Jack Henry & Associates, Inc. (JKHY) Earnings Call Transcript & Summary

Good morning, everyone. This is Day 3 of UBS' Global TMT Virtual Conference. I am Rayna Kumar, and I lead fintech equity research here at UBS. I'm happy to introduce David Foss, CEO and President of Jack Henry. Thanks for joining us today.

Yes. Happy to be here, Rayna.

Well, great. So to start off, David, if you can provide us an update on how you think financial institution IT spending, is going to trend for 2022? And what do you think are going to be the biggest areas of spending for banks and credit unions next year?

Yes. So it's kind of a fun topic to talk about right now because all the indicators that we're getting regarding spending expectations for 2022 are really pretty positive. So if you've followed us for a while, you know that I normally quote 2 industry surveys each year. One is the one that comes out in September from Bank Directors. So I highlighted that on the November earnings call. The other one is Cornerstone Advisors, their survey will come out usually the end of December, early January. So I should have that one in time for the next earnings call. But the Bank Director 1 that just came out, they cited an expectation -- and let me just mention that Bank Director, we really like that one because the respondents to the survey are all CEOs and Board members of banks that are in our target market. And so as you know well, Rayna, we don't target the really tiny banks and credit unions. We also don't target the largest banks and credit unions. It's that middle tier that are really the sweet spot for Jack Henry. And so all the respondents to the Bank Director survey fit into that tier and they are decision-makers among people that are either Jack Henry customers or could be a Jack Henry customer. And for this year's survey, what they cited was the average expectation as far as technology spending increase for 2022 was 10%. That's an average expected increase in spending on technology. And I think the low end was kind of as far as any significant number was around 4% to 5% increase year-over-year in tech spending. And so then, of course, many were well above 10%. So that bodes well for us as we look forward to 2022. And then, of course, anecdotally, I talk to a lot of CEOs on a regular basis on both the banking and credit union side of our business. And they are all really very bullish about 2022, even with the prospect of inflation increasing, the prospect of increasing interest rates, really pretty bullish about 2022 and what they plan to do as far as tech spending. So the second half of your question, so what are they spending money on a real emphasis, and this is probably no surprise to anybody a real emphasis on spending around digital technology. And so one thing that I emphasize all the time, if you look at banks and credit unions in the U.S., and this isn't just Jack Henry customers, I'm talking about across the board, most banks and credit unions have an Internet banking solution and a mobile banking solution and they are 2 different things. They're 2 different experiences. So when you're on your PC, your Internet banking experience, is different from what you experience as a user when you're on your phone or on your tablet. And so most banks and credit unions are trying to figure out how do we bring those together and deliver a unified, consistent single experience for the consumer or the business customers so that regardless of form factor, regardless of whether you're on your PC or your phone or whatever, it's the same experience and things feel the same and operate the same. And so that's great news for us because we have, as you know, this wonderful digital platform called Banno, #1 rated in the app store and getting a lot of attention around Banno. And so we see a big shift over the -- in the coming years here of banks and credit unions moving from those 2 separate experiences, Internet banking and mobile banking to a single digital banking experience. And of course, we're very well positioned with Banno to do that for customers. So lots of emphasis on that. Much of that, of course, is happening because of the pandemic. People -- when everybody started doing banking remote, nobody wanted to go into a branch anymore. I think it really accelerated and expanded the view that bankers had of we've got to try and figure out how to deliver a consistent experience because that's what consumers are expecting. They want to have the same experience regardless of what device they're using. Other areas of spend. So online commercial lending has been a hot topic lately. So again, commercial customers, historically, if you're running a large or even a medium-sized business, the expectation if you were going to do a loan was that you would go into the branch and sit down with the loan officer and go through all the paperwork, and bring in your stack of tax returns and all that kind of stuff. Those days are gone. Commercial customers don't want to have to go to the branch to execute a loan. And so we rolled out about 5 years ago, a brand-new digital commercial lending platform. And again, because of the pandemic, interest in things like that have accelerated, and so we're getting a lot more attention in that area. Another thing that emerged from the Bank Director survey was that there's an expectation on bankers to really focus on efficiency in 2022. So again, most of our technology solutions inherently bring efficiency into the process. But then we do have some solutions like our workflow technology that is designed specifically to introduce efficiency into the operations of the bank or credit union. So things like that are really hot topics. The other one I'll highlight is around payments. So we rolled out a solution called PayCenter a couple of years ago. And the idea behind PayCenter was we saw this emerging trend of banks and credit unions wanting to connect to real-time payments networks, P2P networks. So we know we have the clearinghouse out with real-time payments technology. Of course, Zelle was out there. We're live with Zelle. But we didn't think Zelle was going to be the only one. And so we wrote this platform and rolled it out with the idea that banks and credit unions are going to want to connect into a single hub regardless of what type of real-time payments or P2P technology they want to use. And so sure enough, we're now live with that platform. We're connected to Zelle. We're very active with the Fed on their FedNow initiative. So we'll connect that into the payments hub. And then we, today, support 67% -- we just did a press release, 67% of the banks and credit unions that are live with real-time payments are running on the Jack Henry platform and are connected through our PayCenter platform. So 67% of all banks and credit unions that are running real-time payments today are running those through the Jack Henry PayCenter platform. So we're really excited about that. But again, it's something that banks and credit unions are focused on as they look to the future and want to enable those real-time and P2P payments options for their customers.

