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

Good afternoon, and thank you for joining us today. My name is Chuck Nabhan. I cover the fintech and payment space here at Stephens. Joining me today from Jack Henry is CEO, David Foss. For those not familiar with the story, Jack Henry has been around since 1976, and they are a provider of technology solutions for the bank and credit union space. So David, thank you for joining us today.

Certainly.

Just going to dive right in. So I think one topic that's top of mind for a lot of investors, given the macro environment, is bank IT budgets and how they're thinking about spending over the next year or 2. So just as a starting point, if you could maybe touch on that as well as any areas of priority or deemphasis, as banks are thinking about budgets for next year.

Sure. Okay. So one of the things that I'd like to do when I can is highlight on our earnings calls, objective reporting that we get about bank spending expectations. Normally, the one that I would share on the November call is from a source called Bank Director. So Bank Director does a survey every year of their subscribers. These are all bank CEOs and directors of banks. And normally, one of the questions they talk about in that survey is what their expectations are as far as bank spending increases for the coming year. This year, Bank Director just didn't choose that -- choose to include that question. They included a number of other questions. So I don't have -- the next survey that will come out in December will be the one that I'll cite on the February call, that's from another source. So I'll try to share objective information as soon as I get it with any of you who are interested. So everything I have is subjective. I talk to a lot of bankers. I just hosted last month, a CEO Forum in San Diego. We had over 200 CEOs there from kind of mid-sized banks and credit unions. And so lots of conversations about expectation, but I'll just disclose that this is all anecdotal as opposed to being survey driven. The good news, as far as I'm concerned, is most of the CEOs that I'm talking to are generally pretty optimistic right now. They're -- I think they feel like they are well capitalized. So first off, what we're going through right now, as far as the economic challenges, not driven by the banking industry. So those of you who lived through the Great Recession here, 2007, 2008, that was 100% driven by the banking industry and banks suffered. There was lots of bank closures and lots of angst among the banks at that time. This, what we're going through right now, is definitely not driven by the banking environment. Most banks are much better capitalized than they were at that time. They've got their lending practices that they've refined over the past several years, so they don't feel like they have risky credits on the balance sheet. They're not expecting to take a whole bunch of losses with writing off loans or anything like that. And so they're generally pretty upbeat. Of course, in the past several months now, interest rates have been rising. So what have they done? They've quickly risen the rates on loans, have very slowly been increasing the rates on deposits, and you've all seen that, of course. And so they've been operating with a nice net interest margin spread for several months now that they haven't had for years. And so when you talk to bankers, they realize that they're kind of making hay right now. They've got this big spread, but they also realize they're going to have to raise deposit rates. And that net interest margin is going to shrink back down again. Okay, when it gets back down to this, well, that's what they've been living with for the past 5 years. They know how to run their business profitably in an environment where they have a very skinny net interest margin spread. And so I think they generally feel like, "Okay, we're going to get back to that. We know how to do that. We'll kind of weather this storm, and we'll be okay on the other side." I don't hear bankers talking about selling their bank or anything like that. And in fact, I met yesterday with the CEO of the largest bank M&A firm in the country. So they lead bank M&A. He and I had lunch together yesterday. I asked him what he's saying. He said, "Yes, M&A has slowed. We don't -- bank stocks have taken a hit. Most bankers are not feeling like now is the time to sell their bank. They think they're just going to weather this and see what happens on the other end." And so his expectation is that bank M&A will pick up again on the other side. And so with all of that as kind of a backdrop, what we're seeing at Jack Henry, our RFP pipeline right now, today, is larger than it's ever been in the history of our company, significantly larger than it's ever been. And so that's a good indicator to me that bankers are continuing to look for technology solutions. They're continuing to talk to Jack Henry about possibly implementing new solutions. And as far as our -- the close rate that we've seen, the new deals that we're signing, we haven't seen any kind of a slowdown in any of that activity either. So I think reading all those tea leaves and kind of listening to people and talking to people, the environment, as we see it today, is really pretty strong. Now what continues to transpire as far as the economy is concerned, I can't project that. But when we've seen major economic changes in the past, you sometimes will see a shift in what they want to spend money on. So as opposed to things that are focused on serving their customers in a different way, they will maybe shift to things that drive more efficiency in the organization. So workflow solutions, automated account opening, those types of things. So sometimes they shift their priorities, but as we've seen in prior economic slowdowns, they don't just stop spending money. They continue to spend maybe on different things, but I don't see any significant slowdown coming as far as we're concerned.

