. But we think over the next 5 years, it could be the second largest engine in the payment segment.

Wow. So debit, obviously, 60%. That's not...

No. So that's in addition to debit. That's just the rev share alone, we think, could be that large.

Wow. So move above like bill pay or enterprise in terms of percentage of payment.

The interesting thing on bill pay and enterprise since you mentioned it is the Payrailz acquisition we did about 4 years ago, has really resuscitated that business. You had a pretty mature business in iPay, but the combination of Payrailz and iPay has been great. We've seen a number of sales this year and just really nice growth. So we're excited about how that acquisition is going. The other acquisition that's helping in the payment space was our acquisition of Victor Technologies. So that's embedded payment capability. So that allows a bank or credit union to offer payments as a service, again, a revenue diversification opportunity for the bank or credit union.

And it allows them to offer to either fintech or to their sophisticated commercial customers through treasury management the ability to do payment servicing. So think about today, Victor does a lot of digital asset providers. They do some gaming companies. They do other -- think high-volume end user. They do a lot of sub-ledgering capabilities. So you don't want to have 1 million users as entry into your core system. So it does kind of a master account with sub-ledgering capabilities. And then it does the KYC, KYB for the institutions. And then the banker credit facilitates the payments. So that's been really exciting to see the success of that acquisition.

And I'll talk about complementary just a little bit, but really just as we think of the business, when we think of -- in the core segment, you're winning more in bigger banks. And some of your competitors have -- well, one of your big competitors has noted some potential they were going to force some conversions. They aren't now, but I assume you're still winning share there. So that's all a benefit to core. In payments, you have the Moov that's going to start to be more material. And then I guess, in complementary, is there something like that? And when you put it all together, is '28 kind of a breakout year as all this kind of develops?

Yes. So complementary is a collection of a lot of products. We have over 200 solutions. But if I think about some of the anchor capabilities, you think about lending products being in complementary, fraud products being in complementary and digital. And when we say digital, we mean more than just Banno. So we think about anything that end client user needs to do to open an account, get a loan, any of the services that an FI offers without going into a branch. So that would be digital. So that's a big grower as well, things like treasury management and now that we have Banno Business. But if I think about the other catalysts going outside of the base today, Banno is only available to our 1,700 core customers today, but we're going outside the base with Banno. So that's another catalyst for growth.

And would you say because of how sticky your business is, I mean, you have like 99.5% retention. I mean it just doesn't change. Your revenue growth doesn't change. It's 6% to 8% just very consistently. But it seems like a lot of things, while they probably don't immediately impact '27 because it's like a slow progression, '28, it seems like there are so many different catalysts that all collectively could make that just an incredible year.

Yes. And I think it's not just '28. I think it will be setting kind of a new level for the future. And I think it's not just from a revenue catalyst, which is exciting. It's not just one area. So from a perspective of diversification, I think there are several we talked about just now. But a lot of those are also very attractive from a margin perspective. You continue to get the margin expansion from moving to the private cloud and to the public cloud. The rev share opportunities, the newer products that an upcharge have a better mix blend. So I think there's also a lot of nice catalysts from a margin expansion as well.

Okay. And when we think about margins, I know this year and last year, too, really good margin expansion. Yes. Really good. You have a little bit of a headwind, which you've been more -- way more than offsetting, right, the colocation. How do we think about that the next couple of years, colocation costs keep going up, but incremental margins are really good? Or how do we think about that?

Yes. I think there were some things this year that we called out as more onetime benefits that are less reoccurring. We have a self-funded medical plan that in the first half of this year, we saw less claims around, and we've already started to see that normalize, and we've talked about that on the most recent call. So that was just kind of like a windfall that I don't expect to repeat, but there are others that will. We also have some growovers next year because of that, because of hiring, because of some of the infrastructure investments we're making. But I think the base foundation of the model intuitively is a margin expansion story will continue.

Yes. Okay. So solid margin expansion continues. And then when colocation costs sort of run out and all of a sudden, you just have your single location much -- you shut down some data centers, how far in the future is that?

That's a couple of years from now. I think it will -- today, we have some of the moving loads to the cloud from a product perspective. And then as we move the infrastructure support of the data center into the cloud, that's going to take us a couple of years to handle. But we spend about 14% to 15% on R&D. I don't see that increasing. We've been able to do all of the tech modernization work for the last 5 years, still under that 14% to 15%. So I see us continuing to be able to innovate at an accelerated pace while spending the same 14% to 15%. So I think by the next couple of years, you're going to continue to get margin expansion every year, but I think it can really start breaking out over the near-term horizon.

Nice. Okay. And 2 quick ones. We have about a minute left. Free cash flow conversion, you're back to close to 100%. Is that sustainable? And then is there anything that is a headwind to growth? Like there's so many growth drivers right now, but law of large numbers, maybe anything else?

Yes. So it's a great year for free cash flow. The clarity that we got from Section 174 essentially added excess cash because we had overpaid in taxes in retrospective. That's been a great headwind. But the natural free cash flow, I think, is going to be in that 90% to 100-plus percent. It's enabled us to spend almost $300 million on share repurchases this year on top of dividend growth and reinvestment in the business. So I see absent M&A continuing to have free cash flow allocation to all of those areas. We'll continue to explore M&A. But in the absence of that, it will allow for share repurchases.

Yes. That's good. And any like headwinds to revenue...

Headwinds to revenue, first of all, I would encourage everyone to look at us on an annual basis. There is -- Q4, for example, this year is a little lighter. That is no way indicative of any kind of annualized go forward. It just is the way this year's plan worked out. So please look at us on an annual basis. In any one year, depending on how M&A goes, in general, it tends to be a neutral to slight positive for Jack Henry. But in any one year, while that deconversion or think about the termination, exit of a contract is great.

It's nice free cash flow, but that creates a pothole of revenue in the future. And so if you had some lumpiness related to those potholes, but our industry has been consolidating for 40 years, and we've been growing at 7% to 8%. So we've been able to overcome those potholes, but that could create lumpiness from a headwind in a particular year if it was all a sudden concentrated.

Yes. Makes sense. Well, that's all the time we have. Please join me in thanking Jack Henry's Mimi Carsley.

All right. Thanks, everyone, for joining us today, both in person and online. My name is Cris Kennedy. I'm a research analyst at William Blair, covering the fintech and payment space. For a complete list of research disclosures and/or potential conflicts of interest, please visit our website at williamblair.com. Next up, we have Jack Henry & Associates. From the company, we have the CFO, Mimi Carsley. And in the audience, we have Vance Sherard from IR. Jack Henry is a leading provider of technology solutions to banks and credit unions. At the core, they help their customers evolve with emerging technologies. And clearly, we're in that cycle today. This company has been doing this for 50 years. It's important to remember that this is a very complex, highly regulated industry. So with that, let me pass it over to Mimi.

Cris, thanks for having us. So we're going to do some prepared presentation slides. This is the only conference we do a presentation. So it will be posted on our website. I encourage you guys to see it. We also have a shareholder and Investor Day meeting on September 15. We'll have a deck at that one as well. So with that, I'm going to, I guess, stand. So I appreciate the introduction, and it's funny because you use the word core, which is really hard to not use the word core. But when you're a core provider, it's part of the main thing you do, you have to learn not to say core when you mean just like the fundamental part of our business because it is tricky.

So I'm going to assume I can see things. Lawyer talk, blah, blah, blah. I'm not going to read it. You all know it, but we are going to include some non-GAAP measures. And at the end of the presentation that will be posted, there are a lot of the backups to those non-GAAP measures. So if anyone wants to see all the small fonts. So basically, when I think about Jack Henry and for those who know the company less, this was a picture of us at the NASDAQ bell with our directors a little less than a month ago, celebrating 50 years as a business. We also celebrated 40 years as a public company on NASDAQ, which is a rarity these days to be, but it really started from a foundation, and I'll talk a lot about the service, culture and the people-first culture at Jack Henry. But -- so we were quite excited.

In fact, yesterday, we had a town hall with probably about 1,000 of our associates to kick off the 50th year of Jack Henry doing business. And there was a man named Jack Henry. He founded the company with Jerry Hall, his partner and a lot of their principles of how to do business and how to do right by your customers are still very much the foundation of our culture at Jack Henry. So that was a great day. If we think about Jack Henry, as I talked a little bit about that culture of doing the right thing, being in business to serve your customer and that, therefore, if you treat your associates well and then they, in turn, will treat your customers well, it will work out for shareholders and employees alike. So a very strong foundation from a culture perspective. We address a sizable and growing marketplace.

There are over 9,500 banks and credit unions in the U.S. And while that number has been shrinking for over 4 decades at approximately 4% a year, if you looked at the number of institutions declining in the U.S., but you saw the number of assets, they're growing. And nothing that we get paid on has to do with the number of financial institutions at a bank. I'll also say that nothing we get paid on has to do with the number of employees at a bank. So while we are a SaaS model, we'll talk a lot about AI and what it's like to be a SaaS model in this current environment, nothing we do is counter to driving efficiency at a bank. So if we get to have our customers become more efficient, which is a lot of the focus of our products and solutions, and that, in turn, drives employment down or enables them to redirect their efforts to other areas of their business, that's a win-win for us and our customers. So a sizable market.

As Cris mentioned, while we are a technology company at our heart, we serve a clientele that is a highly regulated business. We ourselves are highly regulated. We go through a lot of IT audits on behalf because we run software in data centers on behalf of our customers. This is not an easy entry point. This is not an easy operating environment to that duress or burden from being a regulated industry and being a key system of record. And we'll talk about why we think AI is more of an advantage and an opportunity for us than a disruptor. But a lot of that comes down to that mission-critical functionality, the importance of that integrity of the system of record data and the durable moat created by being a highly regulated industry. So we'll talk a little bit about that.

Jack Henry is a conservatively run company. We have little to no debt on our balance sheet. We have strong free cash flow. We'll talk about that, but it's 90 to 100 plus of free cash flow conversion that has allowed us to reinvest in our business for growth. That has allowed us to have a very long-standing dividend policy and allowed us to both do M&A opportunistically as well as repurchase a significant amount of our shares this year. Part of that allocation is being a disciplined capital allocator. And so over time, we have very high ROIC, we'll talk about. It's a metric we take great pride in. We're a very selective acquirer, although we've done over 51 acquisitions in our history. We are certainly not a chaser of acquisitions, but it has been a great tool for us to augment and accelerate some of our own solution development efforts.

And the last is just around that investing for growth. We'll talk about that in a little bit, but we spend and redeploy about 14% to 15% of our revenue back into R&D innovation to continue to expand on the solutions we have. So we offer over 200 solutions today, and I'll talk about the segments that those solutions are in. So it really all starts with the Jack Henry way and those 3 pillars that we've talked about a little bit before, being a people-centric culture, doing right, whether that's up front on talent acquisition, retention, development, that leads to great service quality from our service, whether that be technology or actually customer service agents, helping banks and credit unions with their day-to-day problems.

And that translates to customer loyalty. We have over 99% reoccurring customer retention ex M&A and over 55% of our customers have been with us for over 20 years. So that service, that loyalty, that knowing that you're going to get innovation has really led to us being viewed as a partner rather than a vendor to our banks and credit unions. And we have some great long-standing relationships. So just a quick couple of highlights. I could have put a lot of logos on this page, but we win a lot of awards, Best Place to Work, Best Innovation. We have an engagement score of over 83%. We have great customer service scores. I don't know about you, but I tend not to fill out surveys when I'm happy. I tend not to fill out surveys in general. But when I -- the only time I do it is when I'm not happy. And so to, on average, get 4.6 and 4.7, and this has been consistent, tends to say like you have to get a lot of 5s mathematically. I know there's a lot of numbers of people in the room. You have to get a lot of 5s on a reoccurring basis to average of 4.76 in terms of customer service.

So we have extremely satisfied customers. And there was recently the ABA, the American Banker Association puts out a survey comparing the larger core providers in the marketplace. This year, they named those core providers in their stock ranking. I'd recommend that people go look at that survey, and they will see that Jack Henry is really differentiated in our service quality. If I think about Jack Henry from an innovation perspective, this is one of the areas where we have really spent over the last decade a tremendous amount of resources, intention to step up our game on innovation. We were always known as a service provider. But probably 20 years ago, we probably had satisfactory technology, but not leading-edge technology. But as we've thought and thought about in the words you see at the bottom of the page in terms of culture, service, innovation, strategy and execution that we needed to step up our game from an innovation perspective.

The banks and credit unions we serve, if we think about the community and regional banks and credit unions need Jack Henry more and more as we shifted from being a very back-office technology provider to being a very front forward technology provider that touches the hands of their customers every day. So if you think about moving from back-office operations of account settlement, posting interest, doing the general ledger type of activities to having apps on your phone -- I just turned on my flashlight. That was pretty cool. Turning -- working with your customers every day in how they interact with the bank or credit union, especially if we think about Gen Z and Gen I, the next generation, they don't walk into branches very often.

They want to open account online. They want to get a loan online. They want to check their balances online. So having the tools and service offerings that allow our banks and credit unions to open new accounts, gain deposits, do lending in a technology way requires innovation. And they need the weight of a Jack Henry to be able to compete with the larger institutions, whether that be the mega banks or the fintechs, they need the weight of our R&D innovation center to keep them up to speed. So let's talk a little bit about who we do serve. This data is as of the end of '25. But we have 27% market share in the $1 billion to $10 billion size banks and 47% market share of the $500 million to $10 billion banks.

And in credit unions, in particular, there's very few banks -- credit unions above that $10 billion demarcation. And even in banks, once you get above the super regional, there's really kind of a line of demarcation, if you will, if you think about above $50 billion in size, there's very few -- you start to get to very few number of banks. So we very intentionally don't serve the Tier 1 banks in the U.S. We choose not to by strategy, and we really focus on helping the community and regional sized institutions in the U.S. And we think that that's where the sweet spot is. I should be clear, we serve U.S. banks primarily. We have some Caribbean banks that we help as well, but we do not serve core banks outside the U.S.

So every year, we do a technology survey. We just launched the most recent Jack Henry strategy benchmark about 1.5 months ago. It's on the Jack Henry website. But you'll see a consistency of what are the top priorities of banks and credit unions. And so the top priority for many years has been growing deposits. That's still a top priority at 41% growing loans, a top priority as well. Driving operational efficiency is another top priority. And then this year, will come as no surprise to anyone in the room. AI was high on the list on the top 5 as well. So we take that information also coming out of this same survey, we asked banks and credit unions. This was CEOs only. So this was 193 bank and credit union CEOs fielding this information for us. And they all talked -- over 88% talked about increasing the IT spend over the upcoming year with the majority in that 6% to 10% increase in spend.

And that's consistent with what we have seen from bank director survey and other third-party surveys. So banks and credit unions in the U.S. are feeling healthy. They're on the other side of some of the challenges that people questioned around real estate bubbles, around secondary car loan, potential over lending, the impact from tariffs, they're feeling healthy and clean balance sheets, which is great. So we take this information on what is on the minds of banks and credit union leaders, and we take that and inform that with what are the key priorities from us. And then the next slide I'll talk about is the actual -- that drives some of our prioritization from an actual development work.

So these are the key strategic priorities from Jack Henry, and it's around things like our tech modernization journey, really driving new solutions in the small and medium-sized business that we talked about over the last 2 years, driving AI innovation, continuing to move upmarket, continuing to improve the security and compliance, growing and how we think about delivering -- continuing to deliver solutions. So these are our priorities. When we talk about that redeploying revenue into R&D, we spend about roughly, call it, $300 million to $400 million a year in R&D. So over the last 5 years, that's accumulated to roughly $1.5 billion or 14% to 15% of revenue every year. So what are some of the top priorities, taking that information from our client strategic benchmark survey into what is our road maps. We do 6-month road maps that we publish for our clients. Some of the items on those road maps around digital, continuing to expand the Banno platform we have, Banno Business capabilities, a lot in the AI space that Cris and I, I think, are going to be talking about in a moment.

Treasury management, things that are very impactful to large commercial clientele, fraud and our Financial Crimes Defender solutions, things like stablecoins, tokenized deposits, and a lot around account opening, easing the account opening and lending world. So we're in those spaces in addition to the general tech modernization journey that we're on for our core platforms. So let's talk about that tech modernization journey and how we approach the platform. So we're about 5 years in on this journey. We are now -- have over 20 of the components. If you think about an ERP system, if you will, a core system for a bank or credit union, there's about 30 big components of functionality within that. We have 20 either in market today or in the hands of beta customers using that. So big things around -- this year, we've talked about the commercial and retail deposit-only core will be available. So the last big remaining step on that tech modernization journey will be the lending and lending is the most complicated part of a core system.

So we have wires out already. We have entitlements. But the way we think about the core journey is if you took those 30 big bits of functionality of a core system, how do you modularize that? How do you put that in components so that derisks making a switch. So it allows people to innovate at their own pace, and it allows customers to be able to take components they need to supplement the core they might have today. So it is not a transition where you're leaving SilverLake, which is our flagship banking core and you have to go to the new Jack Henry platform. It's an and. It's an on top or an around kind of strategy. So you can stay on SilverLake but use Jack Henry wires. You can stay on SilverLake but use the general ledger of this new tech modernization if you want to do stablecoin. So it's having components that extend the modern elements of the core and -- but continue to have the robustness and the stability of the underlying core.

So the Jack Henry platform will all be digital cloud native. Google is our lead cloud provider, but we work with Microsoft and AWS as well. And the Jack Henry tech modernization will all be in the public cloud arena. The regulators aren't ready for full public cloud consumption of the core because it has a lot of PII information. But we expect that the regulators will be comfortable with people operating in a public cloud environment within the next couple of years. And so to us, there's no force migration. We're allowing our customers to use the components as they're ready, and it's able to extend capabilities we have today. So the things we're doing, particularly around the small business initiative, the things we're doing around stablecoin today, the things we're doing around Data Hub are all taking advantage of the work we've put in through the Jack Henry's platform.

So really excited that more and more of that functionality is in the hands of customers today. And as we talk about that technology and we talk about innovation, pretty much the first question we get from most people in the one-on-ones today is around AI or the competitive landscape. And I know Cris and I are going to probably talk about both of those in a moment. But we think that Jack Henry, there's a lot of naysaying out there. There's a lot of scared around what's the impact to SaaS. I think there's a lot of people growing technology providers into a broad bucket. And I would say from Jack Henry, our perspective is that we believe it is more of an accelerator and a positive than it is a disruptor for us.

Now part of that is because of the highly regulated nature, the mission-critical nature of being a core system provider. And the other is the uptime reliability. You have to have your system of record be compliant. You have to have it be trackable. You have to have uptime reliability and scale. You have to have it past all of the regulatory hurdles and you cannot have downtime, you cannot have hallucinations. So we think that all the work we've done on the Jack Henry platform, the work we've done on Data Hub to migrate data for clients will allow people to take advantage of AI, will allow Jack Henry to take advantage of AI. We believe that AI will be an expectation for all enterprise software, will be embedded throughout the functionality of our products, but then there will be certain products that are AI-specific on top.

So our developers are using AI. We're getting around 70% efficiency gains and velocity from that development work. We're able to -- we've had machine learning and other variations of AI, not Gen AI in our products for years in things like our algorithms for our fraud detection systems. We have a great product called Banno Conversations with AI Assist that lets a bank or credit union talk to an end customer with a human, not a chatbot answering their questions, but serves up the next answer to that customer service rep. So driving 40-plus percent efficiency in their call handling time and still getting that high trust service reliability that, that bank or credit union is known for. So certainly, we have a whole team within Jack Henry within our data and AI team. We've been doing over 1,000 touch points and programs with our AI coaches throughout all of our different product groups.

We have a lot of betas in place for case studies and use cases. We've been very clear on taking a responsible yet bold approach to that being a highly regulated industry. So there's a lot of risk and governance around AI usage. We believe in human in the loop as kind of a pillar of that governance model. But we really think that our clients are going to be looking for Jack Henry to help them, whether that's on having their data in a way that allows them to work with the army of vendors and consultants that want to help them generate AI or whether that's AI through our systems as well. So we're quite excited about it. This is just a quick overview of our segments. We have core. We talked a lot about core systems here today. That's about 30% of Jack Henry.

Payments, we do card processing, both debit and credit on behalf of the FI. We do enterprise payments. So think about a lot of remittance type of payments. We have faster payments, so Zelle, FedNow, RTP, ACH that we do on behalf of both end customers, commercial and fintechs as well as the banks and credit unions. And then complementary and the easiest way to think about complementary is it's not core and it's not payments, it tends to be complementary. So in our complementary, that's where Banno falls and the digital products, that's where treasury falls. That's where our fraud solutions fall, account opening, data management fall into that. And then our fourth is corporate services, which think about shared infrastructure, our hardware sales that go to support clients fall into that segment as well.

So just kind of wrapping up here a little bit. We believe here at Jack Henry that we serve our clients with the capabilities they need to run their institutions today and in the future. So whether that's helping them grow and transform, whether that's helping them think about conversions, whether that's helping them think about conversions, whether that's helping them acquiring other institutions, whether that's helping them think about growth go-to-market strategies, helping them with security and risk and compliance and fraud detection, whether that's helping them embed payments capabilities, both directly for day-to-day transactions or as an alternative source of revenue through embedded payments or payments as-a-service capabilities and then strategic enablement, which is research, help around -- helping them around developing and executing on their strategies.

And last, just in terms of attractiveness of shareholders and capital allocation, we have 22 years of a consistent dividend policy growth. We have a strong free cash flow conversion. I talked about earlier, about 90% to 100-plus percent free cash flow, which has allowed us to buy over almost $300 million worth of shares this year. And we just recently upped our authorization. So if we think about allocation priorities, it's reinvesting for future growth in the business. It's thinking about our consistent dividend plan. It's opportunistically looking at M&A and it's share buyback. And then just kind of closing out on some numbers that put some things into perspective. We talked about the size of our business. We are growing at 7.4% CAGR over the last 3 years. FY '26 guidance 6.6% to 7.1%. We have less than a month left to our fiscal year. We're a June 30 filer for those who are less familiar with us, over 90% reoccurring revenue, and we talked earlier about that 99-plus percent client retention ex M&A with over 15 million digital subscribers.

So think about on that Jack Henry platform that's public cloud native is where Banno sits, and we have over 15 million active users on that platform today. So it's a growth story. It's a margin expansion story. It's an AI accelerating story, and it's a story that has 50 years of execution behind it. So -- we think it's our mission to help the regional and community institutions to help them strengthen and be able to kind of fight and win, especially against the people kind of above their weight class. And so to help -- we think the U.S. is better served by having a robust community banking system in place. And so we feel very lucky and empowered to be able to help those institutions continue to win, especially in a very dynamic market. So with that, Cris, why don't we kind of open it up to some questions by you or the audience?

Yes. Any questions from the audience?

[indiscernible]

Yes. It's disappointing. I think at the moment, the market is not differentiating quality and execution from everyone, and they're putting all software and tech in an AI-exposed bubble together. And I think that's not the case, particularly not for Jack Henry. We are expecting very strong sales momentum growth. We've talked about in an average year, we win 50 to 55 new logos a year. And when we win a new core, it comes with around 40 other products at the same time. We've talked about that our pipeline is stronger than ever, aided by, we think, an even more advantageous situation competitively against some of our peers.