That's great. So you've been really successful with Banno and now you're going after the customers that are noncore customers. And I'm wondering, are you able to move upmarket with Banno at this point?

Yes. So Banno...

So maybe give us like an idea of the time line of like those potential wins with noncore clients.

Sure. So as you know, we've been focused with Banno on our core customer base initially. And the initial release of Banno was focused on the consumer side of the business. So there's consumer and commercial. We've been focused on the consumer side, building this best of breed, and we are recognized, and I know, Rayna, that you've done a lot of research into our Banno platform, we're recognized as having the best digital banking solution out there on the consumer side, but still focused on our core customers. We are rolling out the commercial side what we refer to as Banno business. We're rolling that out now in 2022 thinking that's probably June, July-ish that we'll start to really roll that out. But that will kind of complete the story as far as Banno is concerned, with a complete consumer and commercial deliverable. A lot of really innovative technology included on the commercial side as well, things that nobody else in our space is doing we're including in the -- on the commercial side. And then the next step after that is we will start to roll this out to our noncore customers. And so sometimes people ask, well, why don't you just go blast to the whole world all at once. The idea or the thing to keep in mind is that when you're delivering brand-new technology to your core base, it's easier. The connectivity is easier. The customer already knows us. They want to work closely with us. It's a much easier deployment for us. And we've had so much demand inside the core base that we've been running pretty fast here to deliver that technology inside the core base. But we have thousands of banks and credit unions today that are Jack Henry customers that are not running a Jack Henry core. And so we already have all these customers through our ProfitStars brand that we can go and remarket Banno to as we make the determination that it's time to start selling outside the base. And so we will do that. In fact, we have a number of customers that are non-Jack Henry core customers that are running Banno Mobile because you may recall, originally, we were selling Banno. When we first acquired Banno 7 years ago, it was a mobile banking solution. And so we have a number of non-Jack Henry cores that are running Banno Mobile today without the rest of the digital experience. And so we will definitely go to those customers and upgrade them from Banno Mobile to the complete Banno suite as we start to sell outside the core base. And as I said, that will -- that should happen late in calendar 2022 is when we'll start to get outside the core.

Got it. Let's just talk about inflation for a second. So of course, seeing rising inflation in recent months. Do you see this as a benefit to your business? And do you have CPI clauses in your contracts that could help with pricing next year?