So you alluded to a pickup in RFP activity. And just starting with the core market, which has historically been pretty sticky but you've managed to recorded a number of competitive takeaways over the past few years and months as well, how does Jack Henry differentiate? And when you win those deals, what are you hearing from your customers in terms of why they come to you?

Yes. There are several different things that are differentiators for us. First off, we differentiate on technology. So everybody says their technology is great. But the thing that we really stress is, we have a very focused technology strategy. So for example, if you are a credit union and you're looking to change your core, and we're specifically talking about core right now. If you're looking to change your core, at Jack Henry, we sell 1 credit union solution, one. It's the most widely installed credit union solution in the country, most successful credit union solution in the country. So if you are looking to do business with Jack Henry, you know that we are going to sell you this solution, and you know we are putting all of our R&D dollars against that solution to make sure that it is the most competitive solution in market. On the banking side, we offer 3 solutions targeted at different markets. Again, you know that if you're a $2 billion bank, we are going to sell you SilverLake, period, end of story. We are putting our R&D dollars for that type of customer against SilverLake, and we're focused on that as being the best solution in the industry. Our major competitors have a wide variety of cores that they've acquired over the years and haven't -- according to what customers tell me, they're not investing, in their eyes, appropriately into those cores. And I can understand why because they're trying to spread the peanut butter, spread their investment dollars across a whole bunch of different cores as opposed to the really focused strategy that we have at Jack Henry. So that tends to help us win when it comes to just the technology conversation with these customers. Then you add on to that service. So Jack Henry is recognized in our space as being the best provider of customer service. That's not just me saying that. There are third parties who do those surveys and publish the results. And there's one that I always get a kick out of. He publishes his results normally in January, February. And he says, "I don't know what's going on at Jack Henry, but they're just way above everybody else when it comes to customer service." That is a competitive differentiator for us. We know that it's a differentiator. We're very focused on customer service as a differentiator. And so I think the service reputation that we have helps as well. We're in a reference-selling business, and so we have a lot of customers who will refer Jack Henry to their friends and tell them what it's like doing business with Jack Henry. That helps when it comes to grabbing new core customers, the fact that our existing customers are still willing to refer business for us. And then kind of the last piece of this equation, and it's a fluffy kind of a topic, but it is absolutely real. I can't tell you how many times I've met with the CEO of a prospect bank or credit union, so somebody who's not doing business with us today. And they will say to me, "Our relationship with our existing provider is broken. They don't care about us anymore." Why do they say that? Well, particularly if you look at our 2 largest competitors, they've made these major shifts toward merchant acquiring. We, by strategy, chose not to go in that direction, but they've shifted to merchant acquiring. So they're at the point today where 60% or 70% of their revenue comes from that business, which is not serving banks or credit unions, by the way. And so banks or credit unions say, "They're not paying attention to us anymore. We don't have a relationship anymore. And we're looking for a provider that will really treat us as a partner and will serve us as a partner." So when you roll all those things together, and of course, it's all wrapped up in the reputation Jack Henry has for being focused on domestic U.S.-based banks and credit unions in that middle tier and regional bank space, that helps us take share regularly. It helps us win deals really consistently.

Got it. So staying with core, the modularization of the core has been a theme for not just you, but your peers over the past few quarters and was certainly a topic during the Analyst Day earlier in the year. Could you talk about what that means as well as some of the investments you've made towards being best-in-breed in various components of the core?

