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

All right. Good morning, everyone. Thanks for joining us today. My name is Ken Sadowski, and I'm the U.S. payments and fintech analyst at Autonomous Research. We're excited to have Jack Henry here at our 38th Annual Strategic Decisions Conference. And we're thrilled to have David Foss joining us today. David is the CEO and Board Chair of Jack Henry. He has more than 30 years of industry experience in financial services, and he's worked at Jack Henry for more than 20 years. So a tremendous amount of experience, and we look forward to hearing from him today. So David, welcome, and thanks for joining us.

Happy to be here, Ken. Thank you.

And I'd like to thank all of you for attending. It's great to see a lot of familiar faces. Just a few housekeeping items before we get started. If -- we're going to do a fireside chat today. So I'll start it off with some questions. But if any of you have questions, feel free to submit them via the Pigeonhole link provided, and we'll try to weave those into the conversation.

So with that, let's get started. So David, it's certainly been a long 2 years or so since the start of the pandemic with lots of changes in what financial institutions need to offer to clients to succeed. So to start us off, can you walk us through the biggest changes you've seen across your client base and the industry?

Yes, it's been -- certainly been an interesting experience for our customers. So we serve community and regional financial institutions in the United States almost exclusively. That's our customer base. So if you think about U.S.-based community and regional financial institutions, much of what they have depended on in the past was people in their branches, the interaction day-to-day of people in the branch as well, of course, with the pandemic, nobody coming into the branches anymore. So lots of thought then among these customers of ours about how do we do business in a way that we've never done business before where we now have to make sure we're able to offer a complete slate of services to our customers, meaning the bank or credit union customers without interacting with them in any physical setting. That was a major shift for our customers. And then of course, you layer on top of that the fact that they are -- most banks and credit unions didn't have very many people working for the bank or credit union in a remote environment. So they had to go through that shift of enabling their employees to work remote -- and then now how do we serve our customers in essentially a digital-only world. And so they learned a lot in a very short period of time about how to run their business in an entirely different way. The other thing, of course, that happened as a result of that was it accelerated what was already happening around this move to digital. Most banks and credit unions were in this process of figuring out how to enable more digital technology. But the pandemic accelerated that for everybody trying to think of what do we need, how do we deploy the things that we need to serve our customers. Can't buy everything all at once, can't deploy everything all at once, but how do they prioritize those things and those experiences for their customers. So it was pretty amazing, I will say, looking back on it, that all these financial institutions figured it out. A lot of them came to us for help in figuring it out, but they figured it out and really most of them thrived during this period of an intense change in not only how their employees work, but how they serve their customers. So on the back end of this, and of course, the pandemic isn't "over" yet, but on the back end of this, they really have come out, most of them as better organizations, and they're continuing to support remote work for their employees, but many of them now have this real intense focus on digital deployment for a lot of things that they do at the financial institution.

Great. So maybe -- I guess, looking back over the last couple of years, as you look forward, I mean, how do you see financial institutions and your client base overall evolving over the next 3 to 5 years? And maybe you could touch on some of the bigger trends that you kind of spoke to in the last question?

Yes. The focus on digital is just more intense than it was pre-pandemic. So one example that I've used a lot that resonates with most people. Think about whoever you bank with today, most banks and credit unions in the United States, your -- the experience that you have on your phone, if you're banking with them is totally different from the experience you have when you're sitting at your PC or laptop, right? The way things look, the way things function. For most institutions, that's a different experience. What they're all focused on now is how do we get to a consistent single experience for our customers, whether they're commercial customers or consumers. So that's just the digital banking experience that the consumer or small business or business customer has. That is an intense area of focus. How about commercial lending. So most banks and credit unions, and I'll speak banks mostly here because not very many credit unions do commercial lending, but -- most banks historically have done commercial lending, where there's at least part of the experience of signing a commercial loan where the borrower comes into the branch and they sit down across the desk and kind of finish things, okay? Pretty much every bank now is trying to figure out how do we do the complete commercial lending process digitally, where everything is submitted digitally, all the approval happens digitally, maybe even a quick decision engine so you can use AI to do the approval process. So there's that movement that's happening. I've talked a lot on earnings calls about treasury management and this desire among larger commercial businesses to do all their treasury management functions using a digital layer. If you're the CFO of a large commercial business, you don't want to have to go back to your office or to your laptop or PC to approve a wire, for example, you want to be able to do that on your phone. And so that's the additional movement towards digital. And so you just kind of go through that pretty much any service that a bank or a credit union has, they're trying to figure out now what are those things that -- after all the things we learned in the pandemic, what are those things that we really have to go more serious about moving to a digital presentation layer as opposed to expecting anybody to come into the branch for any reason. Layer on top of that what's happening demographically. So when you think about who are the customers of banks and credit units, who has the money today? Well, it's the boomers like me or the Gen Xers, right? Well, as demographic shifts are happening, and that money is moving to the millennials and the Gen Zers like my kids. Those kids, there's no way they want to come into a branch to conduct business, right? They want to do everything through a digital a presentation layer. And bankers are starting to figure that out and see that as well. So there's the demographic shift in addition to all the other things that are -- that have happened as a result of the pandemic. That's really, I think, reprioritize things for a lot of institutions.