We do have CPI clauses in virtually every contract. Sometimes there are negotiations on that -- well, oftentimes, there are negotiations on that particular topic when it comes to finalizing a contract. So how much can you do per year? But there is the opportunity in most of our contracts to do a CPI accelerator in any given year. The thing that you know us well, Rayna, you know that we're very sensitive to communicating with our customers, setting proper expectations with our customers. And so we were just talking about this yesterday. Actually, I was in a meeting yesterday where we were talking about at what point do we really need to implement CPI accelerators? How will we do that? I would expect that sometime in calendar 2022, we will do that. I would think it would be in our new fiscal year. Again, we're a July 1 to June 30 fiscal year. But we need to be setting expectations with our customers now as things like that start to roll into place. The other thing that -- most anybody today, and certainly anybody running a bank or credit unions is aware that inflation is upon us now. They're certainly aware of wage inflation and the impacts that that has on their business and would have on us. So I think it's a reasonable conversation to be having. But we have been very successful in continuing to grow the business just organically because most of our models now are priced on number of accounts that we're processing, number of transactions we're processing, those types of things. So as those volumes grow, we're already seeing an increase in revenue without a corresponding increase in cost from those customers. And so we're pretty sensitive to the fact that we want to be judicious about when we employ a CPI accelerator and make sure that we're not trying to be overly aggressive in things like that because we already have a lot of pricing opportunity built into the model just based on organic growth of our customers.

Great. So if anyone has any questions for David, feel free to type it into the chat box and I will read them out loud. In the meantime, I'll keep going on with my question list. So David, we often hear about newer cloud-based core providers coming into the market trying to gain share in the U.S. Are you seeing this when you go out to make bids on new contracts? And could you maybe talk a little bit about how Jack Henry's technology compares to some of these newer players out there?

Yes. So I don't know that I can cite a single example. And again, we're back to winning 1 new logo, 1 new core customer a week. That's the pace that we were running at pre-pandemic. We are back to that pace again. So we are far ahead of the rest of the industry as far as winning new core customers, and there's nobody close to winning one a week. So we are having tremendous success. I don't know that I could cite a single example where one of those new entrants was the competitor that we were up against. There are several that have been trying to establish a foothold, either start-ups in the U.S. or international players that are trying to come into the U.S. They've had very limited success. And as I say, I don't know that there's a single example where they're the competitors that we're up against in trying to win a deal because I think they're being very selective about who they try to target as a potential client. I think they are trying to, in most cases, trying to target large -- really large customers in the U.S. And as we all know, core decisions are not made very often when it gets into the large base. So it's a very long sales cycle. But we are paying attention to them closely. We really have our eye on the new entrants, the new start-ups, and the kind of the legacy players that are trying to come into the U.S. from international. And so we don't put our head in the sand and pretend they're not there. We're very active in researching them and trying to make sure that we are positioned to be competitive if somebody starts to look like they're like they're having some success. The good news for us on the technology front -- so we've been continuing to innovate. You know, Rayna that we put 14% of revenue back into R&D every year, well ahead of, on a percentage basis, well ahead of any of our major competitors. And so we feel really good about the innovations that we're delivering and the attention that we're getting for those innovations. And I think that's what -- that's a lot of what's fueling all of this new customer interest in Jack Henry as a core provider. And then, of course, we have this these best-of-breed solutions that we wrap around the core, but we're getting a lot of attention as an outstanding core provider not only because of the terrific core technology that we have, but because we've created this really robust API layer that allows customers who want to work with a fintech to easily connect into our -- into our platforms and leverage the technology that Jack Henry has, the underlying technology to facilitate whatever fintech solutions they have their eye on. So I think we're really well positioned. But again, we don't pretend like there isn't -- that there aren't other threats potentially out there. We're paying attention to those, but I feel really good about how we're positioned today.

Understood. So you recently completed your payments platform migration. Maybe just help us better understand how that benefits your cost base and to what extent it helps you sell more payment processing capabilities.

