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

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

Good morning, and thank you for joining us for the Jack Henry Fiscal 2023 Third Quarter Earnings Call. Joining me on the call today is David Foss, our Chairman, CEO; and Mimi Carsley, CFO and Treasurer; and Greg Adelson, President and COO. After my opening remarks, I will turn the call over to Dave for his thoughts about the state of our business, financial and sales performance for the quarter, industry comments and other key initiatives. After Dave concludes his comments, Mimi will provide additional commentary regarding the financial results and fiscal year guidance included in the press release issued yesterday that is available from the Investor Relations section of the Jack Henry website. We will then open the lines for Q&A. As a reminder, this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results. Like any statement about the future, these are subject to multiple factors that could cause actual results or events to differ materially from those which we anticipate due to multiple risks and uncertainties. The company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled Risk Factors and Forward-Looking Statements. On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for non-GAAP financial measures are in yesterday's press release. I will now turn the call over to Dave.

Thank you, Vance. Good morning, everyone. We're very pleased to report another strong quarter of revenue growth and an overall solid performance by our business. As always, I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for our third fiscal quarter. For Q3 of fiscal 2023, total revenue increased 6% for the quarter and increased 8% on a non-GAAP basis. Consistent with our prior comments regarding the reduction in bank M&A this year, deconversion revenue was down approximately 65% as compared to the prior year quarter. Turning to the segments. We again had a good quarter in the core segment of our business. Revenue increased 4% for the quarter and increased by 8% on a non-GAAP basis. Our payments segment performed very well, posting a 6% increase in revenue this quarter and a 7% increase on a non-GAAP basis. We also had a strong quarter in our Complementary Solutions businesses with a 6% increase in revenue this quarter and an 8% increase on a non-GAAP basis. As I highlighted in the press release, our sales professionals posted an extremely strong quarter led by the core sales team. On our last quarterly call, I mentioned that the sales team set an all-time sales booking record in our fiscal Q2. Although we didn't break that record this quarter, we did set a record for the strongest Q3 in history. During the quarter, we inked 13 competitive core takeaways, so we continue at the approximately 1 deal per week run rate I've discussed in the past. In addition to our success in signing new core clients, we signed 13 existing on-prem core customers to move to our private cloud environment. In addition to the tremendous success we've experienced in our core business this quarter, we continue to attract new clients to our digital banking suite. During the third quarter, we signed 39 new clients to our Banno retail platform with another 35 clients sign up for Banno business. Regarding our Banno digital suite, as of March 31, we now have just over 9.3 million users live on the Banno platform. We continue to enjoy the highest consumer rating in the App Store, and we are regularly recognized as the fastest application in the industry. The feedback from our 30 Banno business beta testing clients has been outstanding, and we remain on track to deliver Banno business into general availability later this quarter. Let me take a moment to address the banking landscape related to the liquidity challenges experienced by a couple of large regional banks in March and earlier this week. Although I'm not aware of any Jack Henry core clients who have tapped into the Federal Reserve's new bank term funding program, I think the announcement has had a positive effect on the overall concern in the market regarding bank liquidity. And I applaud the Fed on their swift and decisive action. Since those events grabbed the headlines, members of our team have spoken with hundreds of our clients, and I personally have visited with a large number of CEOs at our client banks. I'm pleased to say that our banking clients have indicated they have been largely unaffected by these events with the exception of several who have reported an influx of new accounts as business clients look to diversify their deposit balances. Our clients typically have a diversified customer base, serve small and medium businesses and consumers in their local communities, and have long-standing and loyal customers. So I think it's logical that they wouldn't see an adverse impact as a result of a few extreme scenarios. Also remember that a large part of our business is focused on the credit union industry with approximately half of all credit unions with more than $1 billion in assets partnered with Jack Henry as their primary technology provider. Those clients also report being largely unaffected by the challenges in the banking sector. In late April, IntraFi conducted a survey which generated responses for more than 550 bank CEOs, Presidents and CFOs primarily at banks with less than $10 billion in assets. Approximately 77% of the respondents saw no significant inflows or outflows of deposits. 14% said they saw deposits decline by 2% or more and 9% said they saw an increase of at least 2% in deposits. I think these results are consistent with what we've heard anecdotally from our clients. We have seen no hesitation on the part of our clients to move ahead with technology decisions since the middle of March. And as I mentioned earlier, this was the largest third quarter in terms of sales bookings in the history of our company. What's more, our sales pipeline is now larger than at any other time, including a recognizable uptick in opportunities since our last quarterly call in February. I'm well aware of the challenges bankers face in today's economy and understand that things could change. But as we speak today, our clients are generally performing well, and banks and credit unions are continuing to prioritize modernization of their technology stack to remain competitive and serve the evolving needs of their account holders. Hopefully, you've all seen the new corporate sustainability report that we published on March 31. I think it's an excellent representation of the key initiatives and accomplishments we've been working on since we published our last report. In this new version, we provided a more detailed review of Jack Henry's demographic makeup, a summary of the results of our annual employee engagement survey, an overview of our data privacy and cybersecurity practices and an outline of our commitment to setting science-based targets through the science-based targets initiative, or SBTI, to address the reduction of greenhouse gas emissions. Additionally, the report highlights some of the recognition we've received from organizations like Newsweek, Computer World and LinkedIn's Top Companies list. As we look toward the end of the fiscal year, our sales pipeline is much larger than it's ever been, and we continue to be optimistic about the strength of our technology solutions, our ability to deliver outstanding service to our customers, our ability to expand our customer relationships and our long-term prospects for success. I look forward to seeing and chatting with many of you at our Investor Day in Denver in a couple of weeks. With that, I'll turn it over to Mimi for some detail on the numbers.