Sure. Yes. So I would say that I don't know of any of our major competitors that are doing modularization like Jack Henry is doing. They're trying to figure out how to catch up to what we're doing. They're all talking about trying to get to the public cloud. So that is a consistency, but there's nobody taking the modular approach that Jack Henry has done as far as the major players in our space. And what we're doing is, we've set out the strategy. I described it all in February of this past year. And also I've been talking at lots of different conferences, whether it's investor conferences or bank and credit union conferences about the concepts behind this. The idea is, if you think about what a core system is, so we talk about the core and I realize sometimes people don't exactly know what that means. In our space, a core system is that primary accounting system for the banker or credit union that's processing loans, deposits and general ledger. So it's a single solution that's accruing interest and creating information for notices and statements and all that kind of stuff. It's that heart and soul of accounting system for a bank or credit union. And historically, core systems have been sold as a package in the United States. So you buy a core, you get loans, deposits and GL. If you want digital banking or check processing, those are separate things that you buy, but the core is this one thing that does loans, deposits and general ledger. And it's made up of, and we can debate this all day long, about 30 primary functions within the core. So at Jack Henry, as we were looking to the strategy of moving to the public cloud, one of the things we decided to do was to unbundle the core. Take those 30 or 35 kind of key functions of the core and think of those as components or modules instead of just being part of a big thing. And so we started, about 2.5, 3 years ago now, breaking those components apart, rewriting them on the public cloud as components. So our customers in the future will be able to pick and choose which of those functions they want from Jack Henry, bundle them together on a public cloud platform along with our complementary solutions like our digital banking solution, like the payrolls acquisition we just did for payment processing and so on. They can bundle these things together on a public cloud. And then if they want to insert into the equation a fintech solution through an API connection, also on the public cloud, they can do that. Because we believe in the future that, that's the future of bank technology is public cloud native solutions that are more componentized so that the bank or credit union can choose the pieces that they need in order to serve their customers most effectively. And so we've been talking about this strategy. We've created a lot of interest in Jack Henry. One of the, I guess, unintended consequences or unintended benefits of this strategy is we have some of the large regional banks talking to Jack Henry now who, 5 years ago, never would have called us because they perceived us as serving the smaller regionals and community banks and credit unions. Today, we have larger regional banks that are calling us as potential prospects saying, "Okay, what you guys are doing is different from anybody else. It's exactly what we've been trying to figure out, how do we get to the public cloud? We want to talk to Jack Henry about potentially helping us." So it's been a really exciting initiative for us. As you may be able to tell, I'm very passionate about it. By the way, my background is in technology. I'm not a finance guy. I didn't grow up that way. I grew up as a technologist. And so the innovative things the teams are doing today is really, really exciting, I think, as far as positioning us to serve our customers more effectively and position them to serve their customers more effectively as we look out into the future.

Great. So we'll switch to some financial questions.

Let's do that, yes. Mimi -- by the way, yes, I should have made an introduction. So just so you all know in the room. So Mimi Carsley is sitting in the middle here. Mimi is our new CFO. So our former CFO -- I shouldn't say old CFO -- our former CFO, Kevin, retired just recently. So Mimi is our CFO as of September 1. And then next to Mimi is Vance Sherard. Vance is Vice President of Investor Relations for Jack Henry. So all of us would be happy to talk to you if any of you want to talk further.

Terrific. Well, getting back to technology, Banno. Banno Digital Suite has been a business that's grown quite rapidly since the acquisition. Can you talk a little bit about that as well as the Banno Business Offering that's, I believe, coming out next year?