And we think we'll be at the high end or exceeding that this year. So there's definitely opportunities. There's always some headwinds from M&A and pricing each year, but we think we're on a trajectory. We also are really excited about some of the newer areas that can fuel growth over the next couple of years. We'll be talking about that at the Investor Day meeting in September. But if you think about the traction of faster payments, it's small dollars today, but could be quite large. Our SMB initiative could be one of the more sizable areas of our payments business over the next several years. So there's definitely upside, we think, from a revenue perspective.

Great. I think we're going to have to end it there. There is a breakout upstairs.

Okay, then we'll be moving.

All right. Thank you.

Good morning, and welcome to the Jack Henry Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead.

Thank you, Danielle. Good morning, and thank you for joining the Jack Henry Third Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer.

Following my opening remarks, Greg will provide an overview of our business, along with updates on our strategic initiatives. Mimi will then discuss the financial results and updated fiscal 2026 guidance provided in yesterday's press release, which is available in the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session.

Please note that this call includes forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the Risk Factors and Forward-Looking Statements sections in our 10-K.

During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release.

Now I will hand the call over to Greg.

Thank you, Vance. Good morning, and thank you for joining today's call. As always, I want to begin by recognizing our associates for their hard work and dedication. They consistently go above and beyond to serve our clients and drive our success. I will share 3 key takeaways from the quarter and will then provide additional detail on our overall business. First, our financial performance. We produced record third quarter results with non-GAAP revenue of $616 million, up 7.3% over last year's third quarter. Our non-GAAP operating margin was a strong 22.9% on par with last year's Q3. Second, our sales performance.

Our sales and marketing team delivered an outstanding quarter with 17 competitive core wins, including 5 institutions with more than $1 billion in assets. This represents our strongest third quarter for new core wins in 7 years and ties our best third quarter ever in over $1 billion wins. Year-to-date, we have won 43 core deals, 11 of which are institutions over $1 billion. That's up from 28 wins and 8 over $1 billion at this point last year.

Based on our strong momentum, we are highly confident that we will exceed the 51 core wins achieved last year. Third, our higher-value core wins. We continue to see a higher number of trifecta solution wins. So far this year, 25 of our core wins or 58% of the total have included digital banking and card solutions. At this time last year, we only had 8 core deals that included digital banking and card solutions, just 29% of the total won. This healthy growth in trifecta wins reinforces the strength of our integrated platform and supports deeper, more valuable client relationships.

Now turning to our broader business. I will begin with our use of artificial intelligence, followed by updates on several innovative solutions and specific products. As I have shared at recent investor conferences, we view AI as a significant strategic opportunity and have been operating and expanding our capabilities for more than 3.5 years by establishing strong governance processes that support a responsible, bold and balanced approach.

Today, close to 100 AI tools are approved for internal use, ranging from general productivity platforms such as Gemini and Copilot to specialized business and development tools across all areas of our company. These tools support over 500 distinct use cases, delivering meaningful and measurable impacts. A few examples to share. In lending, developers working on our new Jack Henry origination solution, online account opening solution have increased productivity by roughly 90%, driven by faster coding and quicker issue resolution.

In digital, as part of the new Jack Henry platform, we have built an AI-assisted recommendation system for exception item processing that is in closed beta with 3 banks. They all report that AI is reducing the time to close exceptions each day by 70% to 80%. And in customer service, our AI adviser bot is supporting our frontline representatives and has assisted with more than 3,700 complex support interactions over the past 2 months with a 96% success rate, servicing answers and seconds from our knowledge resources.

To further accelerate adoption, we have deployed an internal team of AI coaches who work directly with our associates through workshops and hands-on support. We are also seeing meaningful productivity and efficiency gains from natural language development, sometimes referred to as vibe coding. For example, a nontechnical associate recently developed an internal application for our travel program, allowing us to meet a business need without licensing additional software. This is one example of many where our teams have independently built more efficient ways to address specific business challenges.

Overall, we believe our approach to AI education and adoption significantly helps us minimize competitive risk. Additionally, regulatory requirements, network certifications and our role as the system of record make the banking industry very difficult to disintermediate. Shifting to our innovative solutions. We continue to make strong progress on our stablecoin strategy. Beta testing with clients to send and receive USDC is going well. And at this point, we are largely awaiting final regulatory guidance to proceed more expeditiously.

We are delivering stablecoin processing through the public cloud native Jack Henry platform. This is important because the platform is connected to all of our core systems, serving as a bridge between emerging capabilities and our foundational cores. This provides our clients fast integrated access to capabilities such as stablecoin and our initial SMB solutions, Tap2Local and rapid transfers.

Tap2Local, our SMB merchant payment solution continues to see significant traction as clients look to better serve SMBs increased deposits and recapture business from fintechs. At the end of April, more than 700 banks and credit unions were live with Tap2Local. Since beginning targeted marketing just a few days ago, active merchants have doubled to more than 1,600 with several thousand additional merchants currently in the enrollment process. We intentionally waited to begin marketing so we can ensure the product and infrastructure were fully operational.

With that foundation now in place and marketing beginning to ramp up, we expect adoption to accelerate in the coming months. Client feedback has been very positive, particularly around Tap2Local's differentiated capabilities, including easy enrollment, tap to pay on both iOS and Android devices and continuous account reconciliation. As an additional validation to the product's uniqueness, Tap2Local recently won the Fintech Breakthrough Award for Small Business Payments Solution of the Year.

We are also seeing strong early momentum with Jack Henry Rapid Transfers, which enables both SMBs and consumers to quickly move funds between external accounts, eligible cards and digital wallets. Rapid Transfers is now live with over 110 banks and credit unions with an additional 190 at various stages of onboarding. Transaction volumes have been healthy, particularly given that marketing has not yet begun.

The average transaction size is approximately $260, which is double our original projections and is being driven by stronger-than-anticipated inbound transfers. Larger inbound transfers deliver one of the key value propositions, increased deposits for the financial institution. With higher average transaction sizes and consistent monthly activity without any marketing, Rapid Transfers is currently tracking well ahead of our initial modules, though we are still in the early innings of the rollout. As another key part of the Jack Henry platform, we are developing a cloud-native deposit-only core.

Client testing is underway and development was completed 6 months ahead of our original schedule announced in February of 2022. We will continue to broaden our testing as the year progresses. I also want to highlight early progress on our enhanced embedded payments capabilities following the acquisition of Victor Technologies last fall. The Victor platform, now branded as Jack Henry Payments Orchestrator, enables financial institutions to embed payment capabilities directly into third-party nonbank brands such as fintechs and commercial customers.

In Q3, we signed 1 bank and onboarded 3 fintechs to the platform and have quickly grown our sales pipeline to more than 40 banks and/or fintechs. Moving on to our reporting segments. In core, in addition to the 17 competitive wins I mentioned earlier, we also secured 4 on-premise to private cloud contracts, including 1 institution over $1 billion. So far this year, we have signed 23 in-to-out contracts with 8 being institutions over $1 billion.

In payments, we continue to see strong growth in faster payments. Over the past year, our clients' adoption of Zelle grew by 25%, RTP by 26% and FedNow by 31%. In the third quarter, payment transaction volume across these channels increased 47% year-over-year. In complementary, we signed 36 new Financial Crimes Defender and faster payment module contracts during the quarter. As of March 31, we have completed 168 Financial Crimes Defender installations and another 68 in various stages of implementation. We've also installed 168 faster payment modules with an additional 256 in products.

The Banno Digital platform had another strong quarter with 23 retail and 34 Banno's business signings. In total, we have 1,028 clients live on Banno, including 466 on Banno Business. The platform now serves more than 15.5 million registered users, up 13% from a year ago. As a reminder, all of our Banno wins and growth thus far has occurred within our core base. As we look ahead, we believe we are at a meaningful inflection point. We now have a competitive feature set, along with increased willingness among certain competitors to operate as open providers.

As a result, we see an opportunity to begin expanding Banno beyond our existing base and more closely align it with our payment product strategy, where we have successfully sold outside the base for many years. We will provide more updates as we progress with this strategy. On the technology spending front, we recently released results from our eighth annual Strategy Benchmark survey, which highlights technology spending priorities. While we monitor a number of industry surveys, this one is particularly meaningful because it reflects direct input from the CEOs of our bank and credit union clients.

The results point to a clear and growing commitment to technology investment. 88% of respondents expect to increase their technology budgets over the next 2 years, up from 76% last year. Of those, the largest segment, 41%, plans to increase investments between 6% and 10%. These trends are consistent with other industry surveys pointing to increased technology spending. We ask CEOs where they plan to prioritize those investments. For the first time, artificial intelligence ranks as the top priority, cited by nearly 50% of the respondents, followed by digital banking and data analytics.

These priorities align directly with where Jack Henry has been investing and delivering innovation. Last week, we highlighted our differentiated innovation at the Jack Henry Annual Strategic Insight Symposium in Salt Lake City. We featured presentations and panels that included both Jack Henry leaders and well-known industry experts covering key topics such as the macroeconomic environment, the Jack Henry Benchmark survey, our technology priorities and progress, fraud initiatives, AI education and use cases, the impact of stable coins and tokens and meeting the needs of Gen Z.

We will provide updates on many of these topics along with additional innovation updates at our Investor Day on September 15 in our Dallas offices. We recently completed and published our 2026 sustainability report. The report is an outstanding information source on the Jack Henry -- on Jack Henry and is available to review on the Investor Relations page on jackhenry.com. The report coincides with our 50th anniversary and reflects our continued focus on preserving long-term value for our associates, clients, communities, stockholders and the environment through responsible business practices.

As part of our 50th anniversary celebration, our Board is looking forward to ringing the closing bell at NASDAQ tomorrow, May 7. This is one of the many activities we are doing throughout the year to mark this significant milestone. In closing, we remain focused on culture, service, innovation, strategy and execution. These key differentiators will enable Jack Henry to continue to drive industry-leading revenue growth and margin expansion. With strong sales momentum, increased client technology spending and a disciplined execution, we believe Jack Henry is extremely well positioned to capture the opportunities ahead.

With that, I will turn it over to Mimi for more detail on our financials.

Thank you, Greg, and good morning, everyone. I would like to begin by thanking our associates who continually deliver value to our financial institution clients. The result is another quarter of solid revenue and earnings growth and continued momentum as we approach the end of our fiscal year. I will begin with our healthy third quarter results, then conclude with our updated fiscal '26 guidance.

Q3 GAAP revenue increased 9%. Non-GAAP revenue increased 7% for the quarter and 8% year-to-date, a continuation of consistently strong performance. Third quarter deconversion revenue of approximately $19 million, which we previously announced was up approximately $9 million for the quarter, reflecting a steady pace of M&A activity among financial institutions. As a reminder, the dollar amount of deconversion revenue has little correlation with the number of transactions or annual revenue impact, and the absolute amount of deconversion revenue can vary greatly quarter-to-quarter.

We continue to see industry consolidation as largely neutral to slightly positive for our business. Now let's look more closely at the details. GAAP services and support revenue increased 10% for the quarter, while non-GAAP increased 8%. Service and support growth during the quarter was primarily driven by strength in data processing and hosting revenue for both private and public cloud. Specific callouts include implementation services and license revenue. Private and public cloud offerings continue to drive strong growth. Cloud revenue increased 9% in the quarter. This reoccurring revenue contributor is 33% of our total revenue.

Shifting to processing revenue, which is 43% of total revenue and another strategic component of our long-term growth model. We saw a solid performance with 7% GAAP and 6% non-GAAP growth for the quarter. Consistent with recent results, quarterly drivers included increased digital, card and faster payment processing revenue. Completing commentary on revenue, I would highlight total reoccurring revenue was 91% for the quarter.

Next, moving to expenses. Beginning with cost of revenue, which increased 7% on a GAAP and non-GAAP basis for the quarter. Drivers for the quarter are consistent with recent previous quarter results and include higher personnel costs, direct costs growing consistent with lines of revenue and increased amortization of intangible assets. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter.

Next, R&D expense increased 15% for GAAP and 12% on a non-GAAP basis for the quarter. Quarterly increase was primarily due to the net personnel costs driven by an increase in headcount over the trailing 12 months. And ending with SG&A expense for the quarter on a GAAP basis, it increased 9% and an increase of 8% on a non-GAAP basis. Results reflect an increase in personnel costs, specifically from headcount additions over the 12 months. We remain focused on generating annual compounding margin expansion. Q3 delivered consistent non-GAAP margin at 23%. Year-to-date non-GAAP margin improvement was 195 basis points with a non-GAAP margin of 25%.

Non-GAAP margin benefits inherently from the leverage in our business model, strategic cost management and leveraging our existing workforce as we continue to focus on enterprise process improvement and AI utilization. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.71, up 12%. For the year-to-date period, GAAP earnings per share was $5.41, an increase of 20%. Reviewing the 4 operating segments, we see positive performance across the board. Core segment non-GAAP revenue increased 9% for the quarter, with operating margin contraction of 27 basis points due to temporary product mix of lower-margin revenue sources such as implementation and work orders.

Payments segment quarterly non-GAAP revenue increased 5%. The segment again had outstanding non-GAAP operating margin growth with quarterly results of 159 basis points. Card processing revenue showed steady growth and was partly offset by lower network incentive revenue. The segment also benefited from continuing shift and significant growth from faster payments. The complementary segment quarterly non-GAAP revenue increased an impressive 7% with healthy 99 basis points of non-GAAP margin expansion. Quarterly revenue growth continued to reflect demand for our digital solutions and a beneficial product mix with sales sourced from new core wins, existing core customers and noncore financial institutions.

For the quarter, Corporate Services, formerly Corporate and Other, non-GAAP revenue increased 27%. This is primarily the result of increased hardware sales. Since the segment reflects expenses not allocated to other segments, we will not be discussing operating margins as it provides no meaningful insight. Now a review of cash flow and capital allocation. Q3 operating cash flow was $186 million, a 72% increase over the prior fiscal year Q3. Quarterly free cash flow of $122 million delivered a 137% increase over the prior fiscal year Q3. Our consistent dedication to value creation resulted in a trailing 12-month NOPAT return on invested capital of 23% compared to the 20% in the third quarter of the prior year.

We are very proud of the durability of this metric and how it reflects our high-quality allocation of capital for our shareholders. Additionally, I would highlight the following significant year-to-date capital decisions resulting from our strong free cash flow generation. $284 million in share repurchases, $127 million in dividends paid plus the asset acquisition of Victor Technologies. We're proud to return meaningful cash to investors while maintaining a conservative balance sheet. The average purchase price of the shares repurchased was $160. We ended the quarter with debt of $90 million, consistent with normal course of the business revolver usage but expect to end the year -- the fiscal year debt-free, barring acquisitions or other opportunities.

During the quarter, we established a new $1 billion revolver credit facility to support future growth opportunities. I will now discuss our third consecutive increase to full year guidance. As you are aware, yesterday's press release included updated increases to fiscal 2026 full year GAAP guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal '24. Fiscal '26 deconversion revenue guidance has been increased to $37 million.

Full year GAAP revenue growth guidance increases to a range of 6.1% to 6.6%. Based on our strong year-to-date results, we have tightened the range of non-GAAP annual revenue growth guidance, resulting in a new outlook of 6.6% to 7.1%. Consistent with our budget plan and year-long messaging, Q4 will see relatively lower non-GAAP revenue growth compared to the previous 3 quarters. Drivers include projected digital revenue slowing from lower active user growth, card revenue growth, seeing pressure from risk management and less onetime network incentive revenue.

Expenses during the fourth quarter are expected to reflect relatively higher pressure from medical cost benefits returning to historical levels, cloud migration infrastructure expense and commissions. Our expectation on fourth quarter revenue are below current analyst consensus. At the same time, full year revenue growth consensus is aligned, reflecting that part of the difference is that some of the revenue analysts expected in the fourth quarter shifting to the third quarter. Margins are projected to contract in the fourth quarter based on previously disclosed factors. However, based on the full year revenue growth and our robust financial model, we are increasing full year guidance for non-GAAP margin expansion to a range of 75 to 95 basis points from the original 20 to 40 basis points on the August call.

As a reminder, we see fluctuations in quarterly results related to software usage license components along with the timing of implementations. Therefore, the correct performance indicator for our business is the consistently strong fiscal year financial results. Q4 results are not aligned with our early expectations for fiscal '27. The presented results and guidance metrics are indicative that our business operations remain healthy and sound with growth opportunities across all 4 operating segments.

The full year GAAP tax rate estimate for fiscal '26 is 23.25%. The above increased guidance metrics result in a stronger full year outlook for GAAP EPS of $6.78 to $6.87 per share, a growth of 9% to 10%. As a reminder, even updated deconversion revenue guidance potentially understates GAAP EPS growth. Full year free cash flow conversion outlook for 95% to 105% for fiscal '26 with a bias towards the upper end of the range. Including, Q3 reflects another exceptional performance from our associates leading to increased guidance. We're pleased by the continued performance momentum and resulting fiscal year outlook.

We remain strongly convinced that demand for our solutions aligned with continued technology spend by our clients and prospects, all supported by industry-leading service excellence from our associates will drive outstanding financial results and superior shareholder value. We appreciate the contributions of our dedicated associates that produce these superior results and our investors for their ongoing conference.

Danielle, please open the line for questions.

[Operator Instructions] The first question comes from Vasu Govil from KBW.

Greg, first one for you. It was another very strong quarter on new core wins. I'm curious what's driving this trend? And if you are starting to already see some benefits from the competitor platform consolidation or if that's still on the come?

Yes. Thanks for the question. Yes, I think it's a combination of both. We've been talking a lot about what we've been doing on the innovative side. And so that's continued to play out with the products, the solutions. Obviously, our customer service hasn't wavered a bit. I will tell you, of the 17 core wins, 13 of them came from one provider and one competitive provider. But I will say that most of those, as you can imagine, the core processing contracting side takes anywhere from 9 to 12 months typically. So a lot of those were already in motion ahead of whatever announcements were made. But we did take some from really everybody, just so you know. So we had some wins from really all of our competitors. But again, the bulk of them came from one.

And then maybe a quick one for you on the margin guide. The guide obviously implies a meaningful step down in the fourth quarter, and I caught your comment on the normalized medical expenses you're baking in. Any other drivers there? Or just trying to get a sense of whether there's any conservatism baked into the guide?

Yes, you're welcome. So yes, you're accurate, and I appreciate you hearing the commentary regarding Q4, which is not indicative of the full year performance, but more so due to some unique factors in Q4 that were expected as we thought about for the cadence of the year. So you're right to call out the medical expenses returning to normalized levels. We also had some commission shift where we saw some benefit earlier in the year. We expect based on the timing of those implementations for the commissions to -- some of that to hit in Q4.

Additionally, just some of the mix we're seeing from some of the lower-margin business, some of it related to work orders and implementation also lead to a Q4 having less margin expansion or, in fact, margin contraction for the year. But again, the right metric for our business is the annual, and we're pleased to be able to increase guidance on full year margin expansion.

The next question comes from Peter Heckmann from D.A. Davidson.

I wanted to talk a little bit about Anthropic's Mythos. Has Jack Henry been able to set up a timetable to access Mythos to use -- look at their own systems to identify any cyber vulnerabilities? And do you think that's something that Bancorp customers are increasingly going to demand from their vendors on a periodic basis.

Yes, Pete, so this is Greg. So a couple of things on Mythos. So we've been heavily involved ever since it came out. So I actually did a call with a lot of our competitors and others with the Head of Cybersecurity in Washington. So we had -- as soon as everything was announced, we were pulled in. Our cyber teams have been involved in a multitude of meetings. Project Glasswing, which is now called Mythos Workshop, our teams are getting information associated with that and joining various meetings. We've obviously done a whole host of things that we need to do for operational readiness across the organization.

But candidly, we were doing that already. But the other thing is that you probably heard that on April 29, the Trump administration raised some objections. And so there's still some delay on where some of this utilization will get done. But our teams are heavily involved both with -- not only at our organization and with Mythos, but also across the entire landscape of our industry. All of our competitors and Jack Henry are working together with Washington to make sure that we protect our banks and credit unions.

And Greg, if I could add on to that. Mythos is just the current kind of attention in the industry, but we've made significant investments in fortifying and stepping up from a cybersecurity from an awareness and observability and a zero trust kind of resiliency philosophy over the last several years. So we feel like we're in a much stronger position today than we had been over the last several years to be able to handle this type of situation.

The next question comes from Jason Kupferberg from Wells Fargo.

This is Tyler DuPont on for Jason. I wanted to just start by piggybacking off of the core questions and commentary. Given you signed 43 takeaways so far fiscal year-to-date, how should we be thinking about upside to that 50 to 55 annual target? If I heard correctly in the prepared remarks, Greg, you suggested that you have confidence in exceeding last year's number. But given last 4Q, you guys won 23 deals, that would imply over 60 this year. So I guess just given the success you've seen so far year-to-date, I'm wondering if you can help put sort of a finer point on expectations as we look to the rest of the year.

Yes, I appreciate the question. I can't really give a finer point. I can tell you that I'm very confident that we will be north of 51 and probably north of 55, somewhere in that range. I don't know exactly -- contracts are interesting as far as timing to go get them done. We've been completing a couple of contracts recently that took a lot longer than we expected and sometimes they get kind of turned over to the next quarter.

But in reality, it's not just the number of wins we have, but also the size of the wins. So as we referenced, we had 11 over multibillions, but we've also won just this past quarter, we won $3.5 billion. We've won $5 billion. We've won $7.5 billion. And just recently, we just won an almost $10 billion client that is coming with 1.2 million accounts, which is actually about 25% larger than any customer we have today, including our largest asset size in the number of accounts. And those contracts took a long, long time to secure.

So as you continue to go upmarket, contracts take longer. So it's really hard to give you a definitive answer. But the answer I'll give you is our sales team is really kicking butt right now. And obviously, a lot of the things that are going on in the industry are providing opportunities for us. And I think the best is still to come based on feedback and pipelines that we have. Our pipelines are extremely strong, not just in core, but in payments and complementary as well, and we're very bullish on that.

Great. That's great to hear. And I guess just as a quick follow-up, I just want to touch on free cash. The $122 million in the quarter was pretty meaningfully above, it looks like both consensus and even your own historical trends. So can you maybe just touch on how we should be thinking about free cash flow going forward versus the 90% to 100% conversion guide sort of both as we look down the barrel to the final quarter and as we try to hone our models for next year.

Yes. So I would say, Tyler, there were a couple of things as we look at trailing 12-month free cash flow. First and foremost, a tremendously strong operational foundation that led to strong cash, but there was also impact -- positive impact from the tax bill change that we saw come to clarity as well as some small asset sales. But overall, we feel great as we are improving the color this year for free cash flow conversion to that $95 million to $105 million, with a bias to the high side, sitting at around 109 -- $108 million, $109 million year-to-date from a trailing 12 months. We feel very good that we're returning to the historical norm levels of our free cash flow.

The next question comes from Rayna Kumar from Oppenheimer.

Just given the volatile macro and political environment, as you talk to banks and credit unions, how are they thinking about IT spending for the next 6 to 12 months? And then separately, any read -- initial read on FY '27 revenue growth and margins?