Thanks, Dave. Good morning, everyone. As Dave shared, Jack Henry had a successful third quarter, and I will call out the details driving those results and our outlook for the remainder of the year. For both the third quarter and first 9 months of our fiscal year, total revenue is up 6% on a GAAP basis and solidly up 8% on a non-GAAP basis. Now on to the third quarter detail. On a GAAP basis, services and support revenue increased 3% in both the third quarter and year-to-date. Consistent with trends over the past 2 quarters, services and support were negatively impacted as deconversion revenue decreased $11 million for the quarter and $31 million year-to-date. This remains in line with the limited broader market activity, acquisition activity in our space. With only a couple of months left, we are projecting approximately $20 million in deconversion revenue this fiscal year. However, forecasting deconversion activity is always challenging given the limited advance notice and general uncertainty of M&A. Our private and public cloud offering show robust growth this quarter, growing 11% and 10% year-to-date. Product delivery and services decreased 10% in the quarter, 11% year-to-date, impacted by lower deconversion revenue and convert merger activity, offset by higher license and hardware revenue. On a non-GAAP basis, services and support revenue grew 8% for the quarter and 7% year-to-date, which serves to highlight the consistent strength of our business model. Processing revenue increased 11% on a GAAP basis for the quarter and 10% year-to-date. On a non-GAAP basis, the growth was 10% for the quarter and 9% year-to-date. The increases were driven by the higher card volumes and services plus robust digital demand. Now reviewing costs. Cost of revenue was up 9% for the third quarter and 8% year-to-date. Quarterly drivers included increased card processing costs consistent with card revenue growth, higher personnel costs and amortization expense. These drivers are consistent across our year-to-date results. Research and development expense increased 13% during the quarter, mostly due to higher personnel costs and license fees furthering innovation. Year-to-date, these expenses increased 19% based on the same factors. SG&A rose 9% for the quarter, driven by increases in personnel-related costs. Year-to-date, the increase was 8%, driven by personnel, travel, professional services costs partly offset by the gain on sales of assets earlier this year. We remain focused on actions involving facility rationalization, headcount and travel controls, procurement wins and other expense management. Collectively, these efforts are helping offset inflationary pressures in driving positive operational results. Despite a decline in net income primarily related to deconversion revenue and partially offset by a lower tax rate, we delivered fully diluted earnings per share of $1.12 for the quarter. Thanks to our hard-working and dedicated associates, GAAP and non-GAAP results for the third quarter and 9 months of the year are consistent with internal expectations and set us up for a strong conclusion to FY '23. As a reminder, for transparency, the impact from the gain on sale of assets, the Payrailz acquisition and deconversion revenue are shown as part of the non-GAAP adjustments in the press release. Turning our attention to cash flow. Year-to-date operating cash flow was $207 million, down from $301 million in the same period last year due to lower deconversion revenue and the timing of taxes. The tax payments were in a significant outflow at $64 million in the quarter related to a change in the timing of the deductibility of development expenses. Free cash flow, which is operating cash flow less CapEx and cap software plus proceeds from the sale of assets was $82 million year-to-date. Excluding the previously discussed tax payments and keeping year-to-date deconversion revenue flat, free cash flow would have been approximately $163 million. While balancing repurchase activities with maintaining a conservative balance sheet, we repurchased 151,000 shares during the quarter. We also returned capital to shareholders through a dividend of [ $0.52 ] per share, representing a 6% increase. Our capital allocation priorities remain consistent. We're focused on maintaining ample liquidity, investing in our business to fuel growth, evaluating acquisitions, paying dividends and opportunistically repurchasing our stock. This consistent dedication to value creation resulted in a trailing 12-month return on invested capital of 20.1%. With that, let's review our outlook for the completion of our fiscal year. The press release included updated full year GAAP guidance. The GAAP guidance remains inclusive of the Payrailz acquisition, gain on asset sales and deconversion revenue. We expect the year-to-date trends to continue for the remainder of the fiscal year, impacting GAAP results. Most significantly, assuming continued minimal consolidation in our customer base, deconversion revenue will remain muted. Considering year-to-date activity, we expect approximately $20 million of annual deconversion revenue, representing a $5 million increase from our previous guidance provided on the last call. To be [ transparent ] on our August full year earnings call, we will outline our new approach to providing guidance for deconversion revenue. While the integration of Payrailz continues to meet expectations, there has been third-party implementation delays impacting FY '23 revenue amounting to a shortfall of $3 million. This revenue remains in our pipeline. We remain confident in the strategic value and financial performance trajectory. We expect full year GAAP revenue growth for fiscal '23 to be between 5.5% to 5.9%. With respect to full year GAAP EPS, we expect $4.85 to $4.87 per share, with improvement driven from positive impacts from a modestly higher expected deconversion revenue, lower tax rate, partly offset by a slight increase in Payrailz dilutions. Non-GAAP guidance remains unchanged due to the continued impressive and consistent performance of our business model. So in closing, we delivered another quarter of strong operational and financial results and remain solidly optimistic about the conclusion of this fiscal year. We thank all of our investors for their continued confidence in Jack Henry. Debbie, will you please open the call for questions.