Yes. This has been a really interesting project. So we announced this, I suppose it's about 5 years ago now. We announced -- we were supporting 2 legacy debit processing platforms. Both had been acquired. Both were getting a little old, but they were -- they served separate markets, one focused on credit unions, one focused on banks. We did not have a credit card offering, no ability to process credit. And we, frankly, were starting to lose customers. Again, this is 5 years ago, 6 years ago, we were losing customers because the technology was aging, and we weren't keeping up, we weren't able to keep up mainframe-based technology. We were spending all of our development resource just keeping up with card mandates and not really able to focus on adding feature function to those platforms. So we made the difficult decision at that time. We need to modernize. And then, of course, you go through the build/buy/partner discussion. Are we going to build something new? Are we going to try to acquire something or do we partner with somebody. We chose the partner path because we could get all of our debit customers onto a single platform and we could offer credit off of that same platform. And so we started that migration and it took 3.5 years. We migrated about 1,000 banks and credit unions, about 20 million customer accounts over the course of 3.5 years to the new platform. And so we completed that migration in March of this year. All customers now on the new platform. Along the way, we didn't lose any customers, and we picked up a little over 100 new customers who hadn't done debit processing with Jack Henry in the past. We signed them because they really liked what we were doing. And so today, now we have this new modern platform. We have this processing engine, best-of-breed processing engine from a third party, but then we layered on top of it this front-end technology from Jack Henry. And of course, it's installed -- sold, supported, installed by Jack Henry personnel. So it's a 100% Jack Henry solution, and we're now winning customers on the debit side and on the credit side because we're able to offer a credit card processing option as well. So it's really been a successful initiative for us. We're very excited about how this positions us for the future with a complete debit and credit offering. One of the things I've stressed in the past was because we were not a credit issuer before, we didn't have the expertise in-house to do credit. We didn't even have a sales team that knew how to sell credit. And it is a very different sale from selling debit. And so we've hired a sales team, we have a sales organization set up now to do those sales, and we had to hire people for back office processing because again, it's a different process, handling credit. And when it comes to fraud and disputes and all those types of things, so we've created that team to handle all the back-office requirements. And so we are now actively selling credit. In fact, I just got an update last week from our sales manager for that team, and he has hundreds of customers now who are now on his prospect list that are looking at moving their Jack Henry credit business or their credit business over to Jack Henry. But with credit, just like debit, people don't move in the middle of a contract. Anybody who's offering debit and credit, they have long-term contracts with some provider. And so they've got to wait for those contracts to time out before they'll move their business over to Jack Henry. But we see a lot of opportunity for us in the coming years to execute on that strategy and bring on new customers to that platform.

Great. All right. So we have 2 questions coming from the audience. I'll read them out loud to keep things interesting. So how long is your First Data contract? Any risk of it not renewing?

Well, I suppose there's always risk, but the First Data contract was in excess of 12 years originally, if I recall correctly. I think they are very committed to that contract. I just caught up with Frank in person last week, Frank, of course, now running Fiserv. It's a wonderful partnership, and I know that's counterintuitive to most people because we compete like cats and dogs most day in almost every part of the business. But in this relationship, it is an outstanding partnership. Very happy with where we are today. I think it's a significant -- I know it's a significant piece of business for them so I can't imagine that they would not want to renew this. And as far as we're concerned, the partnership is working great. Although we have many years now on the contract, the partnership is looking great and I would anticipate that if things continue as they are, there's no reason for us to not continue with that relationship.

Understood. All right, question 2. You mentioned a robust API layer. Can you talk about how Jack Henry monetizes a situation where another financial institution -- where another institution is connecting to your API?

So it's probably not another institution. It would be a fintech probably that would be connecting through the API, right? So we provide the API layer to our customers and then they -- if they have a fintech that they want to work with, the fintech connects through that API layer. Now this is -- this conversation can be counterintuitive for people as well. Jack Henry doesn't seek to monetize that platform. There's no lift for a customer who wants to leverage the API layer, but this is true to who we've been forever at Jack Henry. We have always been very supportive of the idea of providing connectivity so our customers can connect in third-party solutions into their Jack Henry platform. We do not and never have stood up artificial walls, no barriers to try and keep people out and force customers to buy from Jack Henry. And I think that's part of the reason why people do business with Jack Henry and they love the partnership with Jack Henry because we've always had that approach even using legacy technology. So now that we're in the world of APIs, we employ that same philosophy in newer technology but the same philosophy. So the idea is not to try and take a dollar out of their pocket every time they use that API layer. It is instead to create that ecosystem, so customers want to do business with Jack Henry because they know it's going to be easy to connect fintech solutions into the Jack Henry platform. So we're going to continue with that model like we have always done at Jack Henry just with a newer technology approach.

Got it. Okay. So the big question I always get in payments, and you're right in the middle of this, if you're going to have a good answer for me. But are you seeing consumer spending behavior change? Are you seeing more consumers moving away from card-based payments over to paying with ACH?