Yes, absolutely. And I don't think I've been in a bank branch in 3, 4 years.

There you go. And if you look at my kids, I told the story a lot. My youngest son is 22, he applied for a credit card in -- right before Thanksgiving last year. Went online, applied for the credit card at his bank. He doesn't live with us. He's in college. And about a week later, I got a letter at home that he had been declined for this credit card. But it said it's a clerical error. I forget what wording was, call this number, give this code and we can fix it for you. So I took a picture of it, texted to him, "Hey, you need to call the bank. I'm not calling them. Well, no, just call. It's right there. You call this number. You give them this code. They'll fix it for you. I'll go online. I'll figure it out." And he did. And the credit card showed up about 10 days later, and I called him and I'm like, "So did you call them -- you end up calling them? No, I went online, I figured it out." I mean Gen Ziers, they will not -- they're not going to go to the branch, and they're not going to call somebody. I'll call my friends, but I'm not calling the bank, like seriously? We do this online. So I tell that story to a lot of bankers about this is what's coming. This is what you've got to be prepared for.

I think that's spot on. You mentioned commercial lending. I mean, one question I just thought of is, I mean, 1 company that comes up a lot is Encino because they specialize in that commercial lending offering. So how do you compete with companies like that, that they might focus on 1 or 2 or 3 different products versus you have numerous products out there?

Yes, I won't say that we're best of breed in every single area. But in that particular area, we are -- we have a very, very solid solution. We compete very well against anybody in the industry when we're given the chance. The challenge that we have is sometimes people don't know that we have this industry-leading digital commercial lending solution. So we're not even invited to the dance. But when we're in the deal, we compete very well against anybody in the industry when it comes to digital commercial lending, a very robust solution. By the way, just to tell that story, we acquired 4 little companies about 5, 6 years ago. Because we saw what was happening with the demand for digital commercial lending, OnDeck and CABG were thing back then, right? And so that was a threat to our customers we saw. And so we created a solution essentially at the time to compete with OnDeck and CABG, but it has become this really well-rounded technology solution for -- to serve customers in that area.

Absolutely. So it looks like we've entered a phase of accelerating growth. I think you and the company talked about 8.5% to 9% revenue growth, kind of preliminary guidance for next year. You look at a company like an FIS where they've seen accelerating growth in their banking segment. I mean, can you talk about the sustainability of that growth? Are we going to be sitting here in 3 to 4 years? And we're going to see this kind of high single-digit type of growth? Maybe you could talk a little bit about that.

Yes. I believe it's sustainable for all the reasons we just talked about, all the things coming out of the pandemic, all the demand for new technology. And I didn't even talk by the way, about the demand for things that introduce efficiency into the financial institution. So workflow solutions, AI technology, all those things are on the table these days with our customers because they're looking to advance their presence with their customers. They're looking to introduce efficiency in the financial institution. And so with all of the demand out there, and I said earlier, most banks and credit unions have a mobile banking solution and an Internet banking solution, most of them. And I'm not just talking Jack Henry customers, I'm talking about in the industry. So just that alone, we look at all the desire to bring that together by all these financial institutions. I think that number is sustainable for the foreseeable future. Now what happens with the economy and the impacts later this year or next year, I can't predict that. But even with what's been happening so far, demand has accelerated here for us. I talked about on the last 2 earnings calls. So our December quarter -- our second fiscal quarter, the December quarter, highest sales quarter in the history of the company in December. We followed it up in the March quarter, our fiscal third quarter with by far the strongest fiscal third quarter for us. So it wasn't a record quarter, but it was a record third quarter by 40% over any other third quarter. I mean, sales is really rocking right now, and I think that demand environment is not slowing down at all, despite all the concern and that's happening in the -- as far as the economy in the U.S. today.

No, that's great to hear. Let's dive into one of the more discussed topics, which is the tech modernization strategy, which you guys announced earlier this year. Maybe for those in the audience who are less familiar with that strategy. Maybe you could touch on that from a high level, what that initiative is, how it came about and what you're seeing across your client base that encourage you to invest behind that initiative?