[Operator Instructions] The first question is from Rayna Kumar with UBS.

David, in the past, you've spoken about having the ability to sell Banno to non-Jack Henry core customers. How is that progressing? And in general, are you seeing the opportunity to sell your core processing services to larger financial institution?

Rayna, so 2 questions in there. First off, as far as Banno was concerned, so -- and I think I talked about this on the last earnings call. I know I've talked about it in some of the fireside chats that I've done with some of you. We had, in fact, a plan to start selling Banno outside the base here in the fall of this past year. And what we learned much to our surprise was that some of our competitors had identified that as an opportunity for them to hang on to their core customers. The fact that their core customer was going to be able to use Banno, they were essentially using that as a selling point for those customers to retain their legacy core system because they would get the best-of-breed digital banking system without having to change out the cores. And that certainly was not part of our strategy. And so we've kind of backed off on that. We were prepared in the fall to start selling outside the base. We backed away from that now. We're really reworking that strategy with a more targeted approach. And so you'll hear more about that from us, I think, later this year as far as how we're going to go to market with Banno outside the core base. As far as the -- now you'd like to remind me the second part of your question. We're [ selling up ] yes, sorry, selling up market. Good thing I have to help here in the room. Selling up markets. So yes, the -- first off, we're having great success with Silver Lake in the banking side. And of course, we're the dominant player on the credit union side already a market. So approximately 50% of the credit union industry with assets over $1 billion are already Jack Henry core customers. So we're already the dominant player on the [indiscernible] side of the business. On the banking side, -- we've had great success here in the past few years, moving upmarket with -- particularly with our Silver Lake core system. What's been interesting now with the tech modernization strategy, we are engaging with a number of customers now that are significantly larger than you would normally think of as a Jack Henry core customer who are very interested in what we're doing and are now seeing Jack Henry as the very probable technology partner that they want to partner up with going forward. So more to come on that. It's early days for us with some of these very large customers that we're talking to, but the prospects, I think, are pretty bright and much of that being driven by the tech modernization strategy that we've been talking about lately.