Yes, early Q1. Yes. So for those of you, I want to assume that everybody in the room knows what Banno is or has ever even heard the name Banno. Banno is our digital banking suite. So we -- Banno originated with an acquisition almost 8 years ago now. We acquired a little tiny company in Cedar Falls, Iowa, by the way, a little tiny company. The reason we acquired them was because they were doing things as far as digital banking that nobody else in the industry were doing. And we saw this as kind of the beginnings of our public cloud native strategy. So we acquired them, and we built out this solution. So today, we have the retail side of the solution in market. We've been in the market for about 2.5 years, as Chuck alluded to. The business side is coming out here in early Q1. So what we have with Banno Digital Banking is a public cloud native platform with all the -- so think about any app that you have on your iPhone, right? All the really cool look and feel, usability functions, that's what we have with this public cloud native digital banking solution called Banno. It's unique in its functionality as compared to anybody else in the industry. We're adding customers rapidly. So I reported on the call, we just signed 60 more customers in the quarter. We're adding about 200,000 consumers a month -- I'm sorry, a quarter onto the platform today and continuing to build that side of the business. What's coming out in the next quarter here is Banno Business. So this is the business side of that equation. So if you're running a small/medium business, we have a treasury management platform for large commercial businesses. So Banno Business is not designed to serve those customers. Their needs are much more sophisticated. But for a small/medium business, think about a cash management solution as opposed to treasury management, that's what Banno Business does. It's a platform designed for business -- small/medium business customers. We have around 160 customers already signed for that platform even though we're not in market. We have -- we know we have a number of customers waiting for us to get that out in production. They've already told us, when you have that in production, we want to buy both Banno Retail and Banno Business together. So we think this creates a whole new opportunity for Jack Henry to grow that side of our business. It's a business that is priced similar to, if you're familiar with any of the other players who are pure players in the digital banking space, priced with a similar model where it's per user, so per consumer today, right, number of users that are on the platform. They pay x per month per user. And then, of course, Jack Henry is hosting that for them. As I said before, public cloud native. So this is something -- and it's a SaaS solution, multi-tenant, of course, designed for our customer base to leverage, to attract and retain their customers. I will tell you one quick story just to tell you the impact that this solution is having on customers. I was speaking at another conference like this. I was up on stage for the fireside, just like we're doing here. And on stage, the room was full. There were probably 60 or 80 people in that room. And in the front row, there was a guy sitting right in front me. And I was like, man, he looks very familiar. But I know a lot of you folks. And so I was thinking, oh, it's some investor that I met with before, and he was just clicking. So I'm answering questions just like I'm doing here. When we got done, I had a couple of investors stood up and wanted to talk to me about Banno. And the guy in the front row stood up and said, "Hey, Dave, Mike, it's good to see you." Well, Mike is the CEO of a $5 billion bank in Pennsylvania. He's a customer of ours. I'm not -- still not exactly sure why he was in the room, but he was. And he stood up and he said, "Hey, Dave, good to see you." And he immediately turned to these investors and said, "Let me tell you guys what this solution has done for my bank." And he went on to tell them all about how he's revolutionized the way he serves his customers through this digital platform because the Jack Henry Banno solution has things nobody else in the market has. And so as far as he was concerned, he's able to not only retain customers, but attract new customers because of the functionality he's able to offer them through this platform. The reason this is so important, as far as I'm concerned, I use this chart once in a while. Any of you who watched our shareholder meeting on Tuesday, I used this chart in the shareholder meeting. It's a simple little chart that I use all the time. Think about the demographic groups. So there's baby boomers, there's Xers, there's millennials and there are Zers, right? Think about who has all the money? So if you think about the Xers over here is who has all the money, it's the boomers who have all the money today. Who is the most technology adept? It's the Zers. What's happening with all that wealth that the boomers have? It's moving in this direction. It's moving from boomers to Zers, to millennials, to -- I mean, sorry, to boomers to Xers, to millennials. to Zers. Who's starting all these new businesses these days? It's the millennials. So all this money is moving in this direction, but those people aren't walking into a branch anymore, right? Those people, the Zers, they don't go to a branch. They expect to do all their banking through that digital presentation layer. They want to use their phone. They're not even going to call the branch. They want to be able to do everything through that phone. So it's vitally important that banks start to move in a direction like Banno so they can serve those customers that are going to be their primary customers in the future. So we're really passionate about this as a strategy for bankers to be successful in the future.

So you might have touched on this already, but if we could drill into some of the functionality that you feel is differentiated within Banno, could you talk about that specifically a little bit?

Sure. Yes. So one of the key things that people talk about all the time is this concept or this feature that we call Banno Conversations. So think about whatever digital experience you have today. So first off, chances are, whoever you bank with today, you probably have a different experience when you're on your laptop as compared to when you're on your phone. There are things you can do when you're logged on your laptop that you probably can't do on your phone. It looks different on your laptop than it does on your phone. Most banks and credit unions have that experience. With Banno, it's a consistent single platform. So I don't care if you're on your PC, a tablet or your phone, you have the same functionality, the same look and feel that you have regardless of form factor. That's a big deal to users that are trying to do all their banking through a digital presentation layer. Another thing that's key for us is this feature that we call Banno Conversations. So with Banno Conversations, what this allows is for the customer to have an interaction with an employee of the bank, probably in the call center, through the digital presentation layer. Without phoning, without texting, without driving to the branch, I can have an interaction with somebody at the bank directly without the need to call them or go to the branch. And the important thing about that feature is, you're already authenticated. We know who you are. You don't have to tell me your social security number or some password. I know who you are. And the employee of the bank or credit union can share confidential information with you through that channel because you're already authenticated. So think about it as chat, but it's chat on steroids because it's all banking information, and you're authenticated so you can do private transactional -- transactions through that channel. Additionally, as a byproduct for that, let's say that I am -- I've just pulled up transactions on my DDA account, and there's a transaction here that I don't think is mine. What is this? There's a widget where I can just click on that. And so now when I interact with somebody in the call center, they don't have to say, well, what transaction are you talking about? It's displayed to them on their screen. They see exactly what I see on my screen, and they can -- using AI and bots, they can run some research and get back to that customer. So they can have a direct conversation, a direct interaction with that customer through this secure channel just as though the person drove up to the branch, but they're doing it using technology. Nobody in the industry is doing this. Nobody is close to doing what we're doing at Jack Henry, and it really creates that service connection between the customer and the bank or credit union that they used to have when people walked into the branch, but now they can do it through a digital layer. We've done that already on the consumer side. It's an absolutely unique function that's included in Banno Business that people are excited about. So those are just a few examples of things that we're doing that are totally differentiated that really have created a better experience for our banks' customers as they interact with the bank or credit union.