Yes. So I think the -- this will be a long answer. So you can sit back and drink some water here for a little bit. What brought this about is about 5 years ago or so, we -- part of our job at Jack Henry as a provider in our space is to read the tea leaves, try and predict the future, see around corners and what's coming in the future. And so several years ago, we saw that there would be a demand in the future for public cloud core processing solutions. So all the providers today, the major providers, we all have private cloud solutions, very successful suites, Jack Henry, of course, with our flagship solutions on the bank and credit union side. But we saw in the future that there would be demand for public cloud core processing technology. So 5 years ago or so, we started to define what is that going to look like for Jack Henry. Where should we go? And how should we get there? And about 3 years ago, we settled on a strategy that we're really excited about. We started deploying programmers about 2.5 years ago. So we're well into this strategy. The key thing about the strategy is if you think about core solutions historically for any company, I don't care who it is, it is a thing. It's a monolithic thing that performs a whole bunch of different services for the bank or credit union. So it's deposit processing, loan processing, general ledger, wires, all these different things, but it's a product, it's a solution. And again, most of us today host those in a private cloud environment. What we saw as we look to the future was a better solution for customers in the future as we get to public cloud, would be to enable them to break out those components from the core and operate them as discrete components based on their choice as opposed to us deciding this is a product that you should buy. The customer can decide which pieces of that product do I want to buy. And do we want to integrate them in with fintech solutions and create a differentiated experience for my customers. And so we've created this platform now, public cloud platform. We're cloud agnostic. We're up in production today in AWS and Azure and working on Google. So we'll be cloud-agnostic, but it's a platform. And now we're componentizing all the things that we used to think about as a core solution, creating those as discrete components that sit on this public cloud platform with a very robust API connectivity layer. And so now what the customer will be able to do is pick and choose those components from Jack Henry that they want to deploy on this cloud platform. But then if you want some fintech solutions that you want to integrate into that cloud platform, you can do that as well. So it puts a lot more power into the hands of the bank creating -- to create a differentiated experience for their customers. And so nobody else in our space is doing this and everybody tries to kind of escape their language and pretend like it's the same thing. It is not, nobody else in our space is a strategy like this. We're not live yet. So we have customers in beta. We'll start to roll out later this summer, some of the components, but this is a long-term strategy for Jack Henry. And again, I keep emphasizing that. This is a strategy, not a product announcement. But it's to make sure our customers understand where we're going in the future and our investors. Understand where we're going in the future, how are we going to get there? How are we differentiating against our competition? The thing I would also stress is most customers who run a Jack Henry core solution today will not adopt this new strategy in the next 10 years. So there isn't a whole bunch of revenue at risk from our existing customers. We have some that will adopt it, and we know we're attracting new customers to Jack Henry because of this strategy. So it's the forward-thinking customers that are really trying to figure out how do I get to the public cloud. Those are the customers that will employ the strategy in the near term, but our existing very loyal base of customers, not many of them will adopt this in the next 10 years. That's okay. This is a strategy to line out the future for our existing customers, but also to attract new customers to Jack Henry.

Interesting. That's really helpful. David, I guess, in terms of performance for your clients, I mean, what are the kind of the main KPIs where they'd see -- they would see an improvement when adopting the strategy or a new client that comes in and adopts this type of strategy?

Yes. So it'll depend on what they're looking to do. So one example, our digital banking solution Banno is built on this platform. So what we did was we expanded dramatically the platform that we already had for Banno. If you talk to customers today who are running the Banno Digital Banking Platform, they can cite for you very specific numbers about customer growth and customer engagement that they've seen because they're running just our digital banking platform, let alone all the other pieces that we're building out beyond here. So it depends on the customer, it depends on the niche that they're serving. It depends on what their growth objectives are. But in general, I think you'll be able to see them quote new customer traction because of the technology that they're using. They'll be able to quote savings because public cloud, generally, there's a savings opportunity for us and for them when they deploy in the public cloud environment. They'll be able to quote numbers about fintech solutions or new solutions that they can offer through this platform that will maybe attract whether it's high net worth customers they're looking for, whether it's commercial customers with new functionality, they're looking to attract. I mean it enables them to be much more niche focused in their strategies than what they've been able to do with traditional technology solutions.

Okay. Okay. Great. And I think -- I mean client feedback has been encouraging regarding the strategy based on what we've heard and your comments. So we would love to learn a little bit more about your go-to-market versus other players. And you mentioned nobody else in the industry is doing this. You have companies like FIS, which talks about their modern banking platform. You have a company like Fiserv that acquired Finxact earlier this year. So from a high level, what really sets Jack Henry's open banking strategy apart from other players?

Yes. So this is truly a cloud-native solution. So built on the cloud as a platform on the cloud. There is no legacy technology in what we're doing. And I'll let you figure out where anybody, I'm not going to call people out here on stage, but I'll let you figure out whether it's legacy, it's technology and the other solutions. And it's an unbundled core solution as opposed to a core that sits on the public cloud. We've unbundled the core to create this differentiated strategy that nobody else is doing in our space. And so we're already hearing from -- particularly from prospects, even more than existing customers, how different the strategy is, how much more appealing it is to them as compared to what anybody else in our space is doing. And I know I've said it on a couple of earnings calls. We have 1 customer who we took under the covers on this strategy before we announced it in February, and we had some prospects that we were talking to about coming to Jack Henry. They wanted to know what the future looked like with Jack Henry. So with an NDA in place, we took them under the covers before our public announcement, shared with them what we were doing. I think every one of those customers that we talked to or gave that level of detail signed with Jack Henry as a result because they believe that we have a differentiated strategy and a differentiated story. So it's resonating with our customers. Even more importantly, it's resonating with prospects. We're saying -- we're looking at doing business with Jack Henry for the first time. saying you have a truly differentiated strategy here, and it's something that really will support us for many years to come, and they're choosing to do business with our company.