So the challenge in a question like that right now is the pandemic has thrown all the sticks in the air, trying to figure out what is trending is really difficult right now because prior to the pandemic, we could really read the tea leaves, and we could lay things out over time and really kind of accurately predict what's happening in consumer sentiment and consumer behavior. The pandemic has changed everything, and it's evolving as waves come in the pandemic, right? Suddenly, things are shutting down in some area. And so consumer behavior changes again. So it's really difficult to try and answer that question right now. What I would say we're seeing is in our card businesses, volume continues to increase. And certainly, that is -- that is partly because we're adding new customers to the platform, but also same-store sales growth has continued nicely for us. We are an issuer. We are not a merchant acquirer. We are an issuer. So we're seeing the consumer side of the equation and the volumes that the consumers are putting into the monetary system. So that is not changing in any significant way. The really interesting thing is that our payments business is divided into 3 pieces. There's the card business, there's the bill pay business and then what we refer to as EPS, Enterprise Payment Solutions. It's our remote deposit capture on ACH business. We are the leader in the industry as far as Remote Deposit Capture. We have more institutions, more customers live on our platforms in the banking and credit union space than anybody else. So we really understand that business well. That business, interestingly, on a percentage basis, it is smaller than our card business, but it is growing much faster than any other piece of the payments channel. And so intuitively, you could kind of say, well, yes, something is driving that. So it's got to be consumer behavior, moving more toward ACH. I would say it's a combination of things. It is increased demand for Remote Deposit Capture. And I know who would think we'd be talking about processing checks in 2021, almost 2022, but there is increasing demand out there. And of course, that happens not just when people take a picture of a check with their phone, but when a small business accepts the check and they run it through a scanner at their point of presentment, that business is growing significantly much faster than most payments businesses in our industry. And then the ACH side of the equation is also growing, just the ACH volumes are growing. So if you look at that, you could probably connect the dots and say, yes, that probably points to a change in consumer behavior, but I'm definitely not ready to say that just because the pandemic is -- nothing is normal anymore and trying to trend anything has just been really challenging here. So we need a little time to pass before I think we can pass judgment on something like that.

Fair. So to your point that you're not a merchant acquirer, that brings me to my next question. Two of your competitors are now merchant acquirers, do you want to become a merchant acquirer over time?

No, that is not a strategic objective. And that's an informed decision by the way. So we didn't just flippantly say, "Oh, I don't think we're going to do this." We spent several years prior to the big announcements by our 2 major competitors. We spent several years analyzing that business and trying to figure out, is this a business we want to get into. And if so, why would we do that? And if not, why not? And in fact, we added a board member to the Jack Henry Board, a former CEO of a publicly traded merchant acquiring business, so we could really fully understand this business. The decision we made was that when you get into a business like that, there are a few dynamics that are very different from the business that we are in. Number one, you're serving the merchant. And you can talk all day long about how this business is designed to serve banks and credit unions, but it's really your customer is the merchant. It's not the bank or credit union. We're in the business of serving banks and credit unions. We are not in the business of serving merchants with a card swipe technology. So your customer is different. And so when you think about that, who is the customer, well, the customer is a merchant and those merchants really are -- what they're looking for is the lowest price. So what we observed as we were looking at potential acquisition was there's a tremendous amount of churn in that business because merchants will jump from one provider to another pretty quickly if they can get a lower price. If they can get $0.0025 knocked off the per transaction fee, they'll jump pretty quickly. And it's not about relationship. It's not about customer service. And if you look at Jack Henry, if you know anything about Jack Henry, we are in the business of serving financial institutions. We are high touch. We are known in our industry as offering the best service in the industry, and we need to be true to who we are. And going down that path would really be a major shift in kind of the profile of the company and what we do and where we derive value. So we have made the conscious decision not to go down that path. Now that doesn't mean that we don't serve small businesses. We do a lot with small businesses, but it's through our banks and credit unions. Every time it is through our banks and credit unions, whether it's our Remote Deposit Capture business or business bill pay or we have this partnership and investment in auto books, and that is AP for small businesses, but it's always through the bank. So that allows us to kind of remain true to who we are and remain true to the value proposition that Jack Henry has around outstanding technology and service as opposed to strictly who's offering the lowest price. That's not who we are.