Yes, Rayna, I'll take the first one. So kind of as we talked about in my prepared remarks, and we just came out of our strategic initiatives meeting with our top 150 or so clients. The focus -- and we actually had somebody from Washington come in and talk to our clients as well. But it's based on what's going on in the macro environment, honestly, it's not affecting the banks and credit unions focus on what they need to get done in the tech spending.

So as we referenced in our own benchmark survey that just came out, we had 88% said that they were going to increase their spending as compared to 76% last year. And with that average, I think it was 41% is actually at 6% to 10% of an increase. And so that really coincides with everything that we've been talking about for the last 2 or 3 surveys that we've referenced on our calls, bank directors and others surveys. So that remains. The only difference is really where they're talking about spending the money. So AI for the first time became the #1 priority for them. But obviously, deposits, digital banking, in particular, fraud, other components are still up at the top.

But -- so we're seeing it. I mean, again, our pipelines are very, very robust right now, again, in all parts of our business, not just core. And again, we're getting larger institutions. As I referenced, just this year, we've already won the one I just referenced that was almost $10 billion in assets, but 1.2 million accounts which is significantly larger than any one we have, which that comes with a lot of other products with it. So things along that line that continue to make us believe that the robustness of the technology spending will continue.

And then Rayna, I can take the second half of your question kind of building on that positive outlook that Greg just framed. It's a little premature to talk about FY '27. We're just excited about ending '26 in a great spot. Again, I would just call out that the quarterly pace of the year is not indicative of any kind of launching off pad for '27. So although we are all calling for a weaker Q4, it does not mean anything diminishes from our positive outlook for the full year and then next year. Even at roughly 91% reoccurring revenue, you would think a budgeting process would be easier, but we have a very comprehensive budgeting process here at Jack Henry.

And so we are still working with each of our operational leaders to talk about the next year's plan and rigorous prioritization around investment and spending. So we will give more color to that when we talk about full year results next quarter. But overall, we're thinking a positive direction for FY '27.

The next question comes from Madison Suhr from Raymond James.

I just wanted to start on the trifecta wins. I think you mentioned 58% of wins this year were those trifecta wins. Just given what you're seeing in the pipeline, I mean, do you think this elevated level of cross-sell is sustainable, not only for the quarter, but just as we think about kind of the next year or so?

I do. I appreciate you asking the question. I mean I think we've seen the results of all the work and innovation that we put into our -- both our digital platform and our card platform. We've made a lot of changes through the years, and you've heard us reference over the last couple, in particular, about getting to a level of feature parity that we needed to compete with some of the larger digital-only providers, and we're starting to see that.

We're starting to get some wins from all of the players, candidly. And so -- and they're not just coming in core wins, which is great, obviously, but you have to wait for those to be installed. We're also getting some current Jack Henry clients that were on competitive digital platforms that are now making the decision to move the Jack Henry Banno instead. So short answer to your question is I do feel very strongly that the work that we've done and are continuing to add with features like Rapid Transfers and Tap2Local that are not available anywhere else are big differentiators for us to winning deals.

Okay. Great. And then I did want to follow up just on the Payments business. It grew 5% in the quarter. Just curious from your guys' vantage point, what's kind of the key buckets or key things that could accelerate growth in payments from here, just given I know that mid-single is maybe slightly below where you guys want to be.

Yes. We continue to see steady growth in card, the resilience of the consumer spending. And then on top of that, you get a boost from continued rebounded growth in remit and Bill Pay, Bill Pay, I would call out, even though it's not huge growth numbers, the increase has been quite positive, and that's a signaling of the resurgence post acquisition of Payrailz. And then on top of that, you have just tremendous growth, almost 50% growth in faster payments. So it's across the board. Volumes for card are good, but then you have extra growth from other areas of the business.

The next question comes from Dominick Gabriele from Loop Capital.

I guess Jack Henry is always focused on an open platform versus a walled garden. And I think that's really been a benefit to the business over time in gaining customers. Do you expect to partner with various AI potential financial providers with their products? And how would you think about that relationship? Would you take it similar to the types of partnerships with third parties, allowing their products to be on your platform and really focusing on Jack Henry's added value when the customers ultimately decide to choose Jack Henry products regardless.

Yes. It's a good question. I appreciate it. A couple of things. We are doing that today. So several of the AI-related companies are partnering with us today. That's how we're using some of the tools and also some of the -- incorporating some of it into some of the products that we are working on. We are being very careful on that. So partner is a really difficult word to use because in some cases, a partnership infers a lot of revenue changing hands on both sides. A lot of what I would call it is more of an integrated relationship.

And in some cases, they're creating more financial gains for both of us and others, they're just creating opportunities for us to leverage tools that we're licensing. So -- but that is happening today and will continue to happen. We have a whole host of folks that we have hired to evaluate those tools and doing that, and we're being very careful because everybody's got something new to talk about. But that will continue. And to your point, we've been by far the most openness -- open platform through the years. And so we look at AI, we look at fintech opportunities, we look at fintechs that are using AI that's already embedded into their solutions as opportunities, and then we'll evaluate them one at a time.

Great. Maybe just as a follow-up, if you look at the various growth rates of the segments, Core has been doing quite well. And outside of the comments you just made on payments, complementary double digits. I'm just curious of the quarter-over-quarter kind of implied reduction in the other 2 pieces of the business, given there is some momentum there. If you could just help walk through kind of that, I'd really appreciate it.

Sure. So as we always say, not to look at 1 quarter, but to look at the full year, particularly because some of these products, as you look at the installed calendar and even though we're thrilled to be looking at over 50 core wins, the revenue we're getting today is based on the wins we had, especially for core that we locked in last year, some of the complementary products can be installed sooner. But the profile of those customers does impact the revenue. So if you have years where the size of the installed base is different or the mix of the products they're taking, it can impact both revenue and margin.

On top of that, what we've seen is some of the onetime service revenue related to work orders and implementation is also -- it's been a nice added revenue source, but I would say that kind of varies as well from quarter-to-quarter. And that's really the biggest driver causing for the fourth quarter in addition to just some grow-over challenges from last year's strength.

The next question comes from Eric Teller from Wolfe Research.

It's Eric from Wolfe. I just wanted to understand a little bit more. When I think about the beginning of the year, you guys had called out pricing, M&A and some other variables, credit union account growth as having been potential risks or headwinds that decelerated what otherwise would have been a 7% to 8% algorithm for your year, ended up doing better than that as the year is progressing and not seeing those headwinds as materially. And you're seeing better core growth also, I think, than probably you anticipated at the beginning of the year.

And so putting all those pieces together, where do you see the business positioned now in terms of your normal 7% to 8% trajectory? Do you think you have enough pillars for that business to sustain 7% to 8% in the next couple of years again without specifically guiding to '27? I'm just curious if you think the building blocks are there.

Eric, I appreciate the question. Yes, even though we haven't really talked about some of those headwinds as we progress through the year, we've grown over them. It's not that they've disappeared. We had it in our budget plan. We knew of some of the departures. We knew of some of the new contract renewals that we're going to face a bit of compression from a renewal perspective. We've just been able to grow over that. So I just -- I don't want to say like those pressures have abated. It's just we've been able to perform in spite of them.

So as we look at next year, again, too premature to put any refinement on it, but I think the growth algorithm is certainly still intact. And as we've talked about, I think, even as much as on last quarter's call, the new exciting areas of innovation and business opportunity like the ones that Greg highlighted in SMB, faster payments, et cetera, it's going to be a couple of years until that has a meaningful contribution to the revenue growth that would kind of push us towards the upper bound of our growth algorithm and beyond. But we feel confident that next year is looking in line with the guidance we have historically given.

Yes. The only thing I want to add to that is that we did talk about that typically, we start to even out over the year with M&A. That is starting to play out exactly as we had said. But we had some -- in the early parts of the fiscal year when we were finishing our budgets and everything else, we had a little bit more of an upside down, but that started to balance itself out like we thought. The other thing is we referenced the changes we made in the renewal processes with how we went to renewals, and that has worked really, really well, candidly.

And then I do think what Mimi just referenced with some of the new products and services that are still in earlier stages and -- but starting to gain some traction, that's where we get a lot of our confidence for the longer term in getting to the numbers you're talking about.

Okay. Greg, I just want to -- one follow-up on the core wins. It came up a couple of times, but I don't feel -- I still feel a little bit hungry for an understanding of what's actually driving the incremental step up in the magnitude of the wins than the run rate? Because like you said, these were basically formed from probably a few quarters ago in terms of the deals being signed or at least close to signed. So it wasn't really the industry changes we're hearing from competitors right now that caused the increase. So what did cause it to really kick in a few quarters ago already? Because it seems like if you add on what we're seeing in the competitive landscape, that could be additive even more so than the 55 going into next year if you -- when you take the 2 together.

Yes, I agree with you. I mean, I think you all have heard me enough talk about the differentiators and I bring them up every time because we're still getting some folks that don't fully understand it. And we are building things that nobody else is building, and we're doing it at a level of execution that nobody else is doing. So when you get an industry that's completely full right now of competitive uncertainty that is happening specifically with our largest competitors, we are the provider that is absolutely executing on the things that we said we were going to do and hasn't lost a step in customer service and never has.

So people are -- I mean, I'm getting inbound calls from larger institutions that want to talk to us. I'm getting inbound calls from the largest consulting firms in the world that want to learn more about what we're doing. And we've been showing these large consulting firms our technology and their quote is, we are blowing them away. They never thought a core provider could do what we were doing with what we've built on the platform.

So when you take all of that in the years of a lot of effort of building out the technology and now to a point where we can actually demonstrate it and have live products, that is really driving it. And again, with the unrest of what's going on with our competitors. So I do believe it's going to continue because we're going to continue to execute as we have been, and our products are only going to get further and further ahead of where our competition is.

The next question comes from Ken Suchoski from Autonomous Research.

I wanted to get your high-level thoughts on how AI can play a role in the core processing industry. And we noticed one bank with over $25 billion in assets expanding its collaboration directly with OpenAI. And I'm curious to get your take just on, one, how much of a risk is there that banks or credit unions work directly with these AI companies? And then two, how involved is the core provider if that does happen? Or how does the core provider's role change in that scenario?

Yes. I think there's a couple of things. I think you referenced the $25 billion institution. And I do think the larger institutions as you continue to move up, they probably have more opportunity, more wherewithal money-wise and talent-wise to work with some of these providers directly. So you may see that. I can tell you in the community bank space, as I said on our benchmark survey, the #1 priority was AI. And our community and regional banks that Jack Henry works with, they don't have the wherewithal in most of the cases to build that out.

So they're relying on us, which is why we've taken such a proactive way of doing this for the last 3.5 years. So as I mentioned, not only are we building the level of efficiency and effectiveness inside of the organization, we have 14 different POCs that we have going on right now with products. We have a whole host of things that we've built in our Financial Crimes solution, including things like SAR reports, suspicious activity reports that go out and doing those using AI, creating things that provide efficiency gains for our banks and credit unions with various tools like exception item processing that I referenced in the script.

So things along that line that I think will continue to drive opportunities for people like us, at least that are very innovative and building out that level of innovation with our customers. Could there be a few that go around? Yes, maybe, but they're going to be fewer and far between than they are at the larger institution size.

Yes. That makes sense, Greg. And maybe just one for Mimi. Just on the payments non-GAAP revenue growth rate just because we're getting some questions on. I think I heard lower network incentives this quarter. Is that more of a onetime issue? Or does that carry through to future quarters? Just trying to think through the growth rate there and if it can accelerate from the 5%?

Yes, of course. The network incentive thresholds are kind of negotiated kind of year-by-year and sometimes intra-year. So I don't see that as a headwind kind of going forward in any kind of structural change way. It just happens that it has more of an impact this year in Q4 on top of a growover from an already strong year. So to me, the underlying trends of the strength in card volume, the strength in our enterprise payments business makes me feel comfortable about the ongoing growth rate in that segment.

The next question comes from Cris Kennedy from William Blair.

It's great to hear about the larger wins. It seems like you're making a lot of progress there. Can you just remind us of the dynamics and/or the economics to Jack Henry as you move upmarket?

Yes. Thanks, Cris. Yes, the economics obviously change based on the amount of products that they buy with us. And again, I just referenced this larger one that we just literally won was not part of the account that I gave you. We just won over the last couple of weeks. But that one is asset size isn't -- it's roughly $10 billion in assets, which for us would be the second largest win in our history as a brand-new core as far as asset size. But more importantly, it's the number of accounts.

So they have 1.2 million accounts, which is, like I said, 25% greater than any of our current customers, but they're buying a whole host of products from Jack Henry. So that creates a larger scale of opportunity for us than maybe some of the other institutions that are buying only a handful. The key of why I keep referencing trifecta is because trifecta for us really is the opportunity for us to drive 3 of our largest revenue products in with a single client. So really, the rest of it becomes gravy. And so it really does depend, Cris, but when we go in to sell a deal, we try to sell them everything we have.

Some of it also could be timing. If the contract terms on some of the other products are not coterminous with the core, you sometimes have to wait to go back and win the digital or the card or other things like that to drive that. But economics really, truly vary. Like I just said, the $10 billion opportunity could look a lot greater than a lot of our other opportunities, and it's smaller in asset size.

The next question comes from Will Nance from Goldman Sachs.

Mimi, I wanted to -- I'm sorry to ask another kind of guidance-oriented question. Very clear that the fourth quarter is not kind of indicative of a jumping off point. I just wanted to pressure test a couple of things in the fourth quarter on that statement. When we think about some of the things you called out, I think on the complementary side, lower digital account growth and then on the margin side, normalization of commissions in health care as well as the commencement of some of the public cloud spend and some of the duplicative costs there.

And I was wondering if you could just maybe talk to either why those wouldn't continue into next year or if they are and we're supposed to kind of take from that, that you're factoring that into the budgeting process as you go through it. If you could just kind of speak to your confidence about like levers that you have to offset those things because you obviously have pretty good visibility on them as of today.

Yes. Happy to, Will. And I appreciate your acknowledgment that it's a little early for FY '27. But yes, I think particularly some of the headwinds that we see in Q4 around the digital account growth, it just happens to be the size of some of the wins previously. So we have some bluebirds that are scheduled to come on, and we'll see what the mix for the remaining year of the sales team wins look like as it impacts next year's implementation, but no concerns there at all.

As Greg mentioned, we feel great from a competitive parity perspective and our -- both the robustness of the pipeline and the wins we're getting. So no concerns there of that being a carryover into FY '27. On some of the expenses that you mentioned, we mentioned in previous quarters that some of that savings particularly around some of the timing on the commissions as well as some of the timing from the expense medical claims being lower, really just created an opportunity for more of like a onetime windfall, if you will. And we've seen that at the beginning of the year, we talked about the $20 million to $40 million, and we're now set to deliver $75 million to $95 million.

So we'll see where we start next year, but we always start conservative with the ambition that that's the floor and look to produce more. But nothing structural. But you're right, we expect kind of a normalization that should probably produce a little bit of a front half grow over challenge relative to the savings we saw this past year. But we continue to look at every position and every project with a refined eye to making sure it makes sense for the business.

Will, one thing I do want to emphasize related to the digital backlog is that the importance of us winning these deals from -- with existing Jack Henry clients from our competitors is why we continue to emphasize this. But right now, in our digital backlog, the digital wins with existing Jack Henry clients from competitors is twice the size of the backlog for the core wins. So that puts that in perspective of, again, we are winning some larger deals back in the Jack Henry base of deals that we did not win years ago.

Got it. That's super helpful. I appreciate all that color. And then maybe if I could just kind of ask a little bit more longer term of a question, and I should acknowledge despite some of the headwinds that you mentioned earlier this year, this is one of the best years that Jack Henry has put up from a margin expansion perspective in many years, and that's despite a more flattish back half of the year. And so I just want to acknowledge that you're kind of doing that with some of the headwinds that I think an earlier question mentioned.

And so just wondering, as you look out, particularly in the context of the acceleration in core wins and a lot of the sales momentum that you have, how do you kind of think about that long-term margin expansion target? And just given what could be a faster pace of top line growth, like is there is there room to operate at the higher end of that margin expansion target while the sales momentum is going strong.

Yes. I think your goals are in line with our goals. We know that margin expansion is one of the key pillars from a shareholder value creation, and we are highly motivated to drive that. Not talking about any particular year, so this is not a reference to '27, but more kind of the near-term horizon. We've talked about there's a number of great tailwinds that will help us, whether that is the mix of the new products coming to fruition at higher margins, whether that is moving to a public cloud environment, whether that is AI and continuous improvement efficiencies. So we think there's definitely opportunities to improve the margin profile of the company.

The next question comes from Dave Koning from Baird.

Nice job. One thing, corporate, just that segment grew super fast. Hardware you called out. I think that's pretty lumpy. But you made a comment that you expect growth in all 4 segments. Historically, corporate was kind of a decliner. Is there something that's changed there? And is it maybe less lumpy? Or is there some extra growth you expect? Maybe just discuss that a little bit.

Yes. I appreciate the question, Dave. I agree, hardware can be lumpy, and we saw that as a big headwind last year. It's hard to say what we expect for next year yet in terms of hardware. We did have an increase a little bit this year that's produced some wins. I would say, in general, that segment while we manage it quite tightly, it doesn't have the same operating characteristics as our other segments. And so it tends to be a little bit more ancillary services than key areas of revenue.

Yes, that's fair. And then just one last one on network. The network incentives, I get what they are. Just from a magnitude standpoint, is that like a -- I know it's lumpy, but is that like a 1% to 2% headwind in Q3 and Q4, just so we can understand kind of normalized.

Yes, I would say probably combined, looking at it from a combination perspectively and holistically across it. And I would focus more on the card volume itself as being more of an indicator forward and that strength, that continued strength of the consumer we think will lead to network incentives this year, just the threshold was pretty high.

Yes. And the other thing is on network incentives. It's an aggregate of all of our card association relationships and a lot of it is also predicated on average spend, not necessarily transactions. So we get paid on transactions. Obviously, the interchange is generated at the larger spend dollars. So some of that is predicated on spend dollars going down, but not necessarily our transactions going down for the network incentives.

The next question comes from Kartik Mehta from Northcoast Research.

Greg, I realize there hasn't been as much M&A activity at least so far in 2026 as some anticipated. But if M&A activity picks up, do you think that impacts at all the number of RFPs that might be there for the core over the next couple of years?

I do. I do think that a lot of opportunities that tend to happen are folks that are undetermined on what they're going to do in the long term on whether potentially being acquired is an alternative or kind of preparing themselves for that through the process. So as you can tell, a lot of folks that maybe are going to be potentially looking to be purchased, they're going to be less likely to do an RFP at that point in time. So it can have an impact on both ways.

But based on what we have seen, to answer your question, Kartik, we've seen a really steady dose. I think that the -- if you take the average number of RFPs that we typically talk about in a year, which is roughly 200, I think that number will be closer to 250 to 275 over the next couple of years with, one, the unrest that's going on at some of the competitors, but also just the whole M&A story itself.

So even with increase in M&A, that should not -- it should actually increase your opportunities?

In both ways, right? So we typically win more than we lose, right, in the M&A side. And then I think with the opportunities for us to continue to win our fair share of pure competitive takeaways.

Yes. And then just one last question for you or Mimi. In the past, you've talked about whenever there is some kind of an economic event, if banks get a little skittish, there's a portion of the business that might be impacted because it's a little bit faster sales cycle than the core or some of your other products. At this point in time, what percentage of the business do you think could be at risk if the economy slows or the banks get a little bit worried about what's happening?

Yes. So overall, we have not seen volatility related to the economic related to global issues happening. I would say, and something we've mentioned historically is the card business has the most sensitivity to macroeconomic. But overall, we have not seen a big change in the mix of that kind of exposure, if you will, to the economy.

Yes. And I think -- so specifically consumer sentiment drives a lot. And as you know, we have -- the bulk of our card business is debit, and that tends to be the one that gets pushed. But regardless, I mean, I don't know any of the products that we've seen. And again, we just came out of our SI event in Salt Lake and the feedback from our clients was, I mean, they're going to spend more and more because they know that that's their way to combat a lot of things. Technology solves a lot of their problems.

The next question comes from James Faucette from Morgan Stanley.

Greg, I want to circle back to a comment you made a few minutes ago that you're seeing increased engagement with consulting and systems integrators. And just wondering with those conversations, if you view that as a potential source of better implementation efficacy, especially if you can enlist the SIs to do a lot more of the work. And then just thinking about that as a potential incremental channel or point of leverage.

I'm really glad you asked the question, thank you. So absolutely, the things that we have found through these conversations, and we've had a multitude of conversations with 2 particular firms in particular. So I would say that, one, they are able to help validate the things that we were doing in the space as compared to others and giving us that feedback. And so we feel really good about that. Two is what you described, which is they're providing an entree into some of the larger institutions.

In fact, I had 2 inbound calls from institutions that came as references from these consulting firms, and we haven't even inked a deal with either one of them yet. And so they're providing that level of validation that, hey, Jack Henry can play in this larger market. So -- and then thirdly, to your point, do they become potential implementation partners or other aspects? The answer is yes. And we're entertaining all of those things as opportunities present themselves.

And Greg or Mimi, I just want to touch quickly on some of the things that you're doing in the Payments segment, continue to be intrigued by those. But I'm wondering how we should think about the margin profile of Tap2Local relative to the current segment margin? And is the Moov economics model initially dilutive because of onboarding support? Or can it be accretive because of the way the distribution runs through existing Banno and FI relationships? And how should we think about those trajectories over time?

Yes. I would say -- thanks for asking the question, James. I would say that some of those new growth initiatives are exciting on 2 fronts, both from a top line revenue perspective, still very early days. Greg shared some of the exciting momentum metrics. But from a revenue contribution perspective, it's still very small and expected to grow quite nicely over the next several years. From a margin perspective, because of the nature of the rev share, because of the limited amount of development work we've had to do to get that solution in market because of the partnerships we have on the marketing side with the network, it's going to be great margin.

So excited when that comes to fruition. When I look about long-term growth momentum drivers for the business, those are certainly areas that I think will continue to accelerate payment size within our business and overall growth rate.

The next question comes from Timothy Chiodo from UBS.

I apologize if this was already addressed. I'm joining late from another earnings call. I realize it's maybe challenging to talk a little bit about large named competitors, but it's just coming up in a lot of investor discussions with the recent Wells Fargo win for Pismo and Visa overall. And I was hoping you could just let us in the investment community know how you're thinking about them as a potential new competitor that might not have been a part of the thought process maybe 2 years ago and now appears to be gaining some degree of traction.

Yes. So it has not been asked, Tim. So we'll forgive you for going to the other one first. That's okay. But here's the answer to the question. Pismo is not a full core. So if you even compare it to -- I think some folks had made comparisons to Finxact and Thought Machine and others. By the way, they left us out of there from a comparison standpoint with the things that we've built in the platform. But what I would say is it is -- the term core is really what's been the challenging component here.

It has the ledgering capability. That is it. It does not have any of the other -- so people are calling it a headless core because of the UI and lacking of that, but it doesn't have any of the pure functionality of a core itself, which is why somebody like Wells Fargo can spend the money to build that out based on the Visa relationship that they have, and they can hold them accountable for executing based on the Visa relationship that they have. So I think there's a lot of dynamics in a deal like that, that are way more impactful than just what they're supposedly going to be doing with building out a potential core. I really believe that they could be using some of it more as a side core solution set, using the general ledger as a baseline for that.