No, that's really interesting. On the existing client side, David, I mean, what -- is there a revenue at risk if an existing client converts over to this new strategy? Do you guys see like is that client less locked in given you are moving to this open kind of componentized type of strategy?

Well, it depends on how you would define locked in. There'll still be long-term contracts. And so -- and might a customer pick and choose. So today, there are, let's say, 30 major pieces in a core solution, might they choose 28? Yes. Might they choose 25? Yes. I mean you've been around long enough to know that when you picked things off a menu as opposed to picking a bundle, you probably pay more when you pick things off the menu. And so is there revenue at risk, I would say, not. We got to get to that point, but we're smart enough to know how to run this business and not put revenue at risk. So we have a model that I think will sustain us very effectively as people start to move to that delivery.

No, absolutely. David one question we get sometimes is just on the CapEx and the expense related to this new strategy. I think it's already been absorbed in the P&L today. I guess the question is, why not push that R&D and CapEx budget above the 14% of sales that you guys talk about? Does that create an opportunity to really accelerate kind of the deployment of the strategy and win in the market faster?

It's possible that we will do that. Our commitment has been that we will stick with 14%. We believe -- well, the model that we built out, and we have a very complete business case as far as what it takes to get this work done. So that whole model that we built out. We know that we can get it done in the time frames that we've defined internally with -- and sticking within that 14% of revenue commitment that we have to R&D. Might there come a time where we might accelerate that or might you see some little waves where we see an opportunity to accelerate because it can get us something completed more quickly. That might happen over the course of the next 3 to 5 years. But right now, I don't see a need to do that, and we're not predicting that right now. But if it does, if we see it coming, we would be very transparent about it, make sure everybody knows what we're doing and why. But we've been at about 14% of revenue for 6 or 7 years now as far as the R&D investment. And as a result, we're being recognized in the industry as being a real thought leader, American Banker, 6 years in a row, has named us a top 50 fintech. None of our major competitors, none that you've named on stage here have ever made that list, and Jack Henry, 6 years in a row, has been recognized by American Banker as a top 50 fintech in the United States. And so we're getting recognized as being a real thought leader and innovator, and we're doing that at 14% of revenue. We believe we can continue with that 14% rate and deliver all the things we've talked about.

Just a reminder, if you have a question for David, feel free to submit those, and we could read those. And I have plenty of left here, but happy to ask your questions if you have them. All right. So David, let's assume it's 2025, and we're sitting here at the Strategic Decisions Conference. And you think about the rollout of the new strategy. I mean what are the 3 most important factors that would allow you to be successful in enrolling this out?

Yes. I think we'll have -- so that's 3 years from today. I think we'll have some customers live at that time with a probably, this is my estimation. We may have more than this, but we'll probably have customers live with a digital-only brand where they'll be running a complete bank, an online bank that they're attracting digital deposit customers. They're probably serving a niche of customers with that digital-only brand. I think that will be -- I think, 3 years from today, we'll have customers that are doing that. That will be a win, as far as I'm concerned. There won't be banks that are running the complete bank within 3 years, I don't believe where it's lending deposits, the whole thing, GL. I don't think we'll have that up and running within 3 years, but I think we'll have digital-only banks. And we'll have a handful of them and we'll have a number of people running discrete components without a complete bank. Those will be -- that will be the win for us is if we have customers that are fully deployed with a digital-only brand online by that time. But as I've said, this is a long-term strategy. It's a long-term rollout. So we don't have any ideas that we're going to have full banks up and running in full production in that period of time. But some digital-only banks, I think that will be a win.

Yes. Okay. I wanted to touch on Banno for a bit because you've had some solid growth there. And I believe Jack Henry is selling that primarily to your core customers. So can you talk about how much opportunity is left with those core customers? And then what does the opportunity look like with non-core customers?