Yes, that's great. So I want to stay with Complementary, which -- the Complementary segment, which for those not aware, includes everything that's not core or payments, which I will get to you shortly. Specifically, digital lending and fraud are a couple of areas that have been in demand from financial institutions. Could you talk about your offerings in those areas and what you're seeing from a demand standpoint?

Yes. So I'll start with digital lending. That's an interesting one because as you may or may not know, most CEOs of most banks grew up as commercial lenders, right? That's how they came through the business. Most commercial lenders have relatively antiquated processes regarding how they originate commercial loans. They have this kind of approach that's oftentimes pretty manual, oftentimes pretty relationship based. But there is a need in the industry to kind of revolutionize the way they originate commercial loans because, again, back to the point I made earlier, people don't want to drive into the branch anymore to sit down with a friendly loan officer to do a loan. They want to be able to do things through a digital presentation. And so we -- starting about, I don't know, 6 years ago or so, we acquired 4 little companies in this space, put them all together and have created this really robust end-to-end digital commercial lending platform. So today -- and we have a number of banks in production today. Today, you can originate a loan completely using a digital presentation layer. The borrower submits all their tax returns and all their forms and everything using that digital presentation. We have an automated underwriting engine. So if the bank wants to use it, and that's the bank's choice, if they want to use automated underwriting, we can go through the underwriting process and return the underwriting results. As the loan gets booked, then now we have all the requirements on an annual basis to get financial disclosures and all that kind of stuff. It manages the life of the loan. It's not processing the loan, meaning accruing interest and so on. That happens in the core, but all the other pieces of managing the life of that commercial loan, we can do through this platform. Now I'll tell you, the original idea for this came when OnDeck and Kabbage were first coming out. So this is several years ago. We viewed them as a threat to our customers. If a commercial borrower is going to go using a digital presentation direct to somebody who is not a bank, OnDeck or Kabbage, to get their commercial loan, that's a threat to our customers. Not a threat to Jack Henry, but a threat to our customers. So our idea at the time was we need to create something that will help our customers compete in the event that one of their borrowers want to borrow money that way. So today, it's been a very successful solution for us. It is not branded separately. It's the Jack Henry online digital commercial lending solution. So you don't see us in market as a separate brand, but it's something that is very successful. And by the way, we sell both to our core customers and to noncore customers. Second half of your question around the rest of the Complementary group was...

Fraud.

Fraud, yes. So just in September, I guess, a couple of months ago, we announced a new solution called Financial Crimes Defender. And this is a ground-up, brand-new fraud solution around transactional fraud. We've had a solution in market for many years, I'll bet you, at least 15 years, called Yellow Hammer. Yellow Hammer widely installed, hundreds of banks and credit unions use it, very successful. But what we realized was there's nobody who's created a truly new fraud solution using the public cloud technology. There's nobody that's created a new fraud solution in many years. And so we decided to create a new solution just because of all the things that are happening in fraud today. So we've been working on that for a couple of years now. Just announced it, we'll roll it out in Q1, but this is for the bank to run against transactions that are coming through the bank. So this isn't something that goes direct to consumer. We're not in that business where we sell things direct-to-consumer. This is a solution that we sell to the bank or credit union. So as transactions are coming through the back office of the bank or credit union, we're running them through this fraud engine with very sophisticated fraud detection capabilities. So we're excited about the opportunity that, that creates. The bad news is, fraud just keeps getting worse and worse. The good news for Jack Henry is, that creates an opportunity for us to sell a solution like this. And there's a tremendous demand in the industry for something like this. It is not dependent on our core systems. So it's something that we can sell to core and noncore customers, just like we do with many other things at Jack Henry.

Got it. So just switching gears to payments. You recently completed an acquisition called Payrailz. Can you talk about that and the solutions it's bringing to your company?