But there isn't any true deposit capabilities or lending capabilities in Pismo today, and I validated that with Visa. I mean we obviously have a strong relationship with Visa, and I have validated that at very top levels. So I think there's a little bit of an overreaction to what is truly going on with Pismo today. And we are not seeing them. I actually talked to our sales folks, and I said, do we see them in any single deal and the answer is no. Obviously, we do see them in card deals sometimes with what they're trying to do with DPS and bringing those 2 things together. But that's my answer for today based on what I know, based on conversations I've had with Visa directly and what our sales team has brought back to me.

This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for closing remarks.

Thank you, Danielle. Management will be participating in multiple investor events over the next few months, and we look forward to our conversations with investors. As Greg mentioned, we will be having our Investor Day on September 15 at our office in Dallas, and that will obviously be webcast. However, if you would like to attend in person, please reach out to Steve Fine on our IR team for more information.

In conclusion, we extend our appreciation to all Jack Henry associates for their outstanding efforts, which have set us up to finish a successful fiscal 2026. Thank you for joining us today. Danielle, please provide the replay number.

The replay number for today's call is (855) 669-9658 and the access code is 4124634. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

I'll go ahead and get started. First of all, again, thanks, everybody, for being here for day 2 of the Wolfe FinTech Forum. Really happy to have Jack Henry with us, a company that we've been recommending for some time now and really constructive on it, given it's really just invested in itself the right way and continues to add technology, add product and really take market share. And so with that, thank you for being here, Greg, the CEO of the company, really took over as CEO a couple of years ago now?

20 months.

So it's been about 2 years almost. And just start there perhaps. I mean, when you compare where Jack Henry stands today versus when you stepped into the seat, I mean, what do you view as the most meaningful changes in the positioning, culture, execution? And then just looking ahead, Greg, I mean, if you look at the company and where it's evolving over the next year or 2, why don't we start there, it would be great.

Yes. So just a little background. I've been with the company for 15 years. So I would say from a culture standpoint and from a service standpoint, we have a 50-year history of doing all the things that are right by our associates, which ends up driving service. So I haven't done anything to impact that other than I think we've done a good job of improving some of those areas. Our engagement scores are the highest they've ever been. Our service scores are the highest they've ever been. But that's a foundational part of our company that goes back to Jack and Jerry themselves.

For me in the role, I really kind of had a few things that I was focused on. One of them was our SMB strategy, and you've seen us really come out with that very strong, allowing what we have as a merchant acquiring solution embedded into the bank and credit union instead of around them. So the Stripe and Squares of the world that are taking opportunities away from our banks and credit unions, we're putting them back in. And we've done that with a partnership with Moov, but that was a big focus of mine was the SMB and my payments background.

And then I think when you look at what we've been doing, to your point, in innovation in general, I was COO before I became CEO. So we spent a lot of time refocusing the company back then into what we call the One Jack Henry mindset. So that was creating our technology and creating our service atmospheres to look even better with a one company approach. And so we're starting to see the benefits of that work that we did years ago in the fruits of our opportunities that we've been talking about. We're winning more deals because of the innovation we built, because of the fact that our service and culture continue to be driven in the right direction. I like to say culture, service, innovation, strategy, execution. Those 5 words are truly differentiators for us. And I think all we've done has made all 5 of those better.

Okay. That's great. At the start of the year, you -- well, at the start of fiscal year '26, adjusted revenue growth was guided to slightly below your normalized 7% to 8%. As much as that's still well above -- even below 7%, 8%, is well above your same peers operate right now in the low single digits or even lower. Just remind us of what trends drove that, let's call it, conservatism versus your normal range to start with? And how are those dynamics evolving today?

Yes. So good question. So if you look at the 7-year CAGR of our annual growth rate, it's been about 6.8%. So we did guide to less than that this year. To your point, we had 2 particular headwinds that we called out. One was M&A usually comes in ebbs and flows. And so the M&A experiences that are going on, obviously, everybody knows that follows the space that it's more prevalent than it's been even in years past. So we have 40 years of consolidation happening in our market. And so that's no different than any other year other than it's probably instead of averaging it at a 4% decline, it's probably around a 6%.

So there were some timing differences of when some deals of Jack Henry clients that were acquired, and we kind of called that out as a headwind because sometimes you can't control the timing of that. What we also said is that we thought it would start to level itself out over the year, and it has. And so as you've seen, as we've kind of come over the first 2 quarters, our fiscal is July 1 to June 30. If you've seen over the last 2 quarters, we've actually bumped our guidance up each of those quarters because that started to level itself out.

And the other big thing we called out was some price compression that we were seeing from how we did renewals in the past. And candidly, without going into a whole host of detail, we made significant changes on how we do renewals, how we incent our sales team and renewals. And both of those have actually performed -- outperformed what we expected them for this year. And so that's why you continue to see that eke up. And I expect that to happen in the future.

Yes. I mean, M&A post the Trump administration really did pick up, right? I mean we're at somewhere around 6%, 7% or so of total banks consolidating versus -- I think we saw around 4%, right, if you go back a couple of years before.

Well, 40 years. So you can go back 40 years, it's averaging 4%. And so to your point, the other thing that's really driving that in the Trump administration is the time it used to take to get an approval was averaging north of a year. In some cases, it's averaging about 3.5 months right now. So that's changed the dynamic.

I think M&A generally -- look, a lot of investors look at it like it could be a headwind for the space because you get consolidation of your customers. But it could be an opportunity, too, where you need integration work done, right? And we had Stephanie from FIS on stage with us. We have Mike on stage with us from Fiserv. It sounds like banks are in growth mode in terms of spending on tech.

They are.

I mean, what are you seeing out there in terms of demand for services?

Yes. And I think I'll just reference 3 quick data points. So one, we do our own benchmark survey at the beginning of the year. So at the beginning of '25, we came out with our survey, our clients, 3% to 5% expected tech spend. 4 months later, Bank Director came out with theirs, 6% to 8%. Two months later, Cornerstone came out with theirs, 8% to 10%. So all within 2025, you've seen an increase in tech spend. And I think that's why Mike and Stephanie have referenced the same thing that we do. We're seeing it. Now the ones that don't want to spend the money, they're the ones that are getting acquired. So that's where -- really where the change is. And -- so if you're valuing the things that folks like us are building on an innovation side, they're the ones that need to spend the money on technology to continue to thrive in the markets that they serve.

It's a good environment for you guys. What is the areas that you'd see the greatest potential upside to your current guidance? I mean, you have a pretty good backdrop from a demand from an end market right now, it sounds like.

So there is opportunities in the space with some -- whether you want to call it a market consolidation by one of our provider or one of our competitors or not. But the reality is there are a bunch of opportunities in play. We're already seeing that as part of our pipeline growth. We also -- we won 22 cores just in one quarter, which by far was a record for us in Q2. And -- so that is a pretty strong indication of the things that I've been saying. And those really happened really before the opportunities of what I referenced with one of our competitors.

But the reality is that the tech that we are building is very creative and very innovative. And honestly, some of our competitors are starting to spend time and money and focus on service and innovation. And I think we're a little bit ahead of them, and it's starting to be a benefactor for us. So I think that will continue for the foreseeable future. And I expect -- I'll just go ahead and say this. We've been typically winning about 50 cores a year, and I am 100% confident that we will win more than 50 this year as a way that we've been working through this.

That's great to hear. Speaking of core consolidation and competition doing some -- making some changes, we know Fiserv and others are really trying to upgrade into a fewer number of cores that they offer, just generally trying to get their customers given they spend so much time and money on so many cores, it's frankly distracting from an investment standpoint, right? What are you seeing there? I mean, as an opportunity to take advantage of that, if anything? I mean, you have markets where you really are the go-to for the SMB. But as you move upmarket and compete with Fiserv and others, what are you seeing in terms of the opportunity there?

Well, the opportunity for us is going upmarket already. It's been part of our strategy over the last several years. reference again a couple of key points. We won 31 deals in the last 2 years, over $1 billion compared to 5, the 2 years prior to that. And so that gives us an opportunity back to innovation and getting additional bites at the apple. We're also seeing even in the M&A market when one of our institutions is acquired by a larger institution and in some cases, much larger institution.

We are having opportunities to keep additional products with that acquiring where we never did in the past. We're seeing that on a regular basis. The other part is with the consolidation that's happening with Fiserv and others, I know Mike has announced that it is in a consolidation or necessarily a forced migration, which -- that's great. But the reality is there's still clients that get nervous when those type of comments come out. And our pipeline has significantly increased as a byproduct of that. So that's why I'm very confident in where we're going, both from a core wins this year and what we expect to see over the next several years.

Do RFPs, the number of RFPs look different than they did in the last couple of years?

They look different than they did in the last couple of months. So yes, so without quoting anything in here, we -- our pipeline has significantly grown in the last 2.5 months since those opportunities have been announced. There's roughly 1,400 core opportunities in play right now based on what they've publicly said could be consolidated. And not everybody is going to leave, not everybody is interested in leaving, but there are folks that...

There's more conversations happening.

Absolutely.

I think you used to have somewhere around, what, about 100 or maybe 200 RFPs a year. Am I right?

Works. So roughly 200 a year, roughly 100 make a decision, and we won roughly 50 of those 100.

So that 200 number has moved.

It has increased.

All right. That's good to hear. When we think about the idea of you moving upmarket, again, I mean, Jack Henry has always been thought of by us at least as either credit unions or smaller banks, right, generally speaking, credit union banks. But you've been successful moving upmarket. You have banks over $50 billion in assets, right? Tell us a little more about how important that is for you and really what's allowing you to succeed there?

So it goes back to what I keep saying. We're in these opportunities today because of the innovation we've built. So our cloud-based tech story that we started roughly 4 years ago is now starting to get to a point of a level that we can show folks. So it's no longer a PowerPoint, it's all demos, and that impresses the heck out of the folks that are at that space compared to what they see today with their current provider. So there's a $50 billion institution that acquired one of our $5 billion ones, and we're talking to them because of the level of folks that have seen and talked about our technology.

We're getting folks like McKinsey and Deloitte to call us where they've never paid attention to us before because of what they're hearing in the space. So it still goes back to everything I said. The reason why we win and the company has been very successful has always been about culture and service. But now we've added innovation, strategy and execution as 3 key differentiators. And again, that's a big part of it.

Greg, are your cores able to handle those kinds of asset size banks in a meaningful way that needs to be done?

There's never been a limitation of our ability to handle the size. It's always been a focus. And so yes, we test our cores over $200 billion. So we can actually do that from a -- it's never been a software perspective or that. And actually, we have -- some of our products like our payment and complementary products, we support $200 billion credit union today in a $75 billion bank. So never been an issue. It's always been about focus and credibility. And candidly, that credibility is starting to change with the things that we've been doing and getting us in the door.

Okay. You've also been selling more outside of your core base, right? I mean some of the ancillary products and really main products like Banno, Financial Crimes, Defender, Debit Processing. Just talk a little more about it, moving outside of your core base with some of these products and how that's been trending for you.

So we're still early stages of all 3 of those. In fact, even Financial Crimes, we're still not doing it yet. But Banno, we just started in January. There were several reasons, again, some...

It was pushed back by competitors, right?

Some of it was pushed back by competitors. And again, some of our competitors are now saying they're going to be a lot more open. So we'll see how that plays out. And then -- but the bigger part was is we needed to get to feature parity with a lot of the larger players. And candidly, we weren't there. And so we weren't going to go out and try to chase opportunities outside our core base when we knew that you get sometimes only a onetime chance to go to win these.

So what we did is we announced this at our Investor Day in September '24, that we were going to spend the next year building out that level of feature parity. So I'll give you again some data points that I think are important. Last quarter, we announced 84 Banno wins in the quarter. 50 of those were Banno business, 34 of them were the Banno retail platform. All 22 of our core wins last quarter had Banno attached. So it was 100% attach rate, which has never happened before. And then the other part is there was 12 other wins that were competitive takeaways that were Jack Henry core clients that were on a competitive digital platform that are now moving to Banno.

So those are all proof points that the things that we've been doing over the last year to get that level of feature parity is allowing us to now win, which means we are now ready to take Banno outside the base and tie it to the card platform. I talked about trifecta wins in the last earnings call. That's when we sell core digital and card together. And that's an important metric because lots of times, a core deal in and itself really the driving force of the revenue is the tangible products that get tied to it, digital and card being the 2 biggest. And so we are really focused on making sure that when we sell a core deal that we're selling both digital and card with that as well. And that's why I'm starting to track the trifecta.

Nice. You also talked a lot about SMB as a key strategic initiative more recently, right? I mean when we talk about what that could be and why that so -- just why is that so important to Jack Henry? And why is it important to your bank and credit union customers?

Well, it's really important to the bank and credit union customers, which makes it important to us. And so everything that we do is about making sure that our banks and credit unions win. That is our #1 mission, and we have not wavered from that in 50 years. So what we had seen that was going on in the space is that the Stripe and Squares of the world were going in, penetrating the customer base, taking those clients away, not only taking the deposits away, but taking the lending opportunities away as well. So what we decided to do was -- and I even have a merchant acquiring background, and we didn't get into the merchant acquiring space in 2018 when everybody else did on purpose because we didn't think it really fit the mission of who we are as a company.

I remember Dave pushing back on that. And also said now we're seeing them online [indiscernible].

Right. And so -- but it didn't fit our strategy of -- as you -- they became competitors of their own banks and credit unions with the merchant acquiring. So what we wanted to do is make sure all that stayed inside of the bank and credit union. So we created a very unique solution that I could probably spend a lot more time getting into detail on it, but I will tell you this, it's only Phase 1 of what we plan to do over the next 2 years. of rolling out a lot of feature functionality that will allow these customers to stay within the bank and credit union, compete very favorably with Stripe and Square with actually solutions that -- and features that Stripe and Square don't offer.

So there's a whole host of things that we're even patenting from a standpoint of very unique ways that we've created the innovation. And so what we like to say is that this is the worst the product will ever be. And we got 600 clients live in 2.5 months since we came out with the product.

This is cross-selling money movement and merchant acquiring and...

Yes, it's that, but it's also the ability to have 8 settlement windows that they can use, instantaneous approval, the ability to -- for any of the small businesses that have to go back and manually reconcile their deposit to their transactions, which every SMB has to do, we did it automated. So we built some solutions back 3, 4 years ago. that take all the aggregators that are out in the market. They wrote APIs to our stuff. So we don't allow screen scraping. And so anyway, all that being said, it allows the SMB to actually do full account reconciliation to the deposit amount. Literally, it shows up on their Banno app. They push a button and upload it to QuickBooks and it's done.

How meaningful could this be? I mean we've talked about this potentially boosting your overall company revenue growth maybe by -- I mean, you're a very steady grower usually, but can we see this move you above the 7% to 8% range?

So yes, the short answer is we believe the things that are happening within the market itself, the numbers we talked about with tech spend, SMB focus. I truly believe that if the SMB deal is as big a home run as we think it is in the next 5 years, that it's going to be worth a 50 to 75 basis points of growth tied with what we think in the actual market itself has some similar. So short answer is a lot of the things that are happening are going to happen more in '27 and '28, especially market penetration because any core deal you win today doesn't get implemented for 15, 24 months.

So as you start to look at fiscal '28 and beyond, that's where I think a lot of opportunities to get above those numbers. So I do believe -- just one last thing. I do believe that the SMB opportunity could be the second largest payment business inside of Jack Henry behind our card business 5 years from now.

Wow, that's great. When we think about segments, just to put it all together now, I mean, just help us remind us the growth algorithm for each of the 3 areas of your business, if you don't mind.

Yes. So it roughly has been 6% to 7% on the core side, anywhere from 6% to 8% on the payment side, depending on the year. A lot of that's driven by our debit volume, which is 23% of Jack Henry's revenue and 60% of our Payments segment. So some of that is contingent on consumer sentiment and things along that line. So 6% to 8% range, we're kind of at the middle range of that this year. And then complementary has been somewhere between 7% and 9%, and we're kind of in the middle range of that this year. All of those have opportunities to continue to grow based on the things that we've been talking about throughout the year.

Some of them have outperformed actually. I suppose a lot of it is also consumer spending and some macro dynamics to some degree.

For sure.

All right. And when we think about operating leverage, where are you kind of prioritizing investments today versus where you would have potentially done a couple of years ago?

So the prioritization has really been around what we call 6 anchored capabilities. So anything that has to do with core, digital, payments, fraud, account opening and lending are the 6 core capabilities, and there's a whole host of things in there. And there's other tangible things that ended up happening with our CRM system or our imaging solutions and things along that. But the things that right now, those 6 capabilities and everything in it is about 80% of Jack Henry's revenue.

So my message is you can't be all things to all people. So that's why we have a lot of fintech integrations into us. And where we've exercised AI, we'll probably get into AI at some point. But the reality is we're using a lot of AI and have been for the last 3-plus years to build out our capabilities faster within the things that I just described, but we're driving that level of innovation at a pace that's much faster than our competition.

Yes. AI is important -- I mean, listen, it's come up as both an opportunity and a risk throughout our conference and from investors. For you guys, I mean, number one, I think Anthropic has been trying to make it easier to upgrade COBOL, right? And so help us understand, is that something you can utilize to take share? Is that something that you can work on your own customers with?

Yes. Well, there's not a COBOL and [indiscernible].

So really from a market share standpoint.

But either way, I mean, there's still advantages to using Claude to do a lot of things, and we're taking advantage of it ourselves. So to your point, it is an opportunity and a threat, and I'll kind of give you a quick kind of clarification of that. So from a banking standpoint, let's think about all the regulatory scrutiny, all the certifications, all the network things that you have to do. It can help you do things faster, but it doesn't help you have those conversations, right? So that's a big challenge.

In the complementary segment, even today with fintechs, you see fintechs that get created to go build a full solution set to replace a feature that 1 of the 3 core providers has today. You either integrate with that fintech or you don't. We do a good job of doing that. And so you end up looking at it, they become a distribution partner and you either buy them or not, right? That's how a lot of these acquisitions happen over time. There's no difference in what AI can do today.

From a benefactor standpoint for us, we're using AI to build things across our entire organization. We have 100 AI tools that we've allowed inside the company today. We've trained all of our 2,500-ish developers and QA folks and everybody else in that world through the uses of AI, how to use vibe coding. We have 30 use cases of vibe coding that are going on today. We had somebody actually use Claude coding. So we've been all over AI for the last several years. So we're seeing it as an advantage for us to stay above what we've already built and do things faster. There's always going to be some kind of third party that you have to pay attention to, but the reality is none of them -- if you were going to pick an industry to disintermediate, I'd pick something besides banking.

Yes, I was going to say. I think that's an underappreciated point because I mean your other stocks in fintech generally that do have these regulatory barriers, they've gotten hit as much as others. And so just to reiterate that again, you're saying, look, you're the ledger system for the banks, right? It has to be reviewed, regulators have to sign off on the technology the banks are using, right? I mean, how big barrier really is that?

It's a big barrier. I'll give you a couple of examples. All the things that we're doing with coding and AI today, we have to get regulatory approval. The things that we're doing within Stablecoin, we built a Stablecoin initiative in 2 weeks on our new platform, and we're getting ready to roll it out to 2 clients, and we can't roll it out until the regulators go into the banks and approve it. So those are things that you just don't have in a lot of other industries. So -- and even the fintechs that are getting charters, you should still have some challenges with that.

You have pretty good margins, and you've had a very clean GAAP, one of the things we love about the story. But I mean, is AI going to be an efficiency opportunity for you guys to potentially either reduce expense or grow expense at a slower rate than otherwise?

Yes. So we've already done a really good job of that. So this will be our sixth year in a row that we've grown headcount by less than 1%, even though we're growing top line at 7%. Why? Because we have a discipline at the company on a couple of things. We started with business process improvement 15 years ago. 40% of our staff is trained and [indiscernible] in the classroom, which is the Toyota Lean Six Sigma way of doing things. So that's been a mindset. AI has only been a benefactor of that. In fact, halfway through the year -- through our fiscal year, halfway through the year, we're already 60 headcount less than where we thought we were going to be. So that same dynamic is going to happen.

Now I will tell you one thing that we do differently than a lot is our mindset with our staff is we do more with the same. And there's a way big difference than saying you're going to do more with less. As soon as folks think that every good idea they have, they're going to lose their job, they're going to quit giving you the good ideas. And so we do a really good job of zero basing roles, and we basically get to where we need to do through attrition or backfilling other roles that we think are more important and moving those over. So that's a mindset that we've had for many, many years, which has helped us drive a lot more innovation and happy associates, which equal happy clients and versus just saying that every quarter, we're going to look at maybe laying some people off because we got better and efficient.

Last question for me, and then I'll turn it to the audience. But Greg, what do you think investors are most underappreciated that you're most excited about? What do you want to see the company do between now and the end of '26 to really say this was a great year, a successful year.

Yes. So I'll answer the second part first. I mean, we're on the path to having a great year for '26 based on core wins, based on financial performance, based on the culmination of everything that we've been building over the last 5 years that we've been so much talking about. So I'm very, very bullish about what we've guided to and the things that we're going to accomplish, especially at a time when our competition isn't at that same pace. The part that I think is underappreciated is the level of innovation and the significance of the type of innovation we've built. I will give you a couple of anecdotes.

So McKinsey and Deloitte have been calling us and never had any conversations with us in the past because they're hearing about what we're building in the space, and they want to get to know us better. That is something that, again, back to underappreciation of the innovation. Folks just think, okay, it's a core processor, and we got some really unbelievable people we've hired from Amazon and from X and from Block and from all these other places that came to work for us because of the cool technology that we're building and a lot of the leaders within our company that they want to work for. So I think that's the one thing I would leave is that folks -- as I like to say is we're not your father's Jack Henry, and it's all because of what we do with culture, service, innovation, strategy and execution.

All right. You might have some more talent up for grabs with the 40% RIF.

Yes, yes. We already had calls.

That was really helpful. It seems like a really good road ahead of you guys.

Guys, any questions in the audience? Happy to take a couple.

Yes. Thanks, Greg. For banks and credit unions, are you starting to see any increased demand for instant payments, for Zelle, for RTP for FedNow? And are those volumes actually starting to get material? Or are they just thinking of that as like a -- I mean, is that a must-have for mid-market banks?

So great question. And I think the short answer is yes. So Zelle itself has had a variety of challenges because of fraud. And so there's always been concerns about -- I think one of the things that we created with our Financial Crimes Defender product is a fraud module specifically for Zelle and specifically for faster payments. But we're starting to see a pretty good uptick in the number of institutions that are willing to now start to buy that since they believe fraud. The bigger opportunity is in the other 2, in my opinion. So as things continue to change, opportunities for B2B transactions to get translated that way. I think with the Fed looking to probably mandate some things on how payments are going to be paid out, that will drive a lot of those use cases.

And the difference is, is that most of our institutions today, and I'd probably say about 98% of our institutions today are on receive only. So they're set up, they take a transaction if they get a transaction. You're going to start to see where send only or send transactions will start to generate dollars instead of pennies, and that's when I think a lot of folks are going to start to come on board. We're also pushing it with a lot of our new solutions for real-time settlement, whether it be through our SMB solution or things like that. So we have roughly 500 institutions live across Zelle, the Clearinghouse and FedNow, but our pipeline is a couple of hundred deep now, and most of that has come in the last year.