Very helpful. And then if I can fit one in for Mimi. Mimi, could you just comment on the debit processing volume in the quarter? And secondly, if you can just give us your preliminary thoughts on how FY '24 revenue and operating margin could pan out given that you're close to your fiscal year-end?

Thanks, Rayna. Yes. So we continue to see the trends that have happened for the first 9 months of the year and are consistent with the broader market data that you're getting from other industry players in terms of slightly slower as it relates to the consumer sentiment impacting those trends and a little bit more going to the credit side than the debit side. And as you know, we have a much bigger profile on debit in our business. So our guidance incorporates the continuation of that trend. And then to your second question, unfortunately, it's a little premature at this point to talk about FY '24. Our teams are still heads down, collaborating on the budgeting process, and we'll probably share that more on the August call than we will today.

And can I add one comment on the debit [indiscernible]. So I think there was a bit of a misunderstanding after the last call. We attributed a part of our guide change too, is the fact that the debit volumes we saw going forward were going to slow just a little bit. And certainly, that's true. But that doesn't mean the debit business is underperforming. The debit side of our business has been a real, real solid performer for us this year. We just had a little higher expectation for the remainder of the year then is reality. And that's why we made the adjustment. But the debit business is performing extremely well at Jack Henry.

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

Dave, I had a question going back to the demand environment. I feel like there's a huge disconnect in the market with the stocks and kind of what we hear from the banks versus what you're seeing. I'm just wondering if maybe we're getting it wrong a little bit, like is the pressure that the banks are feeling right now driving more tech demand to you as opposed to maybe the converse, which is, I think, what most people are expecting.

Yes, it's an insightful question, Dan. And I think what you're saying is generally correct. So if you're running a bank or [ Credit Union ] in the United States today, they've been performing pretty well, and we all know the challenges that they're under in rate increases and cost of capital and that kind of stuff. But if you're running a bank or Credit Union in the United States today, you -- for almost all of them, they need to continue to focus on modernizing their technology stack for 1 of 2 reasons. One, you're trying to attract new customers to your institution and customers aren't coming into the branch anymore, right? They're expecting to do things through some type of digital presentation layer. So for most banks of Credit Union, that requires them to continue on this modernization track and make sure that they have the tools to attract not just consumers but business customers, small medium business customers out of the lifeblood of our customers and how they operate on the banking side. And so there's that driver. But then the other side of the equation is efficiency. So for most bankers, they can quote their efficiency ratio immediately to you without looking at any piece of paper, they can quote it off the top of their head because they are all focused on efficiency and trying to figure out where are those areas where we can drive efficiency through the operation. Well, generally, technology is at the kind of the crux of where they're going to find efficiency. And so there, too, Jack Henry is in the mix having those conversations with our customers. And then you throw into that on top of that fraud and cybersecurity and all those kind of things, all of that stuff is driven by technology. And so yes, I think there is a bit of a disconnect in this sense that because there's some [ turmoil ] in the industry, Jack Henry sales are going to be negatively impacted, they're just not. The businesses continue to run and they need to continue to find technology solutions to help them with all those things that I just highlighted.

No, it sounds somewhat counterintuitive, but I mean it clearly makes sense in the current context. A quick question or follow-up on margins here. I know you don't want to go up to next year, but I would appreciate if you could maybe talk about some of the key drivers and levers that you're going to be able to have here, whether it be expense control, specifically kind of mix of the business just as we start to think about the margin expansion story again.