Understood, very clear. So not interested in acquiring, but tell me about the acquisitions you would be interested in. What -- where do you want to expand? What do you want to do next?

Yes. So I referenced AP in the last discussion, that's an emerging area that's really interesting to us. Again, if we work through our banks, credit unions, sometimes there are some credit unions that are working with small business customers, but most of that activity comes through banks. A lot of interest in that because we have platforms that support that type of business already. The challenge in that business is most commercial customers are still very paper check intensive. And so you end up printing a lot of checks when you're in that business today, but we see that evolving. And so that's an area that we're interested in continuing to evolve our enterprise payment solutions platform so that we can continue to serve small, medium business through our banks and credit unions. Lending, online lending technology. So you've seen us in the past few years do a lot of investment in online commercial lending. So we have a wonderful platform today that can compete heads up with anybody in that space to do -- to facilitate commercial lending, but there are always things like that. A lot of what we look at when we look at acquisitions is, where is the technology solution that we can acquire and we can connect to something we already have to create a 1 plus 1 equals 3 type of story. And we've done that many times in the past. And part of the reason that happens is because our suite of technology solutions is pretty robust today. We don't have any major holes in the suite that we offer. So it's more -- the value for us, oftentimes is more looking for things that we can connect to something we already have and create a differentiated story because we have a new -- some new component. So the Geezeo acquisition we did last year, for example, personal financial management technology, really nice platform, interesting on its own. But when you embed that into the Banno experience, now it becomes really interesting. Now it's a real story because it's right there as part of the Banno solution where people can do personal financial management embedded as a single platform that creates a very different story. So it's those types of things that we tend to be looking for. The challenge, of course, and I talk about it on the earnings calls once in a while, the challenge right now has been valuations are crazy, and they continue to be crazy. And we are a disciplined acquirer. We don't chase the shiny object. When valuation gets out of hand, and we feel like it's -- we'd be paying something that we wouldn't be able to explain to our shareholders, we back away from those deals. And particularly in the recent past, private equity seems to be willing to pay anything for anything and they don't seem to have to justify the purchase price to anybody because we've been in large deals where close to $1 billion -- where our bid is close to $1 billion, where we've been outbid by 50% by a PE who just is chasing that shiny object, and we just won't do deals like that. So it's a challenging time right now to finish acquisitions, but we're hopeful that will normalize, and we can get in and do some pretty exciting deals hopefully in the coming year.

Got it. Okay. So you have multiple core solutions. You have SilverLake, Episys, Symitar and 20/20, any opportunity there to consolidate solutions over time and create more efficiencies in the business? Or do you view offering several core system offerings as essential to running the business?

Yes. So I would highlight that as compared to our major competitors, we are way more efficient already. They have multiples of, of core solutions. And we, over time, have done a really nice job. We acquired many cores. In fact, that's how I got to Jack Henry. I was running a core. I was acquired by Jack Henry. But what we've done with almost all of them is, over time, we've end of lifed those other cores and moved them to the platforms that you just highlighted. So today, on the credit union side, Episys is the only core solution that we offer. It is the industry-leading core by a factor of at least 2, we have more credit unions on the Episys platform than anybody else has on any single platform. So we're very focused on that as our core strategy on the credit union side. On the banking side, as you highlight, we offer 3 different banking platforms. Again, most of our competitors have at least 10 -- 8 or 10. So we feel really good about the fact that we have 3 that are kind of targeted at different segments of the market. Is there an opportunity to do a little bit more consolidation? Yes, but that's not going to happen in the next year or 2. There is a lot of time that will pass. But we'll -- we are already logically moving customers to the platform that fits them the best. And I think over time, you'll see maybe a little bit more consolidation, but we're a very efficient model today as compared to anybody else in our space that's a significant competitor to Jack Henry.

Got it. It's really good detail. So for 2022, what would you highlight as your top 3 areas of investments?