Yes. So Payrailz is an interesting company. They were a start-up -- I'm not exactly sure how many years ago, 4, 5 years ago, something like that. We -- they caught our attention about 3 or 3.5 years ago because, a, they were creating this platform on the public cloud. So we're -- as I've talked about, we're trying to move everything we do to the public cloud. So that was intriguing to us. The fact that they created a payments platform as opposed to a single solution was intriguing to us. And we knew some of the folks that were involved in building that business, and we knew they were credible. So we started following them a few years ago. As Chuck mentioned, we just completed the acquisition 2 months ago or something like that. So what we have today now after the Payrailz acquisition is a public cloud native payments platform, so it fits from a strategy point of view with everything else we're doing. It's a platform, not a single product. So on this platform, there's a bill pay solution. So it offers us the opportunity to modernize bill pay. We have a very popular bill pay platform today at Jack Henry. We serve about 3,000 banks and credit unions. So we're a major player in the bill pay business, but it's been around for 15 years or something like that. So we were facing essentially a rewrite on that platform. And so by making this acquisition, we have a terrific bill pay platform that we can start to migrate our customers to over time and take care of that need for them to kind of upgrade the overall technology experience. But beyond bill pay, we have account-to-account transfer functionality within this platform. So if you have a variety of accounts at a variety of different institutions, you want to move money back and forth between those accounts, that's included in this single experience. We have a P2P platform, which can stand alone, by the way. So if the customer doesn't want to buy all the other pieces, they just want to buy P2P as a stand-alone solution, we have the ability to deliver P2P to them. It's a solution that allows transactions to flow that are not in network, meaning, I don't have to -- you and I don't have to bank at the same bank in order to send P2P transactions to each other, we can send them to any bank. It does not flow through PayPal, like Venmo does, right? So Venmo disintermediates the bank because the transaction, the money is flowing through PayPal. That's not what this is. And it offers us, as Jack Henry, the opportunity to monetize those transactions as opposed to things that are flowing through PayPal as an example. So it's a very competitive P2P solution, good for Jack Henry because it's creating a new revenue flow opportunity. Then the last thing on this platform is a B2B payments component, so electronic B2B payments. And I've said in many forums over the past few years now that as far as I'm concerned, when people like Chuck ask me, so where is the business you'd like to be in? The answer that I've given repeatedly is B2B payments, electronic B2B payments. Why do I say that? Because I think there is -- I know there's been this big move toward commercial businesses positioning themselves to accept electronic transactions. Most commercial businesses today don't accept electronic transactions. They require the paper check to come for them to reconcile those transactions in their ERP system. But there is a shift happening out there. And so the reason I've talked about B2B in the past is, when that shift happens, when we reach that inflection point where there are more electronic transactions and less paper check transactions, we want to be there to work through our banks to serve those businesses with electronic transaction origination and receiving those transactions. And so we see this -- there's not a ton of demand today, but we see the demand coming, and this provides us with that platform that we can build on to serve customers in the future. So it allows us to -- when you add all those things together, we have a payments platform that facilitates that Payments-as-a-Service approach for those customers that want to offer a Payments-as-a-Service solution. But individually, each of those products provides growth opportunity for us as a technology provider to financial institutions.

And it's worth noting, I think you mentioned this earlier, David, that the P2P platform is called Chuck, just to name.

No, no. So the platform that Payrailz owns is not called Chuck. There is a group of banks that got together and created a solution called Chuck, you are correct.

Okay.

But that is -- that's -- we -- Payrailz is the underlying technology. They created the brand. They own the brand. So we didn't get the brand -- as attractive as the brand is...

Right.

We didn't get it. But we have all the technology underneath that facilitates those transactions.

Got it. I appreciate that clarification. So just in terms of your go-to-market for Payrailz, is the initial strategy to target your existing core base or to go outside of that? Can you give us some color around that?

Yes, the initial strategy is not just to go to our core customers and try to move them over. That will happen over time. And by the way, we've done this before. So we had -- years ago, we had a solution called NetTeller to bill pay. When we acquired iPay, we worked it out. All those customers transitioned over to iPay. And so we've been down this path before over the past 20 years. We know how to execute on that. The real opportunity is to sign new customers to this Payments-as-a-Service platform. The other thing I didn't mention is -- you're aware, we rolled out PayCenter a couple of years ago. So PayCenter is -- the concept behind PayCenter was for it to be a hub to accept real-time payments from various sources, so from the clearinghouse -- real-time payments from the clearinghouse, from the Fed. Whoever is originating real-time payments, we have this solution called PayCenter that allows the bank or credit union to connect once into PayCenter and then they can connect out of PayCenter to whatever real-time payments engine they want. Well, Payrailz will also be connected into PayCenter. And so it just kind of rounds out the rest of that story for people who are looking to do the things that we have on that platform or real-time payments. So the primary impetus will be to sell to non-Jack Henry bill pay customers, for example, and create new revenue for Jack Henry. But along the way, we'll be moving existing customers over to that new platform.