One more question, guys? Justin?

Yes. On the -- could you give us an update on the competitive landscape, especially as you guys are trying to move up market? Are you seeing any new players? Are there kind of newer entrants that you think are doing well? Or how is Jack Henry differentiating itself?

Okay. Yes. So don't really see any new players. You see some of the former new players that have really slowed down. So you just don't run into Temenos or Thought Machine or others as you did several years ago in a variety of things. And again, I'll save the reasons for another time. It's also part of the reason why trying to disintermediate the banking industry in the U.S. is really hard to do. which, again, you can go back and ask them. So I think from our standpoint, there's been significant advantages for us to go upstream. I mentioned before our 31 wins over the last 2 years compared to 5 to the 2 years before that.

And -- so we haven't seen anybody "new" come into the market. We've seen some folks, obviously, the news that's going on with Fiserv and various things that FIS has done through the years. But nobody "new" Nimbus is out there. They have a side core. They're trying to build out some components to that. But really, it's usually the same players. I will tell you right now, for every core RFP evaluation, you're going to see Fiserv, FIS, Jack Henry, maybe CSI, maybe correlation and then you're going to have maybe some others. There's 26 core providers out there. Most of you have never heard of any of them, but they may have 5 cores, 10 cores, 50 cores, but they're out there.

Okay. All right. Guys, thank you very much.

Yes. Thanks.

Thanks, everybody, for joining us, and thanks for joining us on the webcast here as part of the Morgan Stanley TMT Conference. I'm very pleased to be joined in this session by Mimi Carsley, CFO and Treasurer of Jack Henry. I'm James Faucette, Senior Fintech analyst at Morgan Stanley.

Before we get started, I do have a quick disclosure to read. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So Mimi, great to have you back at our TMT conference again.

Thank you.

We love having Jack Henry and you here to talk about the business. Maybe quickly, I know that especially with everything going on in AI and so on. We've gotten a lot of inbound calls around, hey, what is this Jack Henry? What do they do, et cetera. So maybe you could just provide a quick overview of kind of the 3 core businesses at Jack Henry as well as talk about some of your customers.

Sure. So this June, Jack Henry will be celebrating 50 years of business, which is a remarkable occasion, and we're quite excited by that. We serve banks and credit unions predominantly in the U.S. So it is our mission to ensure that banks and credit unions have vibrant in the communities they serve and that they're able to compete across a very dynamic and evolving ecosystem. And so the products and services we offer, we operate in 3 main reporting segments. One is core. So think about core processing. That is mostly kind of back office operational, think about account setup, mortgage interest calculations, a lot of the regulatory paperwork that you would need to have around client files, et cetera, the day-to-day, how to calculate interest, distribute yield, think about deposits and lending. So that's kind of core processing.

We do that for over 1,700 customers, both banks and credit unions, and average institution size of about $1.5 billion on both. So from there, you think about payments. So that is card processing. We do card processing, predominantly debit card focused. So we serve over 1,100 banks in credit card and debit processing services. We also do enterprise payment services. So think about there's still a lot of paper checks floating out there, especially in business today. So a lot around the remittance business, helping on the bill pay business. We also have embedded payments business and then in a lot of the exciting new evolving areas of payments around the faster payments. So you think about all the new rails that exist in the U.S. And that's also where a lot of our small business initiative is helping banks and credit unions to serve those small businesses. So that's our payments segment. That can be outside our core customers and core customers alike.

And then the last segment, I always say if it's not core and it's not payments, it's kind of the all other catch-all bucket, which is complementary. And that's the suite of surrounding products to help a bank or credit union function every day. So think about fighting fraud, think about lending, thinking about account opening, thinking about a digital offering, all of the other ancillary services that would support them in growing.

Got it. So let's talk about this core business, which is, like you said, is kind of the central part of a bank's operations. And interesting competitive dynamics, I think, in that part of the market and certainly one that a lot of people are paying attention to and probably incrementally. And that's because one of your main core competitors is on the cusp of a material platform consolidation. And it seems like that should create a lot of incremental at bat opportunities, if you will, for Jack Henry as some of those platforms are sunset and that competitor attempts to migrate them to new platforms, that can be incredibly disruptive for a lot of people. And if forced to do it, they may choose to look elsewhere anyway.

So a few questions on this topic. For you, in the growing pipeline, what's changing more? RFP count or average deal size. So help us think about what's happening right now with the existing pipeline before we start to have impact from that competitor move.

So as I -- if you think about today, the industry has been consolidating at roughly 4% a year for over 4 decades. There are roughly 9,500 banks and credit unions across the U.S. In a given year, our contract lends to about 7 years. In that 9,500, if you think about that as a pyramid from a stratification of assets perspective, we intentionally don't serve the largest Tier 1 banks. We don't find that to be a lucrative nor a valuable partnership arrangement. So we serve the rest of that pyramid with a growing focus on the regional and super regional capabilities.

So as our clients have grown, as we attract larger clients from the outside, that stratification has allowed us to kind of move up the pyramid. And I say that because if our average contract length is about 7 years, then we say like there's probably around 200 banks or credit unions in a given year that are in play. Now half of those probably won't make a change. They may make an RFP just to see what's out there or maybe it's required by their Board or state regulator. But roughly, call it, 100 are truly kind of in motion.

Of that, we have won 50 to 55 cores a year for many years consistently. And this year, we not only think we're likely to win 50, we say we're feeling really good about it. So this opportunity that you spoke about with one of our competitors in the space is a kind of, I won't say once-in-a-lifetime opportunity, but certainly in our industry, you don't have that many incremental opportunities in play. So we're quite excited about what that can mean.

In terms of your direct question of like what we're seeing from a dynamic in our pipeline changing, the last 10 years, I would say the pipeline has grown in the size of the average account. So a couple of years ago, if we were on stage, we probably would have said our average size is $700 million institution, whereas today, it's almost $1.5 billion size institutions, both from who we're attracting in and them growing. So we talk about in our quarterly wins, we announced how many new core logos we win. Those are completely new core customers to Jack Henry. And we call out how many are over $1 billion in size. And if there's any that are truly large, we also call that out. And so that number has been growing quite a bit in recent years just to demonstrate our success.

So I think to your question, the pipeline is filled with larger accounts. So I think the size of the pipeline has grown overall, but the size of the accounts have been growing. And now with this new consolidation opportunity, we think there's going to be more at bats in play because if you're being forced to make a change and you're going all of the -- through all the change management that, that kind of results in, why you wouldn't just see what's out there and explore and do your fiduciary duty, like I think there's going to be more opportunities.

So let's try to quantify that or at least have some idea. So I think when we look at the banks that are using these platforms that are intended to be consolidated away from them, it's about 1,500 banks or so on those platforms. When you think about other periods of platform consolidation, how would you think about what would -- what portion of those would typically look at an RFP? You mentioned 200 a year, so that's pretty typical, but then these 1,500, almost at least some significant portion of those would be incremental. So of that 1,500, how many of those would you expect to eventually go through a process?

And we've heard the number like 1,400. So I think certainly in the right ballpark. It will be interesting to track them over time because I think some of them will get consolidated away as well, the banks themselves because you have a choice as a bank, CTO and CEO, do you go through this conversion?

And it's not painless.

And it's not painless and say, on the other side, we're going to grow and we're going to be more nimble and faster and more agile. Or do you say, we were thinking about selling anyway or succession planning anyway. Okay, maybe this is the straw that breaks the camel's back and they do it. The challenge is in part, and you referenced it earlier, like there's no set time line. And so it's a question -- I think we're in the first lap of might be like the first opening sprint, but it's going to be a marathon of opportunity.

So I view this as 3 to 5 years of potential opportunity. And the way the sales cycle works in our industry is, let's say, you have that 7-year contract, well, and you think you might be willing to make a change. Well, you don't want that clock to run out on you. And you have some time to -- it's going to take you some time to make that change. So you really start talking to vendors maybe 2 years in advance of making that termination of your existing contract because if it takes you a year to make a decision to pay for the deal and make your selection, then you want to give yourself at least a year to make all the change management happen.

And there has been some -- I'm sure we're going to talk AI. It would not be a conference if we didn't talk AI, James. But part of that is today, that year to 1.5 years on that implementation, it's really due to the client readiness. It's not the data mapping on our side. We've mapped every core that there is. We could do that faster than a year for sure. And yes, some banks might have some customization that might be interesting tweaks that we haven't seen before, but we know how to map to everything that's out there.

What the harder part is on the institution side. They have to do all the training, all the readiness, all the procedural rewrites. All of that needs to happen to ensure to their regulators that they'll be just as confident operationally after the change as before the change. And so there's a lot of human change management to go through as well as operational uplift. And so that could be a use case, an interesting use case for AI to say, "Hey, I'm on XYZ core today. I'm moving to Silver Lake. Help me rewrite my procedure docs. Help me train my employees faster.

So the interesting thing is, for us, if we could shorten that implementation time, that's great because we don't start collecting revenue until they're on the system. So we're very much aligned. If there's something that helps them to ready themselves faster, we'd be all for it. But if we think about that opportunity, that's why I say it's kind of a marathon because if they're starting to talk to us today, they probably have 2 years left on their contract. We're probably not seeing that revenue. We think there'll probably be some wins we announced related to it in FY '27. We're a June 30 filer, but FY '27 with revenue starting in FY '28.

Right. So just to summarize that. So if there are people that want to look they choose you, you could see those announcements really in the next 18 months and really starting 6 months from now, roughly. And then you would start to see revenue beginning another year after that. So it's really kind of fiscal year '28 where you might see some uplift.

So we announced 22 new core wins this quarter. Some of those wins were off of those consolidating core customers. But they've already been in our pipeline already. So what we're doing now is we're tracking all of those impacted customers, mapping out when we think or know their end dates are doing outreach to them. And so that hopefully, we can start to share more metrics of what that distribution looks like of contract end dates and sizes.

Got it. So let's ask about complementary attach, so other services and capabilities that can be attached to a core. Do you tend to see that incremental complementary attach at the time of core deal signing? Or does it come in subsequent periods? So just trying to get a sense for the incremental revenue opportunity and where that might fall. So if you imagine a world where you have announcements next fiscal year and not just for these transitions, but generally. Announcements next year, revenue the year after that, do you get this complementary attach and revenue uplift at the time? Or does that tend to come subsequent and in future fiscal years?

Yes, it's a great question. There's -- because no one buys core in a vacuum. So while it is such a critical part of a bank operation, at the time you're making that change, there are complementary -- not to use the word of excitement but there are systems that kind of plug into that stack very nicely. So today, when someone is a new core customer, they tend to buy somewhere between 30 and 50 of our other services, whether that be complementary or payments-related services.

Sometimes it's a day 1, what we call a day 1 product, installed together. Sometimes it may be a more complex and they may choose to bifurcate that into a day 2. So I would say it depends on the institution. The interesting thing is from a Jack Henry perspective, we offer contracts that are coterminous. So if you buy the 30 complementary and payments products and core and you went 7 years, we say that's 7 years for all of them. Not all of our competitors do that. It's actually a sticking point in the industry because some feel it locks you in that you're always walking away. If you want to walk away from your vendor, you're always going to owe them something because you're always mid-cycle of one contract or another.

But the interesting thing on that is that's actually an opportunity for Jack Henry because we can go and sell particularly on these clients are going to be impacted, we can start to sell them some of the other real anchor products at Jack Henry so that then when the core comes up, it's an easier sale. But we serve over 6,800 noncore customers. So most institutions in the U.S. have at least one Jack Henry product.

Got it. So let's talk about demand. You've routinely referenced the Bank Director survey and noted that the median growth in tech spend is still really healthy. I'm curious, just given where we are in the deposit cycle and the prospect of accelerating loan growth for next year, which is kind of what our bank's analyst team anticipates. I'm hoping you can help us to stratify the differences in demand from your customers for deposit attraction versus retention tools and lending and whether or not you're allocating incremental resources to the lending side of the ledger, especially since that seems to be where people are anticipating some acceleration.

So we put out an annual survey to our customers. It's actually going on right now, where we ask bank and credit union CEOs what their priorities are. And consistently for the last several years, the top 3 have been gathering deposits, lending and then efficiency. And I think if I were to say a fourth for most of them, it's fighting fraud...

But that's also permanent. I'm not sure that moves...

Yes. And so I think they're always looking. My point is regardless of this where we are in the cycle of deposits, they're always looking for some. And we're post the surge of COVID where you saw the spike up in deposits and then this kind of trough. And so now they're on the other side of that trough and the need to get the deposits going again. The challenge was because of both the stickiness of interest rates, the lack of turnover in real estate market, there wasn't a lot of car buying as well, like you didn't see a lot of new lending going on. Hopefully, the administration has talked a lot about kind of resuscitating the real estate market. If interest rates do come down, you also have a big pool of refi opportunities that could hit for lending. So I think there are some signs that there's some opportunities from a lending perspective.

Got it. Got it. So let's move to AI. We mentioned in the past a moment ago.

We went 15 minutes of that...

Exactly, it's time, it's time. So let's start with the existential questions first. Like how do you think about AI and AI solutions, and the ability for those to displace what Jack Henry does at your customers? Like where might that might make sense, if anywhere, and versus where do you think that probably does not make sense? And how do you think about that?

In general, we view it as more of an opportunity than a disruptor. We're excited both from the efficiency we've gained internally. We've been able to limit headcount growth to less than 1% for the last 5 years. We've always been a continuous improvement, zero budgeting kind of shop. But the opportunity to just get higher productivity to get -- do more with the same as kind of our internal brazing around it is great.

The throughput we're seeing from all of our developers who are now using. We have over 100 approved AI tools in use in-house. And so we're seeing upwards of like 70% on greater throughput and productivity, which is fantastic, especially given more of our products are in the public cloud. So you can get that innovation in the hands of clients faster, what you have on some of the traditional software annual updates and releases. And so in our new tech modernization and digital core, like we'll be able to distribute that innovation quicker into the hands of the customers.

So in general, I think it's a positive. I think the dislocation you've seen in the market over the last several weeks has been unfortunate because I think people haven't really done the work to think about different business models and different moats. And yes, you can by code certain things. And if you're a small business, do you need Salesforce? Maybe not, right? You probably weren't buying Salesforce anyway if you were like 30-person shop, but could you now by code something that's custom up and bespoke to your own firm? Sure. But for the bulk of what we do is mission-critical operational systems.

It's not a technological challenge. It's an operational challenge. It's an executional challenge. It's what is the uptime reliability of that system. It is, will your regulators feel comfortable in your audit for the superveillance of that system. Do you know how it was made? Do you know the workload? Do you know how a bank operates? It's not just generic software. So I think there's listen, if you want to convert something to a PDF or back and forth or we have AI for contract management and red lining, great efficiencies and exciting opportunities from a use case.

And even the use case we talked about before, rewriting procedures or audit docs, but that's different than let me run my bank on software and be able to tell the regulators and be able to rely on it and be able to rely on how that third-party systems plug into it as well. And I think the reality is most institutions don't have the staffing to support not only the origination of that code, but the ongoing maintenance and support of what that would be. So I just don't think the mission-critical, highly regulated space.

And the reality is we compete with over 1,000 fintechs today. And if you think about the European core entrants or the side core entrants in our marketplace, like they haven't been able to gain significant traction. And it's not because of their feature set or their technology, it's because they can't show we know how to operate this. And we have 1,000 customers running the system at scale every day with 99.99% of reliability. Like it's just -- that's the key of our industry. It's not necessarily like a mathematical problem to go solve that now we have the compute capacity to do.

Right. No, I think that's right. And I think there's -- I guess we could spend an hour talking about like the hurdles that would be tough to clear from a variety. And just like back to your point, is like if 200 out of roughly 8,000 institutions are changing their cores at all. And forget about like moving from one to another, it's the returns and benefits are going to have to be incredibly high, and so a lot to do there. So let me ask...

Let me just add on one thing to say, James, which is I think what the exciting part of what AI can unlock is there's a lot of manual processing in an operation of a bank. Like there's a lot of actual physical paperwork still. There's a lot of rekeying that happens. And we've already been moving people through straight-through processing, robotic, bots and that type of workflow enhancement. But this could really help a bank or credit union improve the efficiency of their own organization.

And nothing we sell is tied to the number of employees at a bank or credit union. It's their account holders or the number of members or active users. So we love to make them more efficient. And if they can spend less on that, they can spend more with us in other areas to help growth for their business. So one of the things, especially in our client segment, how they differentiate and compete against the bulge bracket, large banks and the new start-up digital-only is service, trust, reliability.

And so how do we, through the volumes of data that we have for them, their data that they can use, how do we help them to have personalization, ultra customization of offerings? How do they know that a certain population, a large population of a bank in Wisconsin all goes to the same Florida town in the winter and open a branch there or that they serve a significant number of dentist practice in their office. Like how do we get them the data, their data in a way that's usable, digestible so that they can put AI against that or we can help them with AI and insights against that so that it really can help them develop niche strategies to grow.

So let's take quickly the other side of that. So if you can improve the benefits, if you will, from -- for your customers taking advantage of AI with your own development, et cetera. On the flip side, can that short implementation times? Or is there a path to even increasing the churn of core systems because like I said, it's very low now.

Yes. I think as we talked at the start, more of the implementation cycle time is driven by their readiness. So could AI help them, if I think about the wealth of information we have on knowledge enablement, for example, training videos, white papers, tutorials, webinars, can we put that into a system to help them train their employees faster? Potentially. Can we help them rewrite procedures faster? Potentially. Like so I think there may be use cases to explore that help them on their readiness journey that might shorten that cycle time, which would be a great thing for us.

In terms of does it make someone less or more likely to switch core vendors. Certainly, having things that are in the public cloud so that you can take advantage of that faster development time that's coming through with AI tools is important. If you only have software where you're getting an annual expectation of a release cycle, you're going to fall behind quickly from an innovation perspective of your competitors. So I think that will still be a driving force to get people to switch the number of APIs that integrate a core system with a digital banking system, for example. There's over 50 API calls. That's super important. So I think it really comes down to the ability to ingest and deliver data in and out of the systems, the connectivity between systems and then the pace that you're able to deliver innovation.

Right. So I want to ask about a couple of at least interesting to me, ancillary businesses. You talked about the core and then the complementary. But then within the payments there, you have a partnership with a company called Moov. And how meaningful is the Moov partnership going to be to the payments business in the next couple of years? When does it start in your mind, to produce material revenue growth and uplift to the segment?

Yes. So we've talked about -- we have roughly 500 of our banks today that have gone live with the Tap2Local, which is a small business merchant payment offering. We plan to have that available to all of our Banno banks and then eventually outside the base Banno Banks. So we're starting to see data on volume as people are starting to use it as people have gone from like a closed beta to like a full scale. And we've done no marketing so far. So it's just, it's on the pane of glass when you use Banno and it's driving insights of like, hey, we think, James, you might have a small business.

And even at that, we're seeing like the pull of customers on their own merchants. These are the customers of the financial institution, starting to transact, get approved in a very frictionless way to accept those payments. So once we really turn on that engine and we start to see what are the adoption rates for merchants and then what's the dollar volume, we're going to -- then we'll really know. But our hypothesis is that in the next, call it, 3 to 5 years, this could be the biggest segment of payments from a growth perspective and a meaningful revenue contributor. So we've talked about that at the May upcoming earnings call, we'll have more data points to share. We just need to validate all of our hypothesis of this.

So quickly, just from a market fit or positioning standpoint, how do you compete with that solution versus somebody like a Stripe or a Square on pricing, if at all? Or is your edge really through the distribution of your bank partners, et cetera?

I think the pricing will be pretty standard in the industry. I think the difference is I believe that people will be multi-acquiring. And you might have and we don't need to take switchers to get growth. So the thing is if you -- let's say, you have a cafe or you have a store, a hardware store, you can accept at your register through whatever hardware unique device. But then when you go in home, in particular, like we think more of the real micro side of small business, the sole entrepreneur, the people who come into your home, if I think about the piano teacher, my lawn care service provider, the plumber, not every shop has like an iPad with vertical software and takes payments. A lot of people are like call back to the office with your credit card or I'll give you a paper invoice and you mail a check later to me. Like those are the type of service providers that are on analog today and aren't accepting payments or they can just be switchers, so they can have their terminal at their store.

But when they're at the farmers' market, the phone is the device. And so if you don't need special hardware and you can get on within minutes to get approved and start collecting payments and then through our -- one of the other kind of selling features is the continuous reconciliation since we have all of the payments and core data, we can make it much easier to then go into AutoBooks or QuickBooks or Xero or whatever your back-end system is as a small business. So we think you can do both. You don't need to be a switcher.

Right. Last couple of minutes here, Mimi, capital allocation. Historically, Jack Henry's favorite dividends, reinvestment, selective M&A over large-scale buybacks. How do you think about the magnitude of buybacks becoming a more meaningful lever in your capital allocation, especially given some of the recent tax-related free cash flow tailwinds you're experiencing, et cetera? Does that make more sense for return capital allocation?

So a great question, one that's near and dear to my heart, thinking about dynamic capital allocation and the ability to generate real shareholder value through it. As you said, we have a 22-year consistent growing dividend policy that we're very loyal to and serves a good constituency of our shareholder base. R&D is our first priority. How do we continue to reinvest for the future. We are open to M&A. Historically, we've done a lot of tuck-in size M&A. There just isn't a lot interesting. And the interesting thing is we don't have a lot of gaps at the moment either. So it really needs to propel us forward in our tech modernization strategy to be compelling. So then that leaves a lot of -- we have zero debt at the moment. So it's a great opportunity, especially with the dislocation in the market to lean in on buybacks.

Love it. Well, that's all the time we have. Mimi, thanks for joining us here at the Morgan Stanley TMT Conference.

Always a pleasure, James. Thank you.

Thank you so much.

All right. Good morning, everybody. We're going to go ahead and get started. My name is Madison Suhr. 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 have you here.

Yes. Good to have you. Good to be here with you.

Awesome. So I wanted to kick things off here and just -- sorry, I have a mic problem. [indiscernible] here for those in the audience that are less familiar with Jack Henry. Can you just give an overview of the company, what you do and customers you serve?

Yes. So we consider ourselves 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 complementary solutions. So 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 3 segments; core payments and complementary, and that's how we report. We'll actually be our 50th year this year on June 2, 50th year as a company and 40th as a publicly traded company.

Okay. That's great. And 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 AI, both from an opportunity standpoint, but also which risks you're assessing as it relates to AI?

Yes, it's the #1 question that we're being asked for sure. So 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 responsibly bold and balanced approach. So 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 performing LLMs and how we operate on those. We have over 500 use cases that we've been working through, a variety of ROIs on 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.

And we actually just had 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 an hour that used to take several days. So we're using it. We think it's going to 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 5 words as a differentiator in the space.

From a competitive threat, I'm going to tell you that there's a lot of other industries that people are going to want to pick on 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 complementary segment that 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 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 in some part of our company all the way from the core to the payment side and in between there. So we're going to continue to embrace that, and we'll continue to see things that potentially are opportunities for us to partner with or even acquire as those are built. But the part that I want to tell everybody here is that we are very far down the AI road ourselves. And so I don't see anything that's going to be done or built that we won't be on top of. So it's only going to make us a better company as well.