Yes. So when we wrote -- so Banno, first off, our digital banking solution, so think about what you normally think about as mobile banking and Internet banking, a single delivery, public cloud native solution. That's what Banno is. Highest-rated digital banking solution in the App Store. We have about 7.5 million registered users today on that platform. And I don't remember how many banks and credit unions, it's a couple of hundred or something like that banks and credit unions that are live today in production. But tremendous demand for that solution because it is truly a differentiated solution. So one of the -- and everybody says that. So then the next question is, I'll give you an example, what makes you guys better than anybody else. So one of the things that gets a lot of attention is within that platform, we have an offering called Banno Conversations. And so what that does is it enables the consumer. So let's say you've got your phone in your hand and you're looking at something on your deposit account or whatever. There's a transaction there that you would see and you say, "I don't think this is my transaction. What is this?" Well, with any other Internet banking or digital banking provider, you can maybe launch a chat session with the bank, but it's outside of the application. Or you call the bank and say, "Hey, what is this?" Right? But with Banno conversations, it's in the app. So it's authenticated. So it's a secure connection to the financial institution right there in the application, you can launch a little widget and you can grab that little trend that transaction. And you can in the application, say, I don't think this is mine. What is this? The call center agent on the other side, they know who you are. You've already authenticated. They don't have to ask for any ID or any of that kind of stuff because you're in the secure connection with that application. And they can see the transaction because you launched the little widget pointing at whatever that is that you're trying to see. And so you've created a conversation now with somebody at the call center without calling them and without going out to an unsecured connection, so they can share PII with you in that conversation. Banno is the only solution doing that. Nobody else close to what we have offered with Banno, and that's getting a lot of attention in our space as just 1 of the differentiators for our platform. And so it's attracting customers from inside our customer base, certainly to our digital banking platform. We just within our base, we still have hundreds of banks and credit unions. I would bet now we're probably at 600 who are running our legacy solution, where they're not being forced to move, but they're moving because they see this solution as a better solution. So -- and we have a number of hundreds of banks and credit unions that are running a non-Jack Henry solution for Internet banking, mobile banking. So all of those are prospects move over to this new platform. And then later this year, and I've talked about this on the earnings calls, our intent is to roll this out outside the Jack Henry core base. So then we'll go after certain pockets of core customers that we know are unhappy with the offerings that they have, and we're going to target them with the solution as well. So lots of greenfield opportunity for us with this platform because it is a differentiated technology solution.

Right. And just a follow-up on that Banno question. I mean, what type of mobile banking solutions are these core customers and noncore customers using today? Is it...

What type?

Yes. Just what type of solutions are they using? Is it a long list of competitors that you go to market with?

Competing solutions, certainly. Yes, there are a number of players out there. Especially when you think about Internet banking and mobile banking as 2 separate things. There were a lot of companies who spring up with mobile banking solutions that didn't offer Internet banking. There were some companies out there who had Internet banking solutions who added mobile banking after, but they're 2 separate things. And so there are a number of different legacy providers out there that are ripe as far as the opportunity for us to displace them.

Okay. And then just one last question on this topic to make sure we have it. Just the lift in revenue. Can you remind us what you might see going from that legacy solution over to Banno when a customer makes that switch?

Yes. So we don't quote any particular percentage or anything like that, but they pay -- there is definitely a lift in what they pay because with the legacy solutions, they pay to run that solution. It's not a per user type model with legacy, with almost any of the legacy solutions, certainly with ours. When they move to the new solution, they pay on a per user, so you essentially license even though it's a hosted solution. You license to run the platform and then you pay on a per registered user basis as well. And so there is -- it continues to grow because they're adding users as the banker union continues to grow. And so that revenue contribution continues to grow with that model.

I see. And then are there like tiers in that where you get like a discounted price as you add incremental user?

Yes, exactly. As you get to however many thousands of users, there's a tier threshold that they hit. Yes.

Yes. Okay. David, I mean, Jack Henry has been a market share gainer over time. That's one thing we've noticed in our analysis, which shows that your clients see your product offering as being differentiated from competition in one way or another. That said, we've also seen a lot of new solutions come to market and people are talking about headless cores where you're kind of plugging and playing, bringing in the best-of-breed solutions. And there's other competitors that are investing heavily in their banking solutions. So I guess, what do you view as the biggest contributor to your ability to gain market share. And I guess what are you doing on a day-to-day basis to ensure that this trend continues in the future?

Yes. I think there are a variety of things in that answer. So #1, Jack Henry is known as being the most focused provider in our space. And we're not a merchant acquirer. We chose by strategy not to go down that path. We are focused on serving banks and credit unions with outstanding technology solutions. Our customers, our prospects know that. We're very focused on what they do to run their bank or credit union. We have a focused solution strategy. So we don't have solutions at Jack Henry that compete with each other on a regular basis. I mentioned earlier, we have Banno Digital Banking. We have our legacy Internet banking solution and the legacy mobile banking solution and those customers have the opportunity to move to that -- the new solution. But we don't -- as a habit to have solutions that compete with each other, particularly on the core side. So if you're a core customer coming to Jack Henry, you know what we're focused on as far as our strategy, whether you're a bank or credit union, you know where we're putting our investment dollars and you know that we're committed to those things for the long term. That is a differentiator for us. Customer service reputation. So Jack Henry is known in our space. It's a premier provider of customer service. And we report our numbers regularly. There are analysts who follow us who do their own reporting on us and publish reports every year. And every year, they say we can't believe how much higher Jack Henry scores when it comes to customer service as compared to these larger companies. So they assume that the companies that are bigger than us would have better offerings and they don't. Our customer service we're recognized regularly as being the best provider of customer service in the space. And then we have a real firm commitment to relationship. And so oftentimes, when people come to Jack Henry, often with larger institutions when they're looking at making a move to Jack Henry, I'll meet with the CEO or the leadership team personally and they'll say to me, and I'm surprised it often this phrase comes up. Our relationship is broken with our current partner. The relationship is broken. They say that to me all the time, and they know that Jack Henry has this real great reputation for focusing on the relationship with the financial institution and making sure that, that's a solid relationship. And then you layer on top of that, most of the players in our space have done pretty major layoffs during the pandemic. Jack Henry didn't lay off anybody. And so our customers haven't seen a diminishment in service or in the delivery of technology or the people that they're used to doing business with at Jack Henry. And so you kind of roll all those things together, those things matter to customers in our space. And so that's been helping us with this continuation of gaining share in our space. And I've said it many times on the earnings calls, we were running at on the core side of our business, we were running at about 1 new core customer a week that we were signing. So 50 to 55 per year. We were at that pace for 2.5 or 3 years up to the pandemic. During the pandemic, everything stopped. Nobody was making those major core decisions during the pandemic. But then coming out of the pandemic, we've been on that pace again of averaging 1 per week, and it's very lumpy. But if you think in terms of 50 to 55 new logos coming to Jack Henry from a competitor, per year, that's the pace that we're back at. And nobody is anywhere close to that in our space. And it's because of all those things that I outlined earlier, the people want to do business with us.