Got it. Got it. And just staying with payments, you had launched a new card issuance, debit and credit issuance platform, a few years ago. And I think, initially, you were targeting your core base, but -- can you maybe talk about where that stands in terms of your market penetration?

Yes. It's been a very successful initiative for Jack Henry. So as you will recall, one of the motivators behind that -- we had 2 debit platforms back at that time. So this would be now 6 years ago or something like that, 7 years ago. We had 2 debit platforms. Both of them were getting pretty old. We had no credit platform. So we were not doing credit origination or credit processing at the time. And we had -- we were losing customers, frankly, on the debit platforms because they were getting old. Most of our development effort was put into keeping up with regulatory change, and we weren't delivering a lot of new feature function for our customers. And so we faced that difficult decision when you got 2 solutions that are both getting old and not really competitive anymore. We had demand for credit. Now what do you do? Do you build, buy or partner in order to solve that problem? Well, we looked at the build option, and to build out all that functionality and consolidate all that was going to take 5, 6 years. That's not a great option when you're losing customers, you're losing revenue. There was nothing to acquire. We looked at all kinds of different options there, nothing that was good to acquire. So we did the partner arrangement, and then we started moving all of our customers over to that new platform. Stopped the bleeding immediately, once we started that process, successfully moved 800-or-so customers off those 2 other platforms over to the new platform. And then we've added, I think, almost 150 or 180 customers since then to the new platform on the debit side. So that was while we were going through that conversion. Today, I think we're sitting at some over 1,100 customers on the debit side. So it's been very successful for Jack Henry. We've grown significantly since we started that project on the debit side. On the credit side, I've been very transparent with people over the past few years, and we've talked about this. We didn't have a credit practice. We didn't know how to sell credit. We didn't know how to service credit. So as we -- about 2 years ago, when we started to focus on credit, we needed to hire people on the sales side. We needed to hire people on the servicing side and really start to build those processes. So the credit business is building, but it's not -- we're not a major player today. I highlighted on the call, we signed one customer in the last quarter. So we're not a major player on the credit side, but we're building that skill set, and we're positioned now to serve those customers who want to work with Jack Henry for both debit and credit.

Got it. I know we've touched on M&A throughout the -- our conversation, but can you maybe drill into that topic in terms of what you're seeing in the market for valuations? And I know you mentioned B2B, but any other areas that you would look to inorganically complement your existing solution set?

So I'll answer the second part of your question first. So these days, normally when we look for acquisition -- and by the way, for those of you who don't know the Jack Henry story well, we've historically been known as a serial acquirer. We did -- we've done almost 60 acquisitions in our history. We did 29 or 30 or something like that between 2004, 2015. We've done a lot of acquisitions. We are a good solid acquirer, have a long history of doing solid acquisitions. But where we really found success and Payrailz is an example of this, and I could list several others, where we've really found success is where we found those opportunities to do 1 plus 1 equals 3 type scenarios. So find something that's similar to something we already have, similar but different, and put those 2 things together and now create a whole new story for our customers and prospects. We've done that over and over and over again, have really had great success. I mentioned earlier, we did the 4 little acquisitions of lending technology players, put them all together, created this whole new solution to do end-to-end online commercial lending. So it's those types of things we're normally looking for, those types of opportunities. We're not afraid of doing a large deal. We've had funding lined up many times for over $1 billion acquisitions. But we also are disciplined acquirers. We don't go chase the shiny object. We look for deals that make sense as far as we're concerned as we run through the financial metrics and deals that will create opportunities for our customers. Now back to your original question or your first part of your question. Back in February, I was very bullish on the opportunity for Jack Henry later this calendar year to do acquisition. I said in February that I figured by Octoberish of this year, people would have found religion as far as the valuations were concerned and new valuations were coming down. I figured there would be some smaller public companies out there that probably went public in the last couple of years, but maybe really had no business going public. They just went public because the valuations were there, maybe through SPAC. I thought some of those would have come down and we'd see pressure on CEOs and Boards to do something different. Yes, valuations have come down. Is anybody saying I'm ready to sell now at a reasonable valuation? No, they say I'm ready to sell now, but I expect the valuation that I was seeing 6, 9 months ago. So that was frustrating. But the greater opportunity, as far as I was concerned, was on the private side. So founder-led companies, I assume, by this time, we'd see some of those companies who are hoping to IPO, hoping to SPAC. That's dried up essentially for them. Maybe they were getting some pressure from their shareholders, maybe having a little trouble raising capital, and we'd find some of those opportunities that we could take advantage of. Really none of those that we've seen here in the past few months either. And I normally tell people on any given day of any week at Jack Henry, for the past 15 years, we are always looking at a deal, always have deals on the table. As I sit here today, we really don't have anything that's on the table, and it's kind of depressing to me. I keep waiting for people to kind of be ready to sell their company at a reasonable rate. The good news is, just this morning, I was standing out here, talking to one of the investment bankers in fintech, and he said, "I think the tide is shifting. I think there will be some companies here, particularly after the holidays, that will maybe be ready to talk about a reasonable rate." And so we're still optimistic that some of that change is going to happen. I will point out that in -- when the Great Recession happened, 2007, 2008, we did some of the best and largest deals we've ever done coming out of the Great Recession. 2010, we did 3 really nice deals for Jack Henry coming out of that recession. So maybe that will be the timing. Maybe I was off by a year. Maybe it will be later 2024 instead of later 2023, we'll see. But we are always looking. We're very interested in acquiring those solutions that create that scenario that I highlighted earlier, 1 plus 1 equals 3.