Okay. Yes, that's very helpful color. And then if you could just touch on kind of your pricing model. What does a typical Jack Henry contract look like? What's the duration? And then just remind investors kind of breakdown between -- or if you have any exposure at all, I guess, to seat-based pricing.

Yes, we don't do any seat-based licensing at all. So there isn't any exposure there. And it really depends on the type of contract. So a core contract typically is 6 to 7 years. Most of the time, those are account-based priced and sometimes asset-based. But most of the time, they're account-based priced. Then you have payment contracts that are typically 3 to 5 years, complementary product contracts that are typically 3 to 5 years. Now, there are a lot of customers that like to have coterminous contracts. So if you sign a 6- to 7-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 coterminous there where the payment contract may be a 6- or 7-year contract instead of the typical 3 to 5 depending on the particular client and their thing.

So as I said before, no exposure to seat-based licensing and typically, everything else is transaction-based or what we call subscriber-based, but there isn't anything that's seat-based.

Okay. And I 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.

Yes. So to your point, we actually either sponsor ourselves or cosponsor 3 different surveys throughout the year. Actually, ours is in process right now that we sponsor to go out the 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. So each year, each milestone throughout 2025, actually, the amount of expectation of spend in our space increased. So during our survey, it was around 5% was the average. The Bank Director one was 6% to 8% and the Cornerstone one that just came out was closer to 10% of an increase in spend in our space. And 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.

And so 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. So 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. And is that pretty typical in a standard year is about that 10% range?

No, no, great question. So over the last couple of years, it was really more around the 3% to 5% was the average. So it's almost doubled from a year ago. And so -- and we're starting to see that play out in our pipelines and the opportunities that we have really in all 3 of our segments.

Okay. That's great. And I did want to dive in a little bit to each of the segments, starting with core. There's been a very well-documented competitor that's going through a core migration consolidation phase. It's viewed that this could potentially be a tailwind for Jack Henry. I mean, how are you changing the organization to just make sure that you're capturing the potential opportunity that this presents? And what gives you kind of confidence? What are you seeing in the pipeline that makes you think, okay, this could be a real tailwind for us.

Yes. So let's go back to our last quarter reported. We did 22 new competitive core wins compared to 11 last year during that quarter. And 8 of those came from that competitor in question. So -- but none of them were part of the announcement that they made just recently because these take -- 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 time frame, 12 to 18 months to actually implement. So the time frames of these new core win opportunities will happen in fiscal -- late fiscal '27 or '28 for us, or June 30 fiscal year. So from that standpoint, what are we doing? It's the #1 priority at the company right now. So this particular competitor has announced that they're going to consolidate from 16 cores down to 5, creates a nice opportunity with roughly 1,400 customers in play.

And so it is getting attention from all aspects of our business. So 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 when the announcement came, and then 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 kind of lags with announcements that they've made, promises that they've made, which creates some pause from some clients and say, "Hey, I'm going to give them a chance to prove out what they say they're going to do, and that's fine." But 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.

And 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. So we have 3 banking cores, 1 credit union. So we don't announce those as competitive wins because they're not. They're already Jack Henry clients. So these are logo changes for us, and we average about 50 a year. We will do north of 50 this year.

Okay. Interesting. And one of the things I often get asked is the market in general, how to think about how many kind of core deals come up in a given year. I think maybe you guys have talked about there's roughly 200, 100 of them end up leaving Jack Henry wins 50. I mean, is that -- how do you think about a typical year within core?

That is on average, right? So 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 news by the one competitor. So I don't have the exact number, but on average, you're right, 200, roughly 100. We win roughly 50 of those a year and have been for the last 4 or 5 years on that roughly 1 a week kind of mindset.

And have you seen any changes around your typical win rate? I know you just mentioned about 50%. Has that changed at all over the last several years?

So I think the speed of the win rate has changed. So as I said, we will win north of 50% this year. So I'm not ready to sign up with 2 more quarters to go, but I can tell you we will win north of 50%. And so it will depend on that. The other part is the size. So we have made a very concerted effort to move upmarket. So 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 because 5 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.

So just to put this in perspective, we won 31 what we call multibillion-dollar opportunities in the last 2 years. The 2 years prior to that, we won 5. So that is creating opportunities for our customers 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. And we're still growing in a market that's consolidating because of the number of wins that we have. But that concerted effort is allowing us to now take our average asset size, which was about 6, 7 years ago, $750 million in average assets. It's now $1.4 billion. And so that will continue to grow. We have some nice win opportunities that are in the pipeline right now. And we're also -- during M&A, there's times when the acquirer is buying one of the Jack Henry institutions that are smaller, and we're able to flip and actually get the acquirer to flip to Jack Henry. And those are all happening because of what we've done and the focus we put on the innovation.

Okay. That's very helpful. And then the other thing that you touched on last quarter was, I think what you described as trifecta wins, which is essentially you described an attach rate of 68% versus 45% last year. So not only are you seeing kind of accelerated wins, but you're seeing better cross-sell and attach rates. Maybe just dive into that. What's driving that? Why are you seeing success on attach? And do you kind of expect that to continue with what's in the pipeline?

And so just what you're referencing 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 3 biggest revenue opportunities for the company. And so when you win all 3 of them, it makes a deal look significantly better when you have those 3. So of our 22 core wins, all 22 bought our Banno digital banking product and then 15 of the 22 bought card as well. So it becomes a nice opportunity. Yes. So the reason why there's a level of differentiation is I promised 1.5 years ago that we were going to put a significant amount of effort into our digital banking solution to become more commercially oriented. We were really already known as one of the best, if not the best, retail banking platform based on ratings in the App Store and things like that.

But we were lacking in some of the functionality. So we put out a focused effort on that. So 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. So that is a proof point that we have -- now we've gotten to a point where we are on par. The other thing I mentioned was taking that product outside of the Jack Henry base and selling it to our competitors' cores, and we needed to get on a competitive landscape with those products. And again, we're now ready to do that.

So all of those are indications that our product set is improving. We've added a lot more commercial card capabilities on our card business. We're 98% debit today, 2% credit, and we want to change that dynamic as well. So we had a lot of focused efforts on card. But all of those are byproducts of why we're continuing to win at that pace.

Okay. And I know you mentioned on it briefly before, but just remind investors the sales cycle again, just -- I know the pipeline is very strong. You're seeing these wins, but how long does this take to actually translate to revenue in the P&L?

Yes. So a core deal, like I said earlier, is about 10 to 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. And then the longest pole in the tent is really the education because when you change core, it's compared in this industry as heart and lung surgery. And so 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. And that's really where the time is, it's the education and the time it takes.

So to your point, a deal that we -- well, I'll give you an example, we're going to close a nice deal this -- in the next week or 2, and their live date will be June of '27. So we will close it this month, but they won't go live until June of '27. So 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, those 12 were already Jack Henry core clients. So all of those could actually be implemented as soon as 90 to 120 days, but it's more again dependent on the customer and the term left on their contract, more realistically, it's 9 to 12 months from contract date because of time there, but that's really how it works.

Okay. And then just remind us on M&A, how it impacts the business. You guys disclosed deconversion revenue ahead of the quarters. But for investors that aren't as familiar with the M&A dynamics in the industry, can you just walk through how it impacts you?

Yes. So some of what I tied before was this 4% consolidated market that's happened for literally 40 years. At that point in time, Jack Henry has, like I said, continued to grow at a 6% to 8% top line growth throughout that entire time frame based on the number of competitive wins and the number of M&A deals that are Jack Henry wins. So either we flip the acquirer to Jack Henry or it's a Jack Henry to Jack Henry win, which happens. So -- and we have a couple of 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. So that's an important aspect of that.

The other part is what I said before is our ability at this point in time, while there was a pent-up demand for acquisitions in our market under the former administration, the time frame to get an approval for a deal could be as much as a year or longer. And right now, it's running at 3 to 4 months. And so that's -- there's not only a pent-up demand, but an acceleration. And so 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. So we usually view it as a slight tailwind for Jack Henry, and it has been for many years. Just to give you a couple of quick proof points. In the last 7 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. So that puts some numbers to the perspective.

Okay. And then 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 a smaller one?

Yes. And it really depends. So it's a lot of it's the attach rate. So you're going to pay for accounts. It's going to be whether the bank or credit union, particularly in this case, the bank is more commercially focused than they are retail focused. So more accounts in a retail, bigger assets on the commercial side. So some of that could play into the equation. But most of it is the attach rate. And so that's why it's really important for us to get those trifecta wins because if we can tie those 3 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 3 products, it turns out.

I will tell you right now, our largest revenue customer is not even in our top 10 in asset size. So -- and 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. But Pinnacle was an in-house client and not an outsourced client. Outsourced clients pay us more because 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 very helpful color. And 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? And what are some of the key growth drivers that investors should think about moving forward here?

Yes. Just so you all know, from a payments segment, we really have a handful of products. So 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 because Bill Pay just isn't a high grower. And then remote deposit capture, we're actually the largest remote deposit capture company for banks and credit unions in the country. And that's kind of a mid-single-digit growth factor. So the big opportunity has always been card, which is the largest business. It's 22% of Jack Henry's revenue today is our card business. And that continues to be kind of a mid- to high single-digit growth and should continue, but you get to law of large numbers and you kind of get some of that as well.

So the highest opportunity for us right now in payments is really in threefold. So one is faster payments, as we talked about. Faster payments is Zelle, the Fed and the Clearing House's solutions. We have roughly 500 clients live on all 3 of those. We're roughly 33% to 40% of the total population of FedNow and the Clearing House's network of banks and credit unions today. So an opportunity continues to exist because 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 in those 3 things, and we expect that to continue, specifically because most of those banks are only on receive. So we're only getting transactions if transactions are being sent to them. And we are really promoting and we're trying to get the Clearing House and the Fed to promote much more of the use cases to promote send transactions because those are where pennies become dollars. They replace things like B2B payments and other B2C payments that could be going by check, and 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. So embedded finance will allow us kind of a banking as a service, allow us to do matchmaking between the fintech and the bank and bringing those relationships and using the bank's charter to generate payments, disbursements, cross-border solutions. We have stablecoin solutions that we're using through that as well. So a lot of opportunity in the embedded finance. But 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.

So we created 3 distinct differences in our solution set. Right now, we have 500 customers that are live in 3.5 months on our -- what we call Tap2Local, which is our merchant acquiring solution through banks and credit unions. And then 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. So there's only like 6 institutions in the entire country that allow real-time payments to happen from an external account to an internal account and vice versa. So we've rolled that out. We have almost 100 customers live on that in 3.5 months. And I expect that in the next 5 years to be the biggest driver of our payments business from a revenue growth. And here's why, back to quick distinctions. We have -- 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. So we are certified for iOS and Android to do tap to pay. So 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.

And then the second one is that Visa and Mastercard both have 8 settlement windows, but really nobody uses them. So we're actually going to exercise the ability to use the 8 settlement windows for the small business to get their money literally up to 8 times a day, depending on what the bank wants to do. Worst case is they're going to get it next day. And so that's up to the bank or credit union. But the reality is we'll have that capability to do that. Nobody is using those windows today. In fact, we're getting Mastercard to build it out with us. Both Mastercard and Visa have invested in the solution set and partners with us, specifically on the marketing side to help our banks and credit unions to be successful.

And the last part and maybe the most important because 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 equal that deposit show up in their app.

So 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 MX, as 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 2 biggest, and we can actually automatically bring all those transactions into their application and with a push button, uploaded all of that into their accounting systems. That's a patent-pending solution that we created, that's really cool. So 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. And I did want to switch gears to complementary. Obviously, Banno has been 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 is 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?

Yes. So I'll make that quick just because we have 1,037 banks and credit unions that are live on Banno since 2018 when we rolled it out. So we went from 0 to 15 million users and 1,000 customers in literally 8 years. And so it is the fastest growing, the mix between retail and Banno business. Every customer is a retail client and about 45% are business. So 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. But absolutely, I view it's 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. And then I wanted to switch gears here to capital allocation. only have a couple of 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?

So a couple of things. So one, we've been 51 acquisitions in 50 years. So we have been a serial acquirer. But as of right now, we have 0 debt. And so we have a pristine balance sheet. And absolutely, that $2.4 billion in revenue that's pretty -- we're pretty proud of that. We are taking advantage of what we think is an unappreciated market right now for us. Not only did we have an incredible quarter financially and with the number of core wins, but the AI stink and everything that's in our segment right now is dragging us down.

So 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. And so we're absolutely making a nice headway into that, and we'll continue. But we will continue to look for acquisitions, the things that fit our sweet spots. They typically have to be public cloud native because we don't want to rewrite anything. But if there's -- we don't have a lot of gaps because 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. And we'll go ahead and leave it there, Greg. Thanks so much for being here.

All right. Thank you.

Thank you.

Good morning, and welcome to the Jack Henry Second Quarter Fiscal 2026 Earnings Conference Call [Operator Instructions] Please note that today's event is being recorded. At this time, I would like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Chris. Good morning, and thank you for joining the Jack Henry Second Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide an overview of our quarterly results and key performance metrics, along with updates on our strategic initiatives. Mimi will then discuss the financial results and updated fiscal 2026 guidance provided in yesterday's press release, which is available in the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session.

Please note that this call includes forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the risk factors and forward-looking statements sections in our 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release. Now I will hand the call over to Greg.

Thank you, Vance. Good morning, and I appreciate each of you joining today's call. As always, I'd like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes and doing the right thing for each other and our clients. Our focus on people-first culture, service excellence, technology innovation and well-defined strategy supported by consistent execution continues to set us apart in the market and is reflected throughout my remarks. I will share 3 key takeaways from the quarter, then provide additional detail about our overall business.

First, our financial performance. We produced record second quarter results with non-GAAP revenue of $611 million, up 6.7% over last year's second quarter. Our non-GAAP operating margin was 25.1%, representing a robust 355 basis points of margin expansion over last year's Q2. Second, our sales performance. Our core sales team delivered an outstanding quarter with 22 competitive core wins. Of the 22 wins, 4 were financial institutions with over $1 billion in assets and 15 included core digital banking and card solutions.

We have continued to see an increase in trifecta wins over the past 12 months. 68% of new core wins this quarter included digital and card processing as compared to 45% in Q2 fiscal year '25. The recent announcement of core consolidation by one of our competitors has positively impacted our core payment and complementary solutions sales pipelines. We expect our historical success rates within this base of clients to continue and most likely accelerate based on what we know today.

It's worth noting that given the timing of their core consolidation announcement, our sales success in Q2 was minimally impacted by the news. It had much more to do with our ability to continue demonstrating innovation and service differentiation in the market, not just relative to that competitor, but across the competitive landscape. Third, we continue to win in a consolidating market. We have outpaced our competitors for many years in core market share growth even as the overall number of financial institutions has declined.

Over the past 8 years, our core market share among banks has increased by 17%, while our credit union market share has expanded by 40%. And among institutions with more than $1 billion in assets, our market share has risen by 32% for banks and 12% for credit unions over that same time period. This growth occurred despite an average overall market contraction of 3% for both banks and credit unions over the past 8 years.

Our market share and asset size growth can be attributed in part to our bank and credit union clients continuing -- continued growth through M&A, acquiring both Jack Henry and non-Jack Henry institutions as well as our success in the past few years in winning mergers, winning the core merger business when a Jack Henry institution is acquired. Additionally, we have relationships with more than 80% of the financial institutions in the U.S. across our core complementary and payment segments.

So in most consolidation events, we are already doing business with the acquiring institution, giving us a strong advantage in increasing the likelihood that the combined entity remains on some or most Jack Henry technology. Now for more detail on the overall business, starting with some recognition for the team. We are very proud -- I'm sorry. We placed -- the Jack Henry was recently named one of America's Most Loved Workplaces, ranking 12 out of 100 companies.

We also earned spots on the Forbes list of Best Companies in America, Computer World's ranking of Best Places to Work in IT and Newsweek's list of most Responsible Companies. These honors reaffirm our unwavering people-first commitment to our associates. Turning to the significant progress we are making on key innovative solutions. We are extremely pleased with the strong reaction to our new cloud-native Tap2Local merchant acquiring solution. Tap2Local is offered exclusively through banks and credit unions, giving the FI a powerful way to win back deposits from small- and medium-sized businesses that have shifted their card acceptance activities to other providers.

Built in partnership with Moov, Tap2Local delivers differentiated capabilities for SMBs, including easy enrollment, tap to pay on both iOS and Android devices without additional hardware and continuous account reconciliation to the accounting platform of their choice. We are currently rolling the solution out in waves to all of our Banno clients. We took 300 clients live in November and December and just rolled out another 100 clients last week.

We will continue to add 100 to 150 per month and expect to have some nice data points to share on the May earnings call. We're also seeing strong early success with Jack Henry Rapid Transfers, which allows both SMBs and consumers to quickly move funds between external accounts, eligible cards and digital wallets to manage day-to-day transactions and personal finances. We are the first provider to bring this unique capability to community banks and credit unions.

This offering will help our clients grow deposits and attract younger digital native generations like Gen Z. Rapid Transfers is now live with 75 clients with another 180 in various stages of onboarding. We will also share more data on Rapid Transfers on the May earnings call. We are very excited about the development and execution of our stablecoin strategy. As I mentioned on our last earnings call, we leveraged the Jack Henry platform to complete our proof of concept in 2 weeks.

We are now in beta testing with multiple financial institutions to send and receive USDC. In addition, we are evaluating over 20 stablecoin infrastructure, compliance and payment fintechs to ensure we have best-of-breed partners for this critical initiative. Another important strategy I want to highlight is our focus on embedded payments and Banking-as-a-Service capabilities. Our integration of Victor Technologies, which we acquired on September 30, is progressing extremely well.

As a reminder, Victor's modern innovative platform with direct-to-core connectivity enables financial institutions to embed payment capabilities into third-party nonbank brands such as fintechs and commercial customers. Victor was already integrated with our SilverLake core banking system and Jack Henry PayCenter prior to the acquisition. We are now extending its capabilities to serve our Symitar credit union clients and integrate directly with the Jack Henry platform.

We also plan to leverage Victor's modern APIs to complement our treasury management offering. Many corporations are seeking no-touch processing and virtual accounts to streamline accounting and reconciliation. This creates an opportunity for financial institutions to deliver in embedded payments to their corporate customers, giving them more options for seamlessly integrating payments into their business processes. We already had a sales team in place focused on selling embedded payments to financial institutions.

To build upon that momentum, we have added a team that will work directly with fintechs to bring new opportunities to our clients. This expansion supports our broader strategy to help financial institutions compete and grow revenue. All of these innovative solutions are made possible by our technology modernization strategy and public cloud-native API-first Jack Henry platform. We have developed 22 components on the platform and we'll have multiple clients testing our new cloud-native deposit-only core functionality in the second quarter of this calendar year.

I will now provide a few updates on specific products. In our core segment, I talked earlier about our 22 competitive wins in Q2. We also secured 10 on-premise to private cloud contracts and 5 of those were with institutions that had more than $1 billion in assets. In the first 6 months of this fiscal year, 7 of our private cloud contracts were with clients holding over $1 billion in assets compared with just 2 at this time last year.

This is important because we earn an average of approximately 2x more revenue from clients in the private cloud than those operating on-premise. Today, 78% of our core clients are operating in the private cloud. In our Payments segment, we continue to experience outstanding growth in our faster payment solutions. Over the past year, the number of financial institutions using Zelle has grown by 22%, The Clearing House's RTP network by 26% and FedNow by 32%.

In Q2, payment transaction volume through these channels increased by 49% over the prior year same quarter. In our Complementary segment, we signed a total of 48 new Financial Crimes Defender and Faster Payment module contracts in the quarter. As of December 31, we had 164 financial crimes installations completed and another 64 in various stages of implementation. We also have 141 faster payment modules installed and 227 in various stages of implementation. We had a very strong sales quarter with our Banno digital platform.

For the quarter, we signed 84 clients to our Banno platform with several large competitive takeaways. We currently have 1,037 Banno retail clients and 435 live with Banno Business. We now serve 15.2 million registered users on the Banno platform, up 15% from a year ago. A couple of additional items before I wrap up. Some of you may have seen Cornerstone's annual survey of bank and credit union executives published last week.

According to the study, 84% of banks and 83% of credit unions expect to increase their technology spending in 2026. That's up from 73% of banks and 79% of credit unions a year ago. We are currently conducting our annual Jack Henry strategy benchmark study with our clients, and we'll share those results on our May earnings call. We were honored to celebrate the 40th anniversary of our IPO by ringing the NASDAQ opening bell on November 21.

To put that milestone into perspective, Jack Henry is one of approximately 200 companies out of the 3,400 on NASDAQ that has remained public for 4 decades. This long-standing stability is the perfect lead into another major milestone this year as we celebrate the 50th anniversary of Jack Henry's founding with associates, clients and investors. In closing, we are extremely pleased with our first half performance and remain very optimistic about the rest of our fiscal year based on the strong demand environment, our robust sales pipeline and our exceptional competitive win rate.

We will continue to focus on our key differentiators of success, culture, service, innovation, strategy and execution. All of these position us extremely well for the future. With that, I'll turn it over to Mimi for more detail on our financials.

Thank you, Greg, and good morning, everyone. I would like to begin by thanking our associates who remain focused on serving our financial institution clients. The result is another quarter of solid revenue and earnings growth and continued momentum for a healthy fiscal year. I'll begin with our robust second quarter results, then conclude with our updated fiscal '26 guidance. Second quarter and fiscal year-to-date GAAP revenue increased 8%.

Non-GAAP revenue increased 7% for the quarter and 8% for the year, a continuation of consistently solid performance. Quarterly non-GAAP revenue growth was negatively impacted by the shift of our Connect client conference into Q1 from Q2. Without this timing shift, quarterly non-GAAP revenue growth would have been a more pronounced 8%. Second quarter deconversion revenue of approximately $6 million, which we previously announced, was up approximately $6 million for the quarter, reflecting a steady pace of M&A activity among financial institutions.

It should be noted that the dollar amount of deconversion revenue has little correlation with the number of transactions or annual revenue impact. We continue to see industry consolidation as largely neutral to slightly positive for our business. Now let's look more closely at the details. GAAP services and support revenue increased 7% for the quarter, while non-GAAP increased 6%.

Services and support growth during the quarter was primarily driven by strength in data processing and hosting revenue for both private and public cloud. Private and public cloud offerings continue to drive strong growth. Cloud revenue increased 8% in the quarter. This reoccurring revenue contributor is 33% of our total revenue. Shifting to processing revenue, which is 44% of total revenue and another strategic component of our long-term growth model. We saw robust performance with 9% GAAP and 8% non-GAAP growth for the quarter.

Consistent with recent results, quarterly drivers include increased digital, card and faster payment processing revenue. Completing commentary on revenue, I would highlight total reoccurring revenue exceeded 92%. Next, moving to expenses, beginning with cost of revenue, which increased a modest 5% on a GAAP and non-GAAP basis for the quarter. Drivers for the quarter included higher direct costs consistent with growth in lines of revenue, higher personnel costs, partly offset by lower benefits costs and increased amortization of intangible assets, which have been consistent throughout the first half of the year.