Yes, absolutely. And just on those core takeaways, David, I mean what's -- if we think about the systems that those banks and credit unions may be running, I mean can you speak to the nature of those systems and -- that you're displacing? And I guess why you're displacing?

Yes, they're all over the board. And so I think there's an assumption that Jack Henry doesn't take customers away from the flagship solutions of our primary competitors, but we do. I mean we're signing them regularly from the flagship solutions. Then if you look at our major competitors, they have a lot of solutions that they don't really market anymore, a lot of core solutions. So it's probably intuitive if you're a bank or a credit union running one of those core solutions that they know isn't really getting a lot of attention, a lot of investment, and they're not selling it anymore. And they look at Jack Henry with a very focused strategy. We're taking -- certainly taking share from those customers that are running those solutions that they don't feel are being taken care of. But that is not the only place we're taking share. We're taking share from flagship solutions from competitors. There are more competitors than a lot of people think. So you tend to think of 2 other than Jack Henry. I was -- I spoke at the ABA conference in January, and they had 13 CEOs of core solutions there speaking, and they had invited -- there was 22 or something like that. I've been in this business a long time. I didn't even know there were 22 providers out there, but there are a lot of smaller players out there. And so we take customers once in a while from some of the smaller players as well, but most of the share gain is among the large players.

That's interesting. I mean our market share charts, I think we showed the top 6 or 7, then you bucket the other category. David, I guess, Jack Hanger has created a foothold in the $1 billion kind of plus asset financial institution space, and you continue to grow there nicely. So can you talk about why you're winning share? How you're able to do that and kind of push up market over time?

Yes. So -- and let's differentiate bank from credit union. So on the credit union side, 49% of the market above $1 billion, they're Jack Henry customers today. So we own 49% of the $1 billion-plus market on the credit union side of the business. On the banking side, I think we're at 27% or something like that 28% of that market. But we're continuing to push up market on the banking side as well. Much of that is because of a real focus that we put on that space. We created a regional banking office a couple of years ago with the idea that we wanted to be more of a player in that space. We have a lot of our existing customers that we're growing into that space, particularly the $10 billion to $30 billion space. They're growing into that space through acquisition. They were coming to us saying, we want to make sure that Jack Henry is going to be our provider for the long term. We don't want to have to leave Jack Henry. So for 5 years or so, we've had a real focus on making sure that we are positioned to serve those customers certainly above $1 billion, but even above $30 billion because we see demand in that space for what we're doing, especially now with the technology modernization announcement that we made in February. So we were already moving upmarket. But now we have those regional banks that have come to us and said, okay, with the strategy that you have, it would appear to us that we can minimize some of our risk because we can start to consume components from Jack Henry as opposed to a big bang conversion, and we like that idea. And so we have some of the larger regional banks now that are approaching us, trying to figure out their long-term strategy road map and how we might play in that road map. And they're kind of testing us out to see are we -- are we going to be able to support them and do what they're looking to do. And so far, it's all been very positive. So it's a calculated move on our part to move upmarket because we see demand, and we are able to serve those customers. We have many customers above $1 billion in assets. Now we serve them well. They're happy with their relationship with Jack Henry. We know how to take care of those customers. And so we see that as a growth opportunity for our company. I will tell you, it's an interesting comment. So the guy who runs our regional banking office. He used to be the CIO of a couple of very large regional banks in the U.S. and his common tagline is, if you're the CIO of a big regional bank, you'd rather retire or die then go through a core conversion. And of course, he's being dramatic, but it's true. You talk to the CIOs of these large regionals and the idea of going through a core conversion just scares the what out of them because they would have to -- it's a big bank conversion with any other provider. And so they love this component of our strategy where they can consume things over time as opposed to having to go through that big bank conversion.

I had a bank describe it to me as having open heart surgery while running a marathon.

That's exactly it. So that's one thing. If you're running a $500 million bank, but if you're running a $30 billion bank, I mean talk about putting your career at risk.

Absolutely. And just one -- you maybe think of a question, David, just on that point of testing Jack Henry, these larger regional banks testing Jack Henry out, can they do -- can they test your offering your solution, your strategy while running their own course. So they kind of run side by side yet?