Yes. So digital would be first. And that's not just what people think of as mobile banking and Internet banking, digital encompasses a lot of things today. So it includes treasury management, includes the lending platform that I highlighted earlier. There is so much demand out there for digital technology, so many opportunities to modernize platforms that have been -- and I'm not even talking core. I'm just talking about the things that wrap around the core. So much opportunity to modernize platforms that are working well from a variety of different providers, but are not digital first or not modern technology. So we see a lot of opportunity when it comes to digital. We're pouring a lot of investment into our digital platforms. I think the second thing I would highlight would be the payments area. So again, we don't position ourselves as a payments company as our 2 major competitors have done, they made real shifts into really discussing themselves as payments companies. We are a well-rounded financial technology company. We do a lot in payments but we are not a payments company, right? But with that said, we're continuing to focus a lot on the payments space. We -- I highlighted PayCenter earlier. We see a lot of opportunity with our PayCenter platform to continue to expand in that area. I highlighted the fact that our Enterprise Payment Solutions business is growing very rapidly. I'm very happy with what's happening in that business and see a lot of opportunity for enterprise payments. And then the card business because we've completed the migration now, a lot of opportunity there. So I think payments would be the second area because of those things that I highlighted. And then although there are a bunch of others, I've probably got 16 key areas I could list for if you wanted to talk for a couple of hours. But since you asked for 3, the other one that I would emphasize is the core platform. So core is continuing to get a lot of investment. There are a lot of exciting things happening with core. In 2022, you're going to hear me talk a lot more about the really innovative things that we are doing in the core side of our business. We have some really exciting technology that we'll be rolling out, some exciting announcements that we'll be making in 2022 around core. But you don't get to that point, you don't announce it and then start investing. You spend 2, 3 years investing before you announce anything that you're doing. So we're going to talk a lot more about that in 2022, but we're very excited about the things that are happening on the core side of our business at Jack Henry.

Got it. All right. So we do have a few more questions coming from the audience. So also reading those out. Do you run into Q2 in the digital banking space, any share shifts there?

We run into them all the time in the digital space. It's interesting. So we don't -- I shouldn't phrase it that way. We don't run into them in our core base all that often. We run into them when we're working deals outside the core base. So if we have a new core customer, for example, that we're courting, Q2 is regularly in the equation with a prospective new core customer. Q2 doesn't tend to come into the Jack Henry core base, all that often. I mean they're certainly in the base. But they know that we have Banno. They know that that's a pretty tough sell against Banno inside the core base. But we know them well. We like them a lot, by the way. So they're a competitor, but they're another coopetition type story like the First Data reference that I made earlier. There -- we compete with them once in a while, but they're a really good partner. We respect them, we like them. They have a terrific platform. But I think over time, well, today already, the real leaders in that industry and the leaders in the digital banking space are Q2 and our Banno platform, there's no question about that. So we like them. We respect them. We compete against them once in a while, but we also partner with them quite a bit. So we have a good relationship there.

Great. All right. Next question. Are you able to incorporate blockchain technology into your core systems?

So able to and want to would be 2 different questions, I think. We -- a few years ago, when there was a lot of conversation about blockchain, we did a very deep dive on blockchain. In fact, we created an entire platform, and we were moving money between 3 simulated banks and really got to where we understand how blockchain works. And the thing we learned as a result of that is blockchain even still today, and I know there are the blockchain evangelists who will talk about how much more efficient it's going to become in the future. But today, it is not a very efficient technology. It's really slow when it comes to money movement. So what we determined was there are certain areas where blockchain will really make sense. We believe for international money movement, it's a really good use of technology. We believe for real estate transactions, those types of things, it's a good technology. And we are prepared to embed that as that emerges as a standard. We're not going to be -- we're not going to set the standard for things like that. We're going to follow the standard. And so we're prepared to work in that environment and embed that technology as that becomes the standard. But today, that's nowhere close to being the standard. There's lots of people trying to figure out how to introduce blockchain into the U.S. banking system in some manner that has some logical application, but we're not there yet. But when that day comes, we're ready.

Got it. Okay. Can you talk about bank formation and/or consolidation? And how do you think that will impact Jack Henry over the next year? When a client gets acquired, how often do you win?