For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense increased 3% on a GAAP and 2% on a non-GAAP basis for the quarter. The quarter of minimal increase was primarily due to tempered net personnel costs, which has also been consistent year-to-date. Ending with SG&A expense for the quarter on a GAAP basis, it decreased 13% and a decrease of 10% on a non-GAAP basis. Results reflect the timing of our client conference moving into Q1 in conjunction with our continued focus on managing costs.

Aided by our consistent revenue growth, we remain focused on generating annual compounding margin expansion. Q2 delivered 355 basis point increase in non-GAAP margin to 25%. This contributed to year-to-date non-GAAP margin improvement of 291 basis points and a non-GAAP margin of 26%. Non-GAAP margin benefited in the quarter and year-to-date from inherent leverage in our business model, strategic cost management and leveraging existing workforce as we continue to focus on enterprise process improvement and AI utilization and further aided by lower self-insured medical costs, which we anticipate to be nonsustainable.

We are focusing on a normalized benefit growth trajectory in the second half of the year, which is expected to noticeably impact results. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.72, up 29%. For the first half of the fiscal year, GAAP earnings per share was $3.70, an increase of 24%. Reviewing the 3 operating segments, we see positive performance across the board. Core segment non-GAAP revenue increased 7% for the quarter with operating margin increasing 5 basis points. Payments segment quarterly non-GAAP revenue increased 6%.

The segment again had outstanding non-GAAP operating margin growth with quarterly results of 200 basis points. Revenue growth was due to the resilience in our card-related services, consistent growth in the EPS business and continuing a large percent growth from faster payments, albeit on a smaller dollar base. Finally, Complementary segment quarterly non-GAAP revenue growth increased an impressive 9% with healthy 58 basis points of non-GAAP margin expansion.

Quarterly revenue growth continued to reflect digital solution demand and beneficial product mix and sales sourced from both new core wins, existing core customers and noncore financial institutions. Now a review of cash flow and capital allocation. Q2 operating cash flow was $153 million, a $63 million increase over the prior fiscal year Q2. Quarterly free cash flow of $103 million delivered a $74 million increase over the prior fiscal year second quarter.

Our consistent dedication to value creation resulted in a trailing 12-month non-GAAP return on invested capital of 23% compared to 19% in the second quarter of prior year. We're very proud of the durability of this metric and how it reflects our high-quality allocation of capital for our shareholders. Additionally, I would highlight the following significant capital decision, $125 million in share repurchases, $84 million in dividends paid through the end of the calendar year 2025 plus the asset acquisition of Victor's Technology. The average purchase price of shares repurchased was $157.

We ended the quarter with minimal amount of debt, consistent with our normal course revolver line usage, but expect to exit the year debt-free, barring acquisitions or other opportunities. I will now discuss our second consecutive increase to full year guidance. As you're aware, yesterday's press release included updated increases to fiscal 2026 full year GAAP guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal '24.

Fiscal '26 deconversion revenue guidance has been increased to $28 million. Aligned with our guidance methodology, we will update the outlook as we confirm more activity throughout the year. Full year GAAP revenue growth guidance increased to a range of 5.6% to 6.3%. For emphasis, GAAP revenue remains understated due to the conservative deconversion revenue guidance. Based on our strong year-to-date results, we have increased and tightened the range of non-GAAP annual revenue growth guidance, resulting in a new outlook of 6.4% to 7.1%.

The second half of the fiscal year will see relatively lower non-GAAP revenue growth compared to the first half. Drivers include projected cloud revenue showing continued strength, offset by anticipated slower momentum in onetime revenue and card. Expenses during the second half are expected to reflect the relatively higher pressure from medical cost benefits returning to historical levels, cloud migration infrastructure expense and commissions.

Our expectations on the second half revenue are consistent with our current analyst consensus. As a reminder, fiscal '26 and the first quarter of fiscal '27, Victor acquisition-related financial impacts will be excluded as part of non-GAAP reporting. Based on the above revenue growth and our resilient financial model, we expect to gain -- again, generate sustainable accretive sources of margin. We're increasing full year guidance for non-GAAP margin expansion to a range of 50 to 75 basis points.

Margins are projected to contract in the back half of the year due to the benefits cost returning to normalized levels and the timing of workforce expense increases. As a reminder, we see fluctuations in quarterly results relating to software usage license components along with the timing of implementation. Therefore, the correct performance indicator of our business is consistently strong fiscal year financial results.

All of the presented results and guidance metrics are indicative that our business operations remains healthy and sound with near-term growth [ process ] opportunities across all 3 operating segments. The full year GAAP tax rate estimate for fiscal '26 is 23.25%. The above increased guidance metrics results in a stronger full year outlook for GAAP EPS of $6.61 to $6.72 per share, growth of 6% to 8%.

As a reminder, even updated conservative deconversion revenue guidance likely understates GAAP EPS growth. Full year free cash flow conversion outlook is for 90% to 100% for fiscal '26, matching our expected range target, but with a bias to the higher end of the range. Concluding, Q2 results reflect another outstanding performance from our associates, leading to increased guidance.

We're pleased by the continued performance momentum and remain positive on the financial year outlook. Demand for our solutions aligned with continued technology spend by our clients and prospects will drive superior shareholder value. We appreciate the contributions of our dedicated associates that have produced these superior results and our investors for their ongoing confidence. Chris, will you please open the line for questions?

[Operator Instructions] And today's first question comes from Rayna Kumar with Oppenheimer.

Good results here. It sounds like the second quarter sales results were very strong. And I'm just wondering, based off of what you're seeing, do you expect 3Q sales results to come in better? And are you starting to see the impact from the core consolidation news from one of your competitors at this point?

Yes, Rayna, thanks for the comments. Yes, a couple of things. So I can't comment on whether Q3 will be better. Q3 is starting off very well. I don't know where we're going to end up at this point in time. As I mentioned, the Q2 results, which were significant, really had very little impact on the announcement just because all those deals were kind of in the timing of expectation to be done and we're already in motion. As you know, a lot of these core deals can take up to a year or longer to actually secure.

I will tell you the pipeline is growing, not just in core opportunities, but across all of our complementary and payment products as well. So we're continuing to see some nice uptick there. And so I'll be able to report more definitively, obviously, at the end of the quarter, but we are seeing some nice uptick in the pipelines and in the opportunities with some larger opportunities as well.

That's helpful. And just staying on the competitive environment, can you talk a little bit about what you're seeing out there in terms of pricing for core systems and ancillary services? Any changes you're seeing in pricing?

No, not really. I think it's been very consistent to what it's been over the last couple of years. So I wouldn't say anything has been significantly changed as a byproduct of the announcement or what we have been seeing within the rest of the competition over the last couple of years, pretty consistent. And the fact that we won 22 of them in the quarter is a pretty good indication because we're never the lowest cost provider. So I think that's a pretty strong statement as well.

And the next question is from Vasu Govil with KBW.

Congratulations on a really solid print here. Greg, maybe just the first one. There's been a lot of investor focus on how AI could reshape software economics across industries. And we've seen that concern reflected in pretty meaningful stock moves in the last few days and weeks. So maybe you could talk about how you think about AI's impact on your business model over the long term and where you see it as an opportunity versus a risk.

Yes. I'm really glad you asked that question because of what happened yesterday. So yes, so a couple of things. One, from a standpoint of affecting companies, not just Jack Henry, but others in our space, I think it's really a misinformation because when you think about what AI does in the development of technology and the development of building whether that be a core system or other very complex solutions that we support in this industry, it's not just as simple as doing things faster.

It's way more complicated than that. It creates some concerns for maybe some of the other areas where people are doing seat licenses and other stuff, so some of the other larger enterprise-wide solution sets. But as you know, we don't do seat licenses here, so we don't have that challenge. Building the technology and restructuring technology is use cases that we can, whether that's taking code and moving it or things along that line. But it's not as straightforward as it might be in some other industries.

The other component that I'll say is that we at Jack Henry have been spending a lot of time in using AI, both in the back office and in our product set, all of our new platform products do contain some form of AI. And then a lot of the things that we're doing to control our headcount costs to do improvements and things along that line are all byproducts of AI. So from our standpoint, and I think, honestly, from an industry standpoint, it's a much different perspective than what I believe that is being kind of played out there in the space, specifically with some other enterprise-wide solution sets.

Great. And then I know you touched on this a little bit before, but just bank M&A, that's continuing at an accelerated pace, including some deal announcements involving some of your larger clients recently. So just curious if you're still feeling good that bank M&A will still be a net neutral to maybe even a positive as we move forward from here? And that -- the convert/merger activity will sort of increase and will offset any deconversion revenue. Just curious on your latest thoughts there.

Yes, absolutely. I mean we've already seen it. So as I kind of mentioned a little bit in my opening remarks, I mean, not only have we seen significant market share growth during this last 8 years where there's been 3% decline overall. We're seeing it across opportunities today, even in one very large one that was announced a year ago or close to a year ago, then we're having opportunities for other products within that set.

And in some cases, these other products can be even more valuable than the core itself. So we are very bullish on what we're doing, how we're doing it and the opportunities that continue to come our way even when an acquisition of one of our accounts has taken place. We're right in there, in some cases, winning the overall core deal prior to the conversion, in other cases, having conversations post as we talk about complementary payment and potentially our digital core products as part of their long-term strategy.

The next question is from Jason Kupferberg with Wells Fargo.

I wanted to start on the revenue side. I was curious which segments exceeded expectations perhaps in the quarter, I mean, versus our model, there was some nice upside on the complementary side. So would love to hear about product drivers there. And then if you can just comment on how we should think about second half growth rates by segment and maybe hone in on the payments piece a little bit. I think that's maybe tracking a little bit below the medium-term guide halfway through the year. So should we expect any acceleration there?

Jason, I would say, first off, we continue to be pleased by across-the-board performance across all 3 segments, both quarter and year-to-date. Let's roll through each one of them. I would say most of the performance that we've seen above and beyond our expectations in the first half, you saw a decent card performance relative to the more modest expectations we had going into the year.

We do think that the back half will be a little bit more challenging relative to the first half in payments. So even though that is a touch below historical, our growth algorithm expectations, that segment is doing really well. And we have some strong resuscitation of like our bill payments business. We've talked about the contribution from our faster payments even on a smaller dollar revenue, but great growth rates and healthiness in card.

But we do expect that to slow a little bit in the back half just as a bit of -- you have both weather at the beginning of the calendar year, but then just it's the natural seasonality of as you climb into the back half, it's just getting a little bit higher and you have some comps from a grow-over perspective. Complementary is doing great. We continue to see success in the newer products, things like Financial Crimes Defender, our treasury management products, our digital products, all being continued strong drivers, and we would expect that to continue.

And then in core, core has been great the last couple of years, in fact, even stronger growing than the growth algorithm. Part of that is based on the success that Greg talked about, the multiyear success from new core wins and the organic growth of our clients and just that continued shift from on-premise to private cloud. This quarter, we also saw a little bit of the convert merge benefit and other onetime that I would say drove up some of the core revenue that we don't necessarily to expect in the same pace in the back half.

Okay. That's all good color. And maybe I just want to ask a follow-up on margins. I know you guys called out the lower medical insurance claims costs. Can you just quantify that piece? I mean the margin beat was huge, for lack of a better word, versus consensus. I know you guys don't guide it for the quarter, but just trying to get a sense of how big that benefit was? And is that something that reverses out in the second half? Or is that a full year -- how much of a full year tailwind is that?

Well, Jason, I appreciate you acknowledging the importance of full year versus quarterly guide. I continue to encourage everyone to look at our performance on the consistent annual basis, not the quarterly. Sometimes you just have kind of quarters that either from a year-over-year perspective or a cohort perspective or conference timing perspective just may create a picture that is less than consistent with kind of the full year.

But if we look at margins on the full year, increasing our full year guide from the 30% to 50% to now the 50% to 70% is indicative of our belief of just delivering in totality. It was very front-end heavy. Part of that is some cost savings. Part of that is some cost timing. So some of the lower-than-expected benefits costs related to our self-insured medical plan is a savings, but the savings that we don't necessarily expect to continue in the second half.

Other things, we just naturally, as part of our plan, we expect higher to be in the second half than the first half. So if I think about just the pace of some of the commissions, as I think about some of the infrastructure costs as we move more migration loads and planning for our data center longer-term initiatives, some of that spend is higher in the second half than the first half. So yes, we're pleased by the incredible performance and margin in the first half. But more so, we're really proud of the 3-year compounding margins that we've been able to deliver and our ability to increase the guide for the full year.

Our next question is from Will Nance with Goldman Sachs.

Nice results. I wanted to circle back to the question on AI. And I was wondering if you could put more of a positive spin on the AI theme for this space. I think the core processing space is kind of known for having fairly outdated code bases, a lot of COBOL around, not a lot of programmers who can actually maintain it. And AI is one of those things that could actually accelerate the modernization of the code bases, which has been a process that you guys have been on for a long time now.

So maybe can you talk about that in the context of your next-gen platform and the journey that you've been on for the last couple of years? And how do you see AI as an accelerant to that strategy and something that could perhaps even improve the competitive positioning of what historically has been thought of as a good industry with low switching costs, but a lot of software that may be in need of modernization.

Yes. So good question. I appreciate the follow-up. So I mean, obviously, Will, we've been involved with AI for many years as part of this, not only what we're building with our new platform, but what we've been doing on the back end to move some of our foundational cores and foundational code over to other ways of doing things. And we've been able to do it faster, but also with less people.

When you look at the number of initiatives that we have going on with some significant technology innovation and still look at our headcount growing at less than 1% over the last several years during that time frame, that's all apparent because it's being done with -- with utilization of AI and other tools. So that's been a big part of our strategy for a long time and continues to be. We have some of the top-notch talent in this industry that we brought in that are helping push that across the entire organization, not just in certain aspects of our business.

The other thing is what I was referring to earlier from the question from -- I believe it was either Rayna or Vasu, but around the complexity of building out cores, it's not just the ability to move foundational core stuff to something else. And by the way, it's taken us almost 5 years to get where we are. So if you haven't started, you're a little behind.

But from where we are today and the work that we've done, when you look at a lot of the international cores that have tried to come into the United States and haven't been very successful, it's because of the level of complexity that you need to build and not just the core itself because, again, you can build some core -- headless core that has components on it, but it's the full integration and it's a full suite of connections to the payment networks and everything else that goes with that, that really makes it complex.

And that isn't just done with AI. Some of that's done with a lot of hard work and people. And like our team likes to say, it's dirt digging. And so that stuff is where the complexity really makes it more difficult. So I think what we have done, where we have gone and been able to utilize AI as part of our overall strategy is what differentiates us not just from innovation, but from speed of innovation.

And if I could add on to that, Greg, I would say that because of the investment we've made and started making over 5 years ago of moving our infrastructure to the public cloud allows us to take advantage of the DevOps environment. So if we think about something like Banno and the number of new feature releases we're able to do on that and now similarly, with the Jack Henry platform being API-first digital cloud native, we'll be able to increase that velocity of solution enhancements for our clients that others cannot because they're still on that journey to public cloud.

Yes. And just one other point just because I know this is a big topic for probably everybody is that, as they say, no data, no AI, right? So the things that we have been doing and focused on, so not just what Mimi is referring to with various product sets, but what we've been focused on with our data has allowed us to take more advantage of AI as well.

And again, in our industry, there's a lot of complexity and a lot of differentiation on how pricing and everything else is orchestrated versus what I think is being thrown in to these other enterprise providers where they're selling seat licenses, and we're pricing by transaction or active user or asset size or whatever it is. It's a whole different model.

That's great. I appreciate the really thorough answer. And just if I could switch gears and ask about the payment side. I was wondering if you could talk around competitive dynamics on payments and card. There's just been, I think, a resurgence in chatter on new entrants in that space and the community bank space maybe evaluating beyond the kind of traditional competitive set. Just wondering if you could talk about anything that you've seen recently.

Yes. I don't -- I know -- I mean, I mean, there's a couple of them. I'll call out -- there's a couple of names that have presented themselves in the space, but they're really -- they're more, I would say, compartmentalized offerings. They're not full suite debit and credit offers, most of the ones that I think you're referring to are more on the commercial card side and I think have limited availability on the debit side as of today.

And so as you know, that is the stronger part of our particular card processing today, even though we've had a lot more success on credit deals lately than in years past because of some changes we've made. But I will tell you that one of the reasons why I wanted to call out the number of what we call trifecta wins around here is because we are seeing more and more opportunities in this space for -- because of the solution set that we've built to allow us to sell digital and card as part of a core deal or sell digital and card individually outside of a core deal.

And that's been a big part of our strategy and will continue to be. But I haven't seen anybody that's come into the market that I would say has disrupted the market. There's a lot of names that are saying they're doing things, but the level of success into our space, we just haven't seen it yet.

The next question is from Darrin Peller with Wolfe Research.

Nice quarter. I just wanted to touch again on the core wins. You highlighted another strong quarter at 22. I know you had about 11, I think it was this time last year's quarter. So just that includes some of the larger institutions. Maybe just help us understand how we should think about the near-term versus long-term revenue cadence around some of those. And I know it takes time to really come into the run rate.

But just as importantly, I mean, what are you seeing that's giving you the right to win in these banks maybe in a slightly accelerated rate as well as the larger as you move upmarket and you've been having more and more success. So maybe just help us understand what's going well there. And if this is a better run rate that we can see in terms of cores, maybe given industry dynamics?

Yes. Thanks for the comments. Yes, I mean, you were right. We did 11 last second quarter. As we like to say, same thing with everything else, it's fiscal year results, right? So some quarters are bigger than normal. Q2 and Q4 are typically our largest quarters, our fiscal quarters. That's just the end of the year for the customer, the end of the year for us, just tends to have a lot more activity even though we try to spread it more evenly than that.

As I mentioned before, the pipelines are growing fast with a lot of the news that's happened in the space, not just core, but across all of our channels. We're pretty excited about some things that we can't announce yet just because of the timing. But the reality is we're continuing to move the needle in all of those products at a pretty fast pace.

What I would say from a core standpoint, though, to answer your question, we're winning really -- and even on some of these deals that were referenced earlier that our customer was purchased, we're in there already talking to them about a variety of products. We're hearing some really positive news on what we are doing differently than our competition. And it really starts with our ability to what I say all the time on these calls.

Our culture comes through on those meetings very fast and people that are -- there's a lot of people that want a partner that has a similar culture. I just met with a bank this week that, that was their comment. They said, the first thing we noticed was your culture and alignment in culture. Obviously, our service reputation is 50 years of doing the right thing and doing whatever it takes. The level of innovation that we've built over the last 5 years is not matched by anybody in the industry, and we've said that multiple times.

And when people are able to see what we are able to already compete and do with a lot of these innovative things, not just tap to local and rapid transfers, but stablecoin, things that we've done with the platform, things along that line, it just shows that level if you want to grow your institution and you want to make sure that you've got deposits and lending capabilities or building efficiency, which are the 3 most talked about things that they want to do.

Jack Henry has been the provider and is the provider that can make that happen. And then we don't change our strategy. We've been very focused on our strategy, and our execution is second to none. So when you take those 5 words that I say all the time, honestly, those are the reasons why we win, and it comes through with the products and the level of innovation we've shown.

That's helpful. And then I just want to follow up one more time on the way we think about guidance for this year and even an early thought in terms of what's trending for next year, this fiscal year, just given you've been inching up your guide now. You're obviously having success with the SMB initiatives that's starting to early, but show now, show results in numbers. And I think that's a key factor to getting back to that 7% to 8% range. So I mean, is your confidence growing into fiscal '27 even that we can get back to that 7% to 8% again based on everything you're seeing in the run rate and some of your results from investments?

Darrin, I love your long-term view there. Just a little too premature from our perspective. We are heads down focused on executing in '26. We're starting to have budgetary conversations and strategy conversations about '27. But I think it's sticking to the fundamentals, really. It's about the execution. It's about every day coming in and hitting the singles and just continuing to execute. So yes, we're super excited about the onboarding progress from our SMB offerings.

We're super excited about the feedback we're getting from customers that are validating the direction that we've talked about. But I would say for this year, it's about continuing to drive on the implementations from the sales pipeline of closures, and it's about card and payments and it's about continuing traction on the complementary side on some of our newer products. As we look into '27, I think certainly, we will be past some of those potholes that we've talked about previously that the deconversion created and our growth rate on some of these new wins of sizable institutions that Greg mentioned will be coming into the fold from an implementation perspective, and that is super exciting.

One other point. We -- I mentioned earlier on that we had made a lot of strides in changing how we go about our renewal processes and things along that line. And that -- those changes are starting to pay significant dividends for us. And so it's been a big part of the strategy and focal point, but also another reason why we're very bullish on where we're going.

Our next question is from Madison Suhr with Raymond James.

I also wanted to start on the SMB strategy with Rapid Transfer and Tap2Local. I guess more broadly, what are you seeing in terms of adoption for those products? What's the longer-term opportunity look like? And maybe any color on how the competitive set may differ from a traditional Jack Henry competitor?

Yes, Madison, thanks for the question. I have some data, but I would -- as I said, I'd prefer to really talk more about it in May when I have more data months because it's still very early. As I said, we rolled out 300 customers in 2 months, and we just rolled out another 100. So as people are starting to ramp up. I'll give you one anecdote, though, there was a -- we had a client that wasn't sure they wanted to keep it on, and they called us as soon as it was turned on. And 2 hours later, they asked us to turn it off.

And we said, did you know that you already had 30 people sign up for it? And they said, no. And they said, okay, keep it on. So my point is, is that there's that type of opportunity that's forming. And we're just now really working with them on the marketing. So there's a whole aspect of this that we think will have a lot better data points. To answer your question on the level of differentiation, though, it's significant to what a Stripe or Square is doing in the space, and I'll make it very short.

First of all, Stripe and Square are taking deposits away from our institutions, and they're not getting them back because then they're lending to them or they're doing other things. And so once those deposits go, they're gone. The other part is that the level of sophistication that we're able to give these sole proprietors or very small SMBs with not only instant account approval where we're approving about 75% of everybody instantaneously in the market. That's a 2- to 3-day process, if not longer.

And then we're able to do both iOS and Android devices for Tap2Pay. Very few people in the United States are doing that today. Stripe and Square are, but very few others. And then -- but the biggest one is our patent pending account reconciliation component where the actual SMB can upload all their transactions onto their device and hit a button and upload it into QuickBooks or Xero or any of their accounting package choices instantaneously. Those are all things that can happen today in the market.

I would add on to that, the knowledge we have from the core systems really enable us to have a frictionless experience from the get-go of sign-on all the way to the account reconciliation that Greg mentioned. So we really believe in this case, it's a fragmented industry, and we believe that small businesses should be multi-acquirer the same way a sophisticated treasury customer has more than one bank account. It's just smart business. We think that small and sole entrepreneurs will be multi-acquiring.

Okay, that's very helpful...

Yes, Madison, one other point, we have a very long road map for SMB. This is not just a one-hit wonder with Tap2Local and Rapid Transfers. We have a lot of things we're going to be rolling out over the next 18 months, and some of them are already done. We're just waiting to put them into play.