Not yet. Not yet. But certainly -- I mean, with our traditional core, they can do that. But I see that, that will happen with the tech modernization strategy that we have. They can start to consume components and test those in the public -- on that public cloud delivery if they want to. And I believe that will happen. Yes.

Yes. So does that -- do you see that as lowering the switching cost in this business then over time, if that conversions are maybe a little bit easier today?

For them, I don't -- they still have to go through all the pieces. I think it lowers the risk significantly. I don't know that the cost will drop, but the risk drops significantly.

Got it. Okay. All right. That's really helpful. I wanted to switch to capital allocation because we have about 10 or 11 minutes left. Just 1 question. I mean, clearly, public valuations have come in quite a bit. Some of these names are down 60%, 70%, 80% from the highs. Can you talk about your appetite to do deals in this environment? And I guess how does the company think about really going after some of these deals and acquisitions, just given the macro uncertainty and how that plays into valuation?

For years, we were known as a serial acquirer. Between 2014 and 2015, we did 32 deals, successfully completed 32 deals, looked at hundreds of opportunities. And during the 2 years of the pandemic here, it's been pretty frustrating because we haven't done a single deal at Jack Henry, and that's not like us. But what we experienced during the pandemic and leading up to the pandemic. SPACs were a thing and everybody -- all these companies have their eyes on either a SPAC or an IPO. And certainly, they were happening, and there were companies who probably shouldn't have gone public that did because they could, and they were getting great response and great valuations. PE was seemingly spending anything for anything that would move. And so it was challenging as a strategic to complete a deal during that period because valuations were just out of whack. And we -- I say all the time, we are disciplined in our approach to doing acquisitions. We're a very, very competent acquirer. We know how to integrate deals into our company. We know how to make them successful. We know how to get the sales engine going. We have a sales force that's covering the entire space. And so we know how to get the sales engine started. So I'm always optimistic about getting deals done, but it's been frustrating here in the last couple of years. Now to your point, valuations have dropped significantly. Some of those companies that should not have gone public in the first place, I think that they're struggling to figure out what their story is. And so I've said this many times publicly, I'm very optimistic that 2022, there will be opportunities that will pop. And I think not only are there public companies that might be an opportunity for a takeout, but private companies that were preparing to go public, right? They're on the sideline, watching what was happening in the market, getting themselves ready. And then the Bloombergs -- and now they're sitting there and saying, "Okay, do I do a capital raise? I certainly can't IPO now. So what's my strategy? What's my go forward?" Those, I think, present a great opportunity for Jack Henry to do some acquisitions maybe of nonpublic entities. The challenge with some of the publics right now is -- I talked to a friend of mine recently who described it as the grieving process, right? So you got a public companies, you've seen their valuation drop significantly. You've got shareholders going through the grieving process. They're not ready to admit defeat yet. They're not ready to sell the company, but they're waiting to see where things shake out. I think that's an accurate description. It's certainly what we've observed as we talked to some of these companies. So we'll see. Hopefully, later this year, some of that reality will set in, and that will create opportunities for a company like Jack Henry. Because, again, I believe strongly, we are a very competent acquirer. We're a disciplined acquirer. So we don't chase price. We don't chase the shiny object. But I'm hopeful that we'll find some things that make sense for us.

Yes, absolutely. And your stock has actually held up better than a lot of these other faster-growing names. So is there a -- if you do pursue acquisitions, is there a preference to use the balance sheet, you have a clean balance sheet or use your stock, issue stock to do a deal?

Yes, it will depend on who the target is. Some target is. I mean, many years ago, when I first got to Jack Henry, we would do deals with stock sometimes. And in the past several years, there's been no appetite for stock deals. So it will depend on who the target is and what their interest is. We have an interest in exploring all options when it comes to that. So we'll just have to see what makes sense in those opportunities. But we're not -- we don't take that off the table and say, we would not do a stock deal because we recognize the value of our -- that currency...

That makes sense. And then just to round out the capital allocation discussion. Just in terms of deals, it sounds like you're pretty set. There's a lot of opportunity in the U.S. You're not going to expand internationally right now. So it's more of a -- I guess, if you did acquire something, it would be more of a product type of add-on product build-out.

Probably, yes. So I get that question a lot about international expansion. We used to have an international division based in London. We serve all the major banks, not all, but almost all the major banks in Europe. And in South America. And -- but the point I made to the team at that time was we're kind of a one-trick pony. We're well known in what we do, but we need a strategy for international or else we need to get out of that business. And so we ended up selling that business a few years ago. But it is a topic that we have at the Board strategy meeting every year. Is now the time for us to do an international expansion? If so, what would that look like? And so we have that conversation every year. And kind of the position that we've taken as a board is if something -- if there were an acquisition that were to come along that fits with our strategy, we're definitely not opposed to have an international business. We know how to do international, but it's not a strategic imperative for us. We don't have to go internationally. We have so much opportunity in domestic U.S. to continue to take share, continue to grow and what we're doing today, but it's not a requirement of our strategy, but we're open to that idea. If something comes along that makes sense for us, we're open to that.