Sure, Dan. Great question. So as we talked about previously, we continue to see margin expansion throughout the year. We knew it would be a modest amount this year earlier in the year. Our original guidance was for flat for the year. We're hopeful that -- and we're on track for a small increase in margin expansion. I would say the things we're working on are consistent. We do a ton around efficiency, continuous improvement. We've done a lot on internal [ automization ]. And procurement has been a huge win for us as we think about streamlining partnerships and really prioritizing that spend. So we're being really thoughtful on controllable spend like travel, headcount additions, really thinking about each position from a zero-based perspective. But there's nothing structurally that concerns me in terms of the ability to once again continue back now that we have the normalization of some of the headwinds we've seen past years and return out of COVID environment that will return back to a margin expansion story.

The next question is from Nick Cremo with Credit Suisse.

Congrats on the strong results. I was hoping to get some more color on the performance in the payments segment in the quarter, just across the various business lines. And if you received any onetime benefits related to the banking turmoil like some of your competitors? And just as my follow-up, are you still expecting Payrailz to be modestly accretive in FY '24.

Let's do Payrailz first. Greg is prepared to give you an overview of Payrailz and then we'll talk about the rest of the payments business.

Yes. And I think -- so I'll go ahead and start with Payrailz. But a couple of things. So one, Mimi alluded to the fact that in her opening comments around, we do have some challenges with a couple of third parties. And I think some of it is headcount related and other constraints that they have to get some of the work done to allow some of our contracts that are already done and in the implementation queue to be brought into the production queue. So there's a few of those constraints and things that we're working through. But the good news is that since September, when we made that acquisition, we've actually sold 40 new -- 48 new contracts and 17 add-ons. Add-ons are things like the P2P solution. We have a loan payment solution, things like that. So the sales engine is starting to move and a lot of the sales that were done previously before we acquired Payrailz, we're really predominantly done through that third-party channel. So of course, we have a much larger sales force and folks that are focused on selling more direct deals. So we're pretty very optimistic on what's happening in the sales side of this. We just need a couple of the integration partners to be able to get some of their work done that will help us accelerate the revenue in fiscal year '24. And I can start on the payment side, too. So I think -- and Mimi alluded to what was going on our card business, which continues to go very, very strongly as far as growth. But when you look at the rest of our payment businesses, there's a nice mix of growth, maybe not to the same level that we had remote deposit capture in our EPS business was significant during the pandemic. Obviously, folks were not going into branches at all though that continues for the most part, -- that business is not growing at the same pace it did but still in a double-digit growth in our portfolio. So things that we're doing in our pay center business around general payments and preparation for Fed Now, which we can talk about at some point, too. But in our clearinghouse business and what we've done with Zelle, we continue to have about 60% of all the clearinghouse customers that are out there. There's only about 300 clearinghouse, and we have over 180 that are live on Jack Henry today. That continues to grow nicely. And so that business continues to have a lot of upside.

Yes. I would just add that there's consistency to Greg's point, there's consistency across remit cards, payments, also led by things like the fraud and other risk management solutions that are add on. So I would say that trend from a consistency of growth will continue and then added by the benefit of Payrailz.

Okay. The next question comes from David Togut with Evercore ISI.

You've called out your new sales pipeline at a record level. Could you walk through what are the biggest drivers of that? Is that new tech modernization modules? Is it Banno business, Silver Lake, what are the underlying components of that strength?