Certainly. It seems like an interesting opportunity for you guys. Just a brief follow-up here on capital allocation. I mean maybe just talk to the priorities right now, appetite for buybacks and just anything to call out in terms of M&A pipeline.

Of course. First and foremost, we're super excited to get back to the very strong free cash flow and a very high free cash flow conversion of 90% to 100% to be on the other side of the tax legislation and have certainty and to have a year where a pretty significant contribution of roughly, call it, $100 million from clearing up that tax uncertainty and kind of clarifying from a go-forward perspective.

From a capital allocation, our priorities remain consistent. We have a long-standing dividend policy that we are committed to. We are always looking at M&A prospects and opportunities, although we have less gaps strategically, we're always looking for things that may be an accelerant or enhancement to solutions and our ways of meeting customer needs.

We continue to invest significantly in internal development and moving our strategies and innovations forward. And then share repurchases. We were excited by the $125 million of shares we purchased thus far year-to-date. And we said previously, we feel comfortable if that went to [ $200 million ] or more this year. So it sort of depends on purchase price and what M&A opportunities come into the marketplace, but we will be dynamic capital allocators, but continue with our conservative balance sheet.

And the next question today comes from Kartik Mehta with Northcoast Research.

Greg, one of the strategies you implemented was going about pricing renewals differently. And I'm wondering if that's gained traction? And are you seeing it manifest in the financial results yet? Or will that take a little bit more time?

Yes. Great question. I appreciate you bringing that up. Yes, we are starting to see it in our financial results and on our approach for the percentages of new versus renewals in our wins and our overall numbers for the team. So congrats to the entire sales team for embracing what we've put in place because it was a change, and it's working very well.

So we are really -- the percentage of new versus renewals is significant as compared to last year, which is obviously great for a lot of reasons. But the other part is that it's allowing us to hold much more steady in the market. One of the questions early on was pricing pressures. And we've been negotiating more at a position of strength than I think we have in years past.

And then just a follow-up, Greg. Early on, you talked about bank spending and maybe a couple of the reports that have come out that say bank spending should continue or is expected to continue in 2026. Is there a difference, at least as you're talking to clients from an asset size and what they want to spend? And the reason I'm asking is there's so much talk about consolidation and maybe consolidation happening with smaller banks, smaller asset size banks. So I'm wondering if there's any hesitation for those banks to spend money or if you're seeing any kind of bifurcation?

Yes. Just to be candid, you do see it sometimes, but I think you can also probably see them on the market the next week or the next quarter or whatever because you really can, Kartik, determine when technology isn't being bought, [ Dave ] coined this line a long time ago, and we like to use it, which is everything that needs to happen in this space, if you want to grow, technology can do for you.

And so from our standpoint, we are very focused on making sure that's why the level of innovation. And so the short answer is yes. There are some institutions that are going to spend way more than the 10% or 6% to 10% that's been forecasted based on whatever their needs are or their desires. And there's others that don't. And sometimes they'll take a better financial deal and less impressive technology, and you tend to see those are the ones that are on the market down the road.

The next question is from Cris Kennedy with William Blair.

Greg, just wanted to follow up on the trifecta wins that you talked about. What's driving that? Are financial institutions consolidating vendors? Is it from changes in your go-to-market strategy? Are you moving upmarket? Any more color would be great.

Yes, it's a great question. It's a combination of a few things. One is, as we've been mentioning, we have done a much better job of building out the Banno solution set to be much more competitive on the business side. We've always had what we think is the best retail application, but the team has done a great job of building that out. So as that has gotten more sophisticated and improved, it's allowed us to not only win more deals, but win larger deals, as you referenced and it has happened as well.

Same thing on the card side. We've really improved the commercial aspects of our card platform with some other things that we're working on. And so those 2 things combined have allowed us to get involved in each of those deals. And as I mentioned, 15 of the 22 deals included all 3. But it is by design, and it will continue to be by design as we continue to not only go upmarket, but also as we go after some of these new opportunities in the consolidating base.

Great. And then just as a follow-up separately, I think you launched a new enterprise account opening platform. Can you just talk about the opportunity with that new solution?

Yes, Cris, I will say that we're still in what I would call closed beta or what we call closed beta, still pretty early. There are some feature gaps that I want to get closed before I want to release it out into what we would call generally available. I'll talk more about that in coming months as it becomes more relevant. But it will be a very unique platform where you'll have a single platform for both consumer and commercial with account opening embedded. So it will be something that's very unique in the market, but it still needs a few more things completed before we're ready to talk too broadly about it.

Our next question comes from Dave Koning with Baird.

Great job. And I guess my question is really on complementary. You've done a really good job. And I think Greg called out that some of the platform consolidation in the space is creating more wins in complementary. And we often think of it driving core. But if it's driving complementary, too, is that faster? Those are a little smaller products. Are those faster to implement? And then secondly, you've had really good growth. You hit a tougher comp. Is that new kind of win rate or the additional complementary work going to allow you to keep growing as fast even though you hit a tougher comp?

Well, yes, it's a good insight. I think it depends on a couple of things, Dave. I mean if -- some of these are sold with core deals, some of these are tied to the timing there. There are -- actually, we had several nice independent wins outside of core in digital and financial crimes for this particular quarter. So those typically are 6 to 9 months, maybe less, depending on their sense of urgency and timing in their contracts.

But they're definitely sooner than what would be tied to a core deal. One of the things that we are doing and it's starting to be, I won't say, successful, but being interesting to some folks is we're really going to them and talking to them about integrating the digital offering even before the core. And this could also be part of -- or is part of our outside the base strategy to drive some opportunities sooner than waiting on core. So we're working through some of the logistical parts of that.

But as that starts to take hold, I think that will create even more of an opportunity for us to do what we've really envisioned even on our core platform, right, doing things in a more modular componentized approach and doing it incrementally than doing it all at once. And so we'll kind of give you more context on that as it happens. But absolutely by design, absolutely by continued improvements in those products.

The next question is from James Faucette with Morgan Stanley.

A couple of questions for me. First, obviously, I think everybody understands and very excited about the tailwinds your business is likely to see from some competitors' core platform consolidation. How do you think about like what your execution requirements are? Kind of what keeps you up at night in terms of things that could trip you up, whether it be timing or magnitude? Or I'm just trying to get from you the checklist of things you need to do to potentially take advantage of the opportunity.

Yes. So James, I mean, it's candidly #1 priority here right now based on kind of, I won't say once in a lifetime, but a very few times in a lifetime opportunity where you see this. And so between the sales team, the operations teams, the finance teams, the marketing teams, they're all very much aligned, working regularly in conjunction with our go-to-market stuff that we've done. I don't want to share openly the opportunities that we have in front of us at this point.

But as I mentioned, there are significant numbers that are already in the pipeline, not just ones that are "out there," but already in our current pipeline for all products, not just core. And then there's, again, work that we've done on the operational side to ensure that we're ready. As you can imagine, I mean, especially on a core deal, even if we sell the core deal like we did this quarter, it's still going to be another 15, 18 months.

So our ability to get ready on the operational side is honestly the easier part. It's more about what we needed to do to gear up on the marketing, sales and finance side. And the teams have done a great job of that. We are humming right now. It's absolutely an awful gear. And so I'm very proud of the team on how fast they reacted in what they did.

That's great color there, Greg. And then I wanted to ask about the attach rate and bundling strategy. As you win more competitive core deals, how are complementary attach rates trending at signing and maybe at 12 months post conversion? Just looking for any quantified examples of bundles you're seeing more frequently.

Well, the most frequent one is what I called out, which was, again, to us, is the trifecta of card and digital. So that is as frequent. There's always some products that get thrown in that some variation of account opening or the lending platform or whatever. But those 3 in particular, we're still averaging about what we have been.

And again, remembering that we're doing some small levels of end of lifing or product rationalization as part of our initiatives. But we're still seeing anywhere from 35 to 50 products typically in a deal as we have in years past. The key is that the more lucrative ones, candidly, are card, digital, financial crimes, things along that line.

The next question comes from Charles Nabhan with Stephens.

I noticed that you tightened the outlook for free cash flow conversion from 90% to 100% from 85% to 100%. And I know your bias was towards the higher end of that range last quarter, but curious what led to that increased visibility? And as a follow-up to that, it sounds like there's no shortage of opportunity that you're investing in to pursue. Love any comments on capital expenditure and the level of investment level necessary to pursue that opportunity that you're seeing across your markets.

All good questions, Chuck. So yes, we continue to see positive progress on the free cash flow and free cash flow conversion. I think now just having a crisper outlook of understanding all of the puts and takes of the legislative changes. We did have a number of just small asset sales as well, having clarity on those just makes us more confident on the projections for the full year and to have a bias towards the higher end of that range from a free cash flow.

In terms of an allocation or an investment, we continue to be hovering around that 14% to 15% of R&D. As Greg mentioned earlier, we've -- in the last 5 years, ex M&A has kept headcount growth less than 1%. So we feel like we're able to make the strategic bets and solution progress while still maintaining a very tight workforce. So that's through our continuous improvement efforts. That's through the deployment of AI. That's through being very strategic on where those headcounts are going and are they fueling strategic initiatives. So we feel pretty good on our ability to continue to accelerate our growth, our progress against our strategic initiatives without needing to step up and increase our spending.

Got it. And as a follow-up, I wanted to get your specific comments on the credit union market. And if you're seeing anything different in terms of competitive dynamics, demand trends and just generally how you see that opportunity?

Yes. So we're getting a little bit of the -- still residual from the core consolidation from one of the competitors. We've done a lot to increase our solution set on our Symitar platform over the last couple of years. That's starting to pay some dividends. We're winning a good number of the mergers that are happening. So that continues to be a positive. And then the bigger thing that's happening is our ability to penetrate the complementary and payments market with our core solution set.

So we are driving a higher penetration rate than we have in years past in the credit union business, both with existing clients and with wins, new competitive wins with, again, taking digital or payments as a -- for instance.

The next question comes from Ken Suchoski with Autonomous Research.

I'll ask one since it's getting late. But Greg, you talked about not seeing a benefit on the core competitive takeaway side this quarter, but obviously, lots of work happening behind the scenes by Jack Henry. But you mentioned that service differentiation is really driving your success. And one of the competitors has talked about increasing its service levels and reinvesting on the support side. So I'm curious how you think about maintaining your differentiation relative to other providers when it comes to that support and service.

Yes. Thank you. I'll kind of say it this way. we have a 50-year head start on how we've been handling service at this company. And it's been in our DNA all the way back to Jack and Jerry and every other leader that's come before me. And I will tell you, we're actually at all-time highs right now as far as how our survey results are and things along that line. And I know there's a motion at really both of our 2 largest competitors to improve service.

And I applaud them for that from a standpoint of the industry perspective, but it's hard to move a big ship when you don't have that mindset built in as we do at this company. And so could they have some improvements? Sure. I don't know what that will take. And is that bodies? It's not always bodies. It's usually a mindset.

And so when you do whatever it takes and do the right thing like we do here, it just gets embodied into our everyday offering. So I just think it's going to be really difficult to "catch us" and we're sure not going to take off the gas here. So we'll continue to keep that as part of what we think is a huge differentiator and hear it from people that come over to us.

Yes. The only point I would add on that is, well, Greg aptly said, we have not seen a tremendous meaningful impact from the consolidation yet in the pipeline because deals take quite some time to walk through and to hammer out. But our track record over the last several years and our increase in market share and our gains against both competitors are indicative of that service that Greg just talked about and of our innovation.

So we have a track record. So it's not -- we feel very strongly in this opportunity and our ability to continue to win. And that's backed up by the wins we've been doing from the last number of years. So it's not new that people have wanted to leave competitors, and it's not new that they're coming to Jack Henry.

Yes. And I think one just last point since you're on, Ken, is that the 50-plus wins that we've had for multiple years kind of emphasize what Mimi just said. The last part that I want to emphasize is, though it didn't have a significant impact in Q2, as I mentioned before, our pipelines are growing faster because of that news. And so I anticipate that not just this year, but over the next several years, which a lot of these contracts will have several years still remaining, but conversations could be taking place now, where you're going to see not only just the number of opportunities increase, the size of the opportunities increase much to what we've been focused on, as we said, of going upmarket.

And this does conclude today's question-and-answer session. I would now like to turn the conference back over to Vance Sherard for any closing remarks.

Thank you, Chris. Management will be participating in 8 investor events over the next 2 months, and we look forward to continuing our engagement with the investor community. We also extend our appreciation to all Jack Henry associates for their exceptional commitment and execution, which delivered a strong first half of fiscal 2026. Thank you for joining us today. Chris, please provide the replay number.

Thank you. As a reminder, the replay number for today's call is (855) 669-9658. Again, that is (855) 669-9658 and the access code is 4206506. Today's conference has now concluded. I would like to thank everyone for attending today's presentation, and you may now disconnect your lines.

We were talking about earlier we were just kind of on tight schedule between meetings, so I appreciate all of you joining us today to have the conversation with Mimi Carsley, CFO of Jack Henry. I'm James Faucette, lead fintech analyst out of the U.S. covering Jack Henry. So thank you very much for joining us here again at the Nasdaq Conference, Mimi.

So for those that aren't familiar with your business, Mimi, could you provide a quick overview of the 3 core businesses at Jack Henry as well as some cohort of bank and credit union customers that you serve?

Sure. So firstly, Jack Henry is a well-rounded financial technology firm. We serve U.S.-based -- primarily U.S.-based credit unions and banks with technology solutions. So we have 3 main operating segments. The Core segment, think about your processing systems to take deposits, open accounts, record interest, kind of essentially your GL, if you will, plus ancillary services for processing. That's our Core system. That's about 1/3 of our business.

We have 1/3 of our business that is our Payments business. So that's both card issuance and processing, so primarily debit cards. And then, we have Enterprise Payment Services as well as Bill Pay and now Faster Payment Services. So that's another roughly, call it, 1/3.

And then, if it's not Core and it's not Payments, it falls under our Complementary bucket. And that's a whole host of services that helps a bank or credit union, so fighting fraud, doing lending, treasury, digital offerings and the like. So pretty much with the exception of wealth management and actual mortgage underwriting, we provide banks and credit unions with all of the solutions they need for their strategy.

Got it. So interestingly, it's a market that I think is always -- I find fascinating because particularly on the Core portion of the software about 100 banks a year switch Cores. You guys win about half of those pretty consistently over the last 10 years plus. But one of your core competitors recently announced that they're going to start to consolidate a lot of their different platforms. I think they have more than a dozen and a half that they're going to try to bring down. And that seems like that could create a lot of incremental at-bat opportunities for Jack Henry or incremental opportunities to win. Sorry about the baseball analogy, we don't play a lot of baseball here.

But -- so as those platforms are sunset and your competitors attempt to migrate them to new platforms, so can you talk to us about how you think about that opportunity, the size, what it would mean incrementally, et cetera?

Yes. So first, I respect them for doing it. It's an incredibly challenging thing to do. Jack Henry has one core for our credit unions and 1 flagship core for banking and then 2 other cores that are more bespoke if you're, let's say, a smaller institution, or you want less customization, we have 2 other solutions. But we primarily have 1 flagship banking and 1 flagship credit union. That's not the same with our competitors, who have through acquisitions, many, many quarters. And Jack Henry has both built cores and bought cores, but it takes a real disciplined effort to do that consolidation.

So first, I commend them for the effort because it's not an easy undertaking. It also puts a ton of your customers in flight. So in a situation where it's already a tough landscape, unlike being a Jack Henry, if you're at another core vendor, you may not be getting innovation, you may not be getting great service. And now, you're being told, you have to make a change. And so that definitely puts a great opportunity at Jack Henry. As you said, we have a fantastic win rate that comes from both the level of service that we have been known for as well as the level of clarity and transparency and technology innovation.

And so they have not set a date as a sunset date. Many core contracts typically are about 7, could be as long as 10 years in length. So this is not all a rush to a December 31 opportunity. In fact, we're quite excited because we think it will be a multiyear opportunity for us to build on top of that already large, roughly 50 wins we do a year. So depending on how big of a lift of it is, I suspect that some of that 1,400 core customers will have an easier software upgrade type path, a migration, but a lot of those customers will be faced with the challenge of completely upholding their whole organization.

If you think about all of the processing, every screen you do for every process within the bank has now changed. And because their systems are all very different, moving from one system to another within their shop may be quite a different experience and be the same amount of lift of going to a different provider. So to me, it really opens the door to customers taking our calls, considering an RFP.

And then, once you open up that consideration set and you see the options before you, you see the level of innovation, you see where our roadmap is going from a public cloud usage, we really think we have the capabilities to -- both on the sales side, the marketing side as well as the operational capacity to handle the migrations that may come before us to take advantage of this historic.

And it has been many years, probably since Y2K, that you had this many customers in flight. To your point, that probably only 200 customers even send out an RFP on an annual basis with only about 100 of those making a core decision and Jack Henry winning about 50 a year. So this is a lot of extra potential customer opportunities before us.

So let's ask -- dig in a little bit on a couple of those elements. Do you have any historical examples, either external to Jack Henry or maybe even with your own experience, where as platforms are sunset, et cetera, what those churn rates might look like? So the example you just gave in any given year there's, call it, 200 RFPs, maybe half of those decide to stay with their existing provider, the other half choose to move to somebody else with you taking about half of those. How does that compare normally to like what those percentages might look like when there's an actual sunsetting of a platform?

Yes. So in the sunsetting, everyone has to make a decision. So whether you're deciding to stay with your current vendor, but move to a completely different product, which is the same level of complexity of the migration or they might actually decide some of them that they're just want to retire. Maybe it's an older management team, maybe this raises the bar for just operating complexity, maybe it's just -- it's an opportunity to just not go through the upheaval, and they decide to M&A, which also benefits Jack Henry because a lot of our customers are looking for growth, and they would love to buy another institution.

And for Jack Henry, we really win -- we win over the cycle of M&A because typically, over the cycle, more of our customers are the acquirers than the acquiree. But where we really win in M&A is when they acquire someone who's not a Jack Henry Bank. So this could be both a win from our sales team, but could also be a win from an M&A perspective.

Got it. And then, I'm going to put your feet to the fire a little bit here. So as -- let's imagine that this competitor starts to talk to their customers about potential migration beginning of '26, right? So basically, in the next month or so. How quickly could we start to see benefit -- incremental benefit to the P&L for Jack Henry would you think?

So we're already taking a large share of this customer's clients every year. A lot of our wins come from this competitor. So any of the wins we're seeing now, we just signed 1 last week, in fact, started way before this announcement. Typically, again, your contract somewhere is between 7 to 10 years, you're not going to start any conversations about contemplating a vendor change until you're about 2 years inside of the remaining life.

At that point, you're going to do all of the RFP, all of the work, all the recontracting. It's at that point that it then starts the timeline for the actual migration. And then that's somewhere between 12 months and 18 months. And that timing is really dependent on the financial institution. It's not Jack Henry. Our -- the amount of lift we do from a mapping, we've mapped every core out there. It's really around that training, reprocessing, redocumenting of procedures that the bank institution needs to have. So there are certainly customers already that we've been in talks with that now heard this news that maybe it spurs a decision for them. But again, since there's no sunset date, we expect this to be a multiyear impact because no one is likely to leave a contract with a ton of remaining life left on it because it's -- they'd have to pay the penalty.

And then talking about like multiyear impact, how should we think about the incremental complementary attached to cores? Because we're talking about like the core debits and credit systems of these institutions, but there's a lot of other functionality that can be appended and should in most cases will be appended to those. Does that -- do those complementary attach products tend to come at the time of a core switch? Or do they come subsequent and provide further tailwind for more years?

Yes. So winning a core -- you're exactly right, James, winning the core is just the beginning. So no one really takes core in a vacuum. So let's say, we have over 200 solutions, someone is going to take on average 30 to 50 depending on if they're a bank or credit union solutions at the time of their contract. Now, they may do some day 1 with the core. Let's say, they want to do digital and core together, but some they may want to do as a day 2 project. Maybe it's 6 months down the line, maybe it's a year after they've done the core to let their organization kind of embrace the magnitude of the change.

So there's certainly a windfall, not only for our Core segment growth and our cloud growth because most of these new customers are going to be on our private cloud. Today, over 77% of our customers are, but we rarely get an on-premise new win today because most people don't want to be in the -- running the data center business game. So it's going to be cloud processing revenue in the Core segment, maybe even some contracting, consulting work orders that go around the implementation.

And then, it's going to probably be with a bundle of other products, likely card and likely digital, for sure, but then treasury, Financial Crimes Defender, and then, there's a whole host of other products if you think about document imaging and e-sign and account opening and a whole host of things that help workflow of day-to-day operations within a bank. So they'll probably take that whole package of opportunity.

The great thing for Jack Henry is because we have a whole roster of core-agnostic solutions within our Complementary segment, we have relationships with most banks and credit unions in the U.S. today. So we have 1,700 core customers in our Core segment. But we have 5,800 customers that are either payments or a core -- a noncore product, a complementary product. So likely, we have existing relationships with all of these new prospects who already have experienced the Jack Henry award-winning service, who know how we operate, who give us a leg into potentially a heads-up on that prospect.

Got it. So we've talked about maybe the opportunity that may be created that's idiosyncratic to change and strategy and approach from a competitor. But let's talk about the overall demand environment, like kind of the generalized macro. You've routinely referenced the Bank Director survey and noted that the median growth in tech spend is still really quite healthy. I'm curious just given where we are in the deposit cycle and the prospect that seems to -- the market seems to be anticipating for accelerating loan growth next year. I'm hoping you could help us stratify the difference in demand for your customers in kind of this deposit attraction retention tools versus lending and kind of how you think about like where you want to allocate resources from a product development and selling standpoint.

Yes. So the top 3 strategic areas of focus for most banks and credit unions from our survey over the last several years have been gathering deposits, lending and efficiency within their organization. And then, fraud is usually like fourth or fifth. And those numbers may change in a given year of like what's 1 versus 2 or 3, but those are always the top 3 priorities for the last several years at an institution. So it's hard to say on a macro trend basis for deposits because a lot really varies geography to geography, which is why M&A sometimes can be such an opportunity if you're able to buy a growing deposit geographic base or a nice little pool of deposits in an acquisition.

But overall, I would say deposit growth has been modest. It hasn't been tremendous. We've seen some deposits go to the larger mega banks, some of them to the neo fintechs, but for the most part, deposit growth has been pretty robust, like steady. What we do expect is that lending, particularly around mortgage and refi to kind of pop up. In the U.S., we're now started a cycle of declining interest rates. There's a potential for a very large refinancing bubble that will occur over the next couple of years that will really help institutions on the lending side, not as much on like maybe autos and other lending, but certainly around mortgage and refi.

Got it. Got it. I want to talk about -- so we've talked a little bit about Core. And as we said is that, that tends to be a pretty steady business, at least in terms of like new wins per year, et cetera. But maybe there's some potential for acceleration in the coming few years. But at least relative to our estimates, where we've tended to see the most volatility over the last couple of years or at least variance to our estimates has been in the Payments segment. So I'm wondering if you can kind of help set the stage for us, give us a quick overview of what Jack Henry does in the Payment segment? How you're feeling about that business? And where kind of the variance versus your own expectations have come from, at least over the past couple of years?