Yes. So there's a lot in there. So first bank formation. There are de novo banks happening, nowhere near the pace as what we saw back in like 2000, but there are de novo banks happening. I think right before the pandemic, we reported that we had won, I think it was 55% of the de novos that happened the year before the pandemic, they came to Jack Henry. So when you consider there are a whole bunch of options for de novo bank. When Jack Henry is winning 55% of them, that is a really great sign. Pandemic pretty much brought de novo banking to a stop. There have been some now that have happened. We've just won a few here recently. I think we've won 3 or so in the past several months. And so we're well positioned to work with start-up banks. As far as M&A is concerned, M&A has definitely picked up now as people are -- the pandemic certainly isn't over. But as people have figured out how to operate in a world where the pandemic continues, M&A has picked up significantly. I've highlighted on the last earnings call that we are seeing a lot of our customers who are working on acquiring other customers to the point that we have just now added another conversion team on the last earnings call, I said we were looking at adding a team. We have done that now, and we may add another team because there's so much demand among our customers to acquire other customers. We do once in a while, lose a customer to M&A, it happens, but we're generally the winner. It's very many more examples of our customers acquiring customers than one of our customers being acquired away from Jack Henry. And then there are those opportunities, and some people think it's totally counterintuitive, but there are those opportunities when one of our customers is being acquired by somebody else who's running somebody else's technology, and we'll go to the acquirer and say, "Hey, we'd like to convert you as the acquirer to the acquiree's Jack Henry technology." We refer to that as a winner merger and those are hard sells because, again, it's logical that the acquirer would just say, "Hey, the easy button is to use what we use." But it is interesting how often the acquirer will say to us, yes, our relationship is totally broken. Let's take this opportunity to update our technology and go with Jack Henry even though we don't know you guys. We know that the bank we are acquiring, knows you and likes you and so let's have that conversation. So we win those deals once in a while. But again, those are hard sales because the easy button for the acquirer is just to stick with what they've got. They've got a lot of other stuff on their plate as they're merging an acquired bank in. So going through a full core conversion for the acquirer, that's a hard decision, but it would probably surprise you how often that is at least a very serious topic of conversation, if not a winning opportunity for Jack Henry.

Got it. Well, as we get to the last few minutes of our conversation, I'll ask you one final question. What excites you the most about Jack Henry's opportunities going forward? And what concerns you the most?

Yes. Well, there's a lot to be excited about. And if it doesn't -- if you can't tell in my voice, then you're not paying attention because things are really, really exciting for us right now. I mean not only is the company running well, if I look at all the different segments of our business, the company is running really well. Our customer sat is higher than it's ever been. Our employee engagement scores are higher than they've ever been. Glassdoor ratings are great. So as we're looking to recruit new people to come to Jack Henry, the reputation that we have as a company is really outstanding as an employer. And so all of those things are terrific. And then I look at the technology that we've been rolling out, and we've highlighted several of them in the conversation today between PayCenter and the completion of the debit and credit migration project and everything that's happening in digital, including the digital lending technology and treasury management, and we have Banno business coming out in 2022. We have a brand-new fraud solution that I haven't even talked about that we're rolling out in 2022. I mean lots of technology, new technology that we're rolling out. So if you combine all these new opportunities with new technology with customer sat that's really high, employee engagement scores that are really high, the financials, they're functioning well. I mean we're in a really good spot today as far as the company is concerned and the prospects for the future. And we haven't even talked about sales yet today, but sales pipeline is looking really solid as well. So all of that is -- it makes me optimistic. And it's not all sunshine and roses. So we are all well aware that we are in a technology environment where there are bad guys spend all day every day trying to figure out how to get into our customers. with hacking attempts and people trying to get into companies like ours all day long. I'm sure you saw the AWS announcement yesterday of down for 7 hours. So when you have major cloud providers that are down for a very long period of time, that's disruptive to companies like us, it's disruptive to our customers. So all of those things are for any public company CEO today, but particularly if you're in the financial technology space, those are the things that you're always spending your time thinking about and ensuring that we're prepared to work against. But on balance, there is so much positive stuff going on right now that it's pretty fun to be us.

Well, David, it was a pleasure having you today. Thank you for participating. To everyone else, thanks for watching, and have a great day.

Yes. Thank you, Rayna.