Sure, Dave. And one thing I'll highlight as I go through this, when I talk about pipeline, I know there's been some confusion in the past. I'm not talking about individual deals, how many core customers are in the pipeline or anything like that. I'm talking about the dollar amount essentially. And this is a non-GAAP number, but it's the dollar amount that we track as far as the value of each contract. So it's in theory, that all converts into revenue at some point after deals are signed and they're implemented. As far as the drivers, so core continues to be king for us when it comes to a driver. We have just a tremendous amount of core activity right now, both banking and credit union as far as customers that are talking to Jack Henry about trading out their existing technology. Some of that is certainly driven by tech modernization, but I don't think it's as much driven by I want to sign for the tech modernization module right now today. It is more about Jack Henry has a strategy that makes sense to us as bank and credit union executives. Their strategy makes sense. We need to look at them now and get to Jack Henry now because we want to be partnered with them as they continue to evolve. And so there's a lot of that that's driving interest in our existing core customers, Silver Lake primarily on the banking side and of course, Symitar on the credit union side. But then on top of that, Banno continues to be a driver, and that's why I call it out on these calls almost every time. There's a tremendous amount of interest in Banno. Our new Financial Crimes Defender solution that we've talked about on this call, that's rolling out here very soon. We have a lot of customers that are looking at Financial Crimes Defender because it's the first brand new ground up public cloud native fraud solution in the industry in many years and so lots of interest, not only inside our core base but outside the core base in that solution. Our treasury management solution is getting great reviews today. So continued interest in treasury management. Certainly, cards, we talked about the number of customers that we're -- we've been adding to the cards business. So continuing to drive interest there. Our online commercial lending solution, a tremendous amount of interest in that. So it's just a broad variety of solutions. I think the common thread in all of that is almost all of those noncore solutions have been written and rolled out within the past 2, 3, 4 years. So it's a new technology that people are interested in. And then, of course, on the core side, you know all about our tech modernization initiative there. And so you put all those things together, much of what's driving this is the recognition in the industry that Jack Henry has put a tremendous amount of investment into brand new technology and new solutions to help our customers solve problems. And so that's what's getting us a lot of attention.

I'd like -- this is Greg. I'd like to add a relevant example. So we actually just got an inbound request from a large regional that hadn't talked to us since 2010 and they came to us and said, "Hey, we'd like to renew conversations based on what we've heard about you and the industry, the tech modernization story and things in general. And that's a relevant example because these are larger institutions that we typically wouldn't have seen in the past that, again, that are inbound to us because of the things that we're doing and the stuff that Dave just described.

And what's the asset size of that large regional bank, Greg?

It's greater than $50 billion. And we are engaged today, Dave, with a number in the mid-$20 billion space. Several banks in the mid-20s are talking to us today. And I think a lot of it is because of what they've seen with tech modernization and -- but they're not talking about moving right to that platform. They're talking about Silver Lake and then evolving to that platform.

Understood. And just as a follow-up, what's your latest view on timing of rollout of FedNow Jack Henry's role? And how material could FedNow be to Jack Henry over the next 12-plus months?

Yes. This is Greg. I'll take that question as well. So good insightful question. We are absolutely ready. We're already fully certified. And on July 19, when the first transaction takes place, we will be part of that transaction process. We have 20 institutions that will be going live between the July '19 timeframe and sometime in late August based on just rollout with those institutions. We can go as fast as they want to go. We have 51 contracts that are already sold and a significant number of others that are in process just based on interest. I think to your point about significance of where this is in our portfolio, time will tell. A lot of it is going to be based on use cases, and there's a lot of rumors that the Fed in general will be mandating several use cases that will be important for institutions to be set up on the receive now, at least aspect of the equation, allowing them to receive payments if one comes to them. So we are having very detailed conversations with a lot of our institutions about the importance of at least being set up on the receive aspect even if they're not ready to go to the send aspect. But again, we're very bullish on this. The clearinghouse -- there had been some challenges just because some institutions that we work with. We're a little leery of working with the larger conglomerate that owns the clearinghouse versus the Fed being a part of this. So we think we're going to see a little more uptick in the FedNow solution that maybe that we saw so far in the clearinghouse one.

Just to emphasize, Dave, the level of our development with the Fed on this project. I was just in Washington, D.C. on Monday. So 2 days ago, meeting with some of the Fed presidents and the FedNow team and the President of our Payments division was with me talking strategy, talking rollout, this was a Jack Henry only meeting with these Fed presidents. So we are very engaged with the Fed and very -- it's top of mind for us to make sure that we're helping our customers take advantage of this opportunity.

The next question is from Vasu Govil with KBW.

I guess, first one, I know you will share more on your Investor Day, but just thinking about revenue growth next year. So what are some of the puts and takes that we should consider?

Vasu, I appreciate the question. We're still in the midst of planning. In fact, this afternoon, we'll be spending the whole afternoon with the sales team on their planning for next year. I would say, overall, as Dave mentioned, a continuation of both the transition and implementation from a great pipeline from the last 2 years, plus the continued interest in some of these new products, Banno business wasn't in the year numbers for FY '23 will be in '24. So that's a nice bump as well. But I would say it's going to be a continuation of a diverse portfolio growing very well.