Got it. And just big picture on capital allocation. How do you balance M&A with other uses of capital?

Yes. So we have increased our dividend for 33 years in a row. We're absolutely committed to our dividend policy. So I always call that out first because we have no intention of abandoning our dividend policy. After that, though, I am very bullish, as you can probably tell, listening to me on the idea of M&A. We are a very good acquirer. We're good at valuing deals. We're good at finding deals. We're really good at integrating those deals. We have an excellent team when it comes to getting the sales engine started after an acquisition. And so I'm very passionate about the idea of trying to find other deals that we can do. Now absent a deal, then the best use of cash, as we're accumulating cash, oftentimes is to do a share buyback. And you've seen us do that. So not this past year, but the year before. We bought back a large number of shares. But that was because we didn't see any acquisitions to do, and we didn't want to be accumulating cash on the balance sheet. So I think that's the best way to think about Jack Henry is dividends first. But absolutely, when all else -- whenever there's a good option to do M&A and if we have to accumulate some cash in order to make sure that we're ready, we have dry powder that we're ready, we will do that if we see the opportunities out there. But absent any of those things, then it's share buybacks.

Got it. We've got a couple more minutes. David, I want to end with this. Are there any aspects of the Jack Henry story that you feel are either misunderstood or underappreciated by the investment community? And if you combine that with any other additional thoughts you want to convey in conclusion?

Yes. I think it's changed here in the past few years. I think there's a lot greater understanding of what Jack Henry is and what Jack Henry does than there used to be a few years ago. The thing that still kind of rubs at me once in a while is I think we're categorized, and I know that our larger competitors try to spread this idea all the time, that Jack Henry serves the little tiny banks and that's all they do and don't worry about them. Jack Henry, we don't sell to the little tiny banks or credit unions. That is not our market. We don't sell to those folks. And I can explain to anybody why if they want me to explain that. We are really strong when it comes to those middle-market banks and credit unions. We don't service the Tier 1 banks, that's my strategy. We could, we choose not to. We've been in that business before. We know what the margin pressures are when you serve those customers because they have purchasing agents who spend all day long trying to beat you down on price. So we don't want to be in that space. But then you have this wonderful middle market, kind of, say, $250 million or $500 million up to $100 billion, a whole bunch of banks or create unions in that space that we really know how to serve well, and that's who we target. And so this idea that Jack Henry only plays with little tiny banks and they couldn't possibly serve a regional bank is absolutely false. We're having great success in that area. And the technology that we're offering is really appealing to those customers. So that's probably the only thing that kind of gets me going once in a while when people start talking about our company because I think there are still some misconceptions about that. But beyond that, I think people, investors have an appreciation for the way we run the company. We're a disciplined management team. We don't spend money frivolously. I think we're very careful, but not overly careful in the decisions we make about product origination and acquisitions that we do. And I think we just run a really solid company, and I think shareholders generally understand that.

Got it. Well, great. David, thank you for joining us today. I really appreciate it. Mimi, Vance, thank you. And thanks to everyone that's listening online and in the audience. Take care.

Thank you, Chuck.