Okay. Great. So we have about 5 minutes left. I just want to hit on a few more topics. So David, I guess the question we get a lot around the CFPB, taking a closer look at the core processors, I think you mentioned last earnings call how Jack Henry's differentiated approach really makes it different from the competitors that are out there. And -- so I guess, do you get the sense that the CFPB is going after the bad actors in the industry? Or is it more of a focus on the contracts and the lock that's really preventing these banks from serving their end customers? I'd love to get your perspective.

We're still trying to figure out what the -- where the CFPB is going with this because they've kind of laid out a lot of different initiatives, and this was one of them that the director given a speech to the community. It was the Community Bank and Credit Union Advisory Council. So a very friendly audience to go in and say, "Hey, the oligopoly here we're going to go and take a shot at them." But there hasn't been any follow-up on that. That speech was made about 4 or 5 months ago now, and there hasn't been any follow-up to that, but we're prepared if there is. And the analogy that I used on the earnings call was the ABA kind of went through this, American Bank Association went through this. Similar exercise about 5 years ago, where they categorize the major providers as not acting in the best interest of their customers, and this was the banks, ABA focused on the bank side, not acting in the best into their customers and need to be more transparent and so on and so forth. Well, we got it very heavily engaged with the ABA in that process, make sure they understood how Jack Henry runs our business, how we do things differently. The ABA came back and essentially said, "Yes, you guys at Jack Henry are doing all the right things. You are not the target of this initiative that they had." And so have a very friendly relationship with the ABA today as a result of -- I think we were friendly with them before, but as a result of that exercise, really have a great relationship with the ABA. I'm confident that if the CFPB decides to explore this and wants to work with Jack Henry on understanding how we conduct our business. I'm confident we can get through that exercise and they'll come out the other end with the same opinion that the ABA did saying Jack Henry is doing the right thing for our customers as much as possible. And a lot of that comes to open connectivity, for example. Jack Henry, we're very willing to be open to customers connecting into our solutions. We have a very transparent strategy about that and we do it all the time with customers. We're unique in our space of the major players in that regard and that we make it really easy for people to connect in. I've told the story many times, if you come to a Jack Henry Client Conference, we host our major conference every fall. You walk into the technology showcase at our client conference. There are hundreds of vendors in there. Jack Henry has the middle spot, but there are booths, hundreds and hundreds of vendors in there. Maybe 5 of them are Jack Henry partners. All the rest of them are Jack Henry competitors. We don't allow core competitors in, but other than that, everybody else that's there is a competitor to Jack Henry. And people say, well, and prospects come to our conference and they're like, "Oh, my gosh, why would you do this?" Because we really believe in helping our customers succeed. And if you believe in that, you should give them the opportunity to look at what's out there in the market. Hopefully, they'll choose Jack Henry solutions, but we create that opportunity for them. I don't think anybody at the CFPB has any idea of how far we go to try and be an ethical player in our space and try to really help our customers succeed. And we've done that for years. That wasn't my idea to do that. That was Jack Henry. When Jack Henry was alive and he was running this company, he's the one who started that, and we've just perpetuated that for the last 20 years.

Yes. Absolutely. We look forward to seeing how that plays out. David, I guess 1 last question or maybe 2 if we have time. Neobanks have gained a lot of traction in the market. Maybe that was a function of low interest rates, a lot of money being thrown at them to acquire customers. But how are you and the team thinking about neobanks? Is that a threat to your customers? Or do you see it as an opportunity to maybe serve them in some capacity?

Yes, it's an interesting topic because everybody assumes it's a threat to our customers. But who's the neobanks attract? What's the attraction of going to a neo? The attraction is free, right? People go to those -- to the neos because everything is free. How is the neo making money? Off of interchange because of the loophole in Doff-Frank. So first off, does that loophole get closed? The whole initiative to close that loophole kind of stopped here during the pandemic and whether or not anything gets done in Congress these days, who knows? But does that loophole get closed? What does that do to their business model. We'll have to wait and see. The other thing is free only gets you so far as far as profitability of your customers. And so they have been -- they're perceived as a threat to our customers. But the consumers they've taken away from our customers have been those consumers who are looking for free. Our customers really weren't making money off of those customers anyway. So is that really a threat? So you haven't seen any measurable impact to our customers as far as their profitability or any of that kind of stuff as a result of the neos. So the second half of your question, are the neos a potential customer for Jack Henry unlikely because the neos depend on a bank underneath them to function. And so that bank might be a prospect for Jack Henry, but the neo itself isn't necessarily a prospect for Jack Henry. And so nothing that we're focused on as a great opportunity for our company.

Yes. Okay. Great. Well, I think we'll have to leave it there because I see the clock winding down to 0. So David, thanks so much for joining us. That was a great conversation. It's been an absolute pleasure, and thank you to the investors and everyone attending this session. So have a great day. I hope you enjoy the conference.

Right. Thank you.