That's helpful. And then just a follow-up on the Complementary segment. Clearly, Banno is a big driver there. Maybe, David, you could talk about what are some of the other products that rise to the top in terms of growth drivers? And then as we think about growth in that segment long-term, is mid-single digits sort of the right pace going forward? Or do you see that accelerating?

I'm sorry, I missed the last part of your question is what? -- mid-single digits, okay. Sorry. Yes. So as you know, Vasu, the complementary segment is a little bit of a challenging one to talk about because there are so many solutions in there, but I understand your point trying to figure out what are the key drivers -- so there are several. I already highlighted the Financial Crimes Defender solution that we're just now rolling out. So we definitely expect that to be a key driver for us in the coming year. Banno is in that segment, and so Banno will, of course, continue to be a driver as we're rolling out Banno business. Treasury management, that I called out a little while ago, treasury is in that segment. That will continue to be a driver for us. Most of the fraud solutions that are not specific to payment. So the payments fraud pieces show up in the payment segment, but the other fraud type things, security solutions, for example, those are all in that segment that is always top of mind for our customers. So that continues to be a driver for us as well. So it's just a lot of different things. And then as I mentioned earlier, our online commercial lending solution that has really picked up here in the past several months. We've had that solution in market for probably 4 years now. But in the past few months, it's really picked up as far as the level of engagement with customers and prospects. And so a bunch of different pieces. And so to the second part of your question about mid-single digits, I think that is a good assumption because with so many solutions in there, you have some that are growing quickly and some that are kind of just steady performers. And so I think that's a good assumption for that segment for the long-term.

Great. And just on that online commercial lending solution, sort of any drivers why you think that's gaining more traction now?

Yes. Well, I think it's because it's an interesting thing when you work with banks. In banks, most bank CEOs grew up in the bank as a commercial lender. That's their background for most of them. Commercial lenders, they're the moneymakers in the bank, right? You can talk all day long about all the consumers and what wonderful relationships you have with your consumers. But what really makes money for a bank is the commercial lending business. And so that's small, medium business customers and then, of course, even larger customers. Commercial lenders tend to have a process that they follow. They're the moneymakers. They're the people who have a process that they follow. They have tended traditionally to be averse to using more technology. And -- but now with so many people, particularly on the backside of the pandemic, so many people not wanting to go to the branch. They've gotten used to this idea of being able to do everything through some kind of a digital layer. Commercial lenders are getting a lot more comfortable with the idea. I don't say they like it, but they're accepting it they're getting more comfortable with the idea that their customers, small, medium businesses expect to be able to apply for a loan and interact with the bank using a commercial presentation layer. That's exactly what our solution does. It's a complete commercial lending solution that is hosted online where the borrower can do everything they need to do through that presentation and then the lender can interact with them, again, through that technology. So I think it's a result of the backside of the pandemic. Customer expectation has changed and lenders are kind of oftentimes grudgingly accepting the fact that their customers want to do things differently, and they're now thinking about how do we adopt different technology to make sure we take care of our customers.

The next question is from Peter Heckmann with D.A. Davidson.

Most of my questions have been answered, but I wanted to follow up on FedNow. I guess is it your impression that with FedNow that the primary use case is going to be enterprise B2B and likely replacing same-day ACH. And related to that, are you aware of any other use cases that might involve the consumer or other sort of niche processes that you think are going to be stronger out of the gates?

Yes, Pete, actually, I think that could be one example. I think what we have seen, even with some of the other solutions that are out there that we think will be the primary use case is with the gig workers. The gig workers taking the payments that they're getting and moving them using in [indiscernible] the FedNow solution actually is truly real time. The clearinghouse solution still has kind of a batch settlement on the back end. And so the ability -- though they have access to their funds immediately, the process is different. But using the gig workers to move those funds into their FI accounts, we see that today with a lot of the stuff that we have with the clearinghouse and the Fed believes that to be a big one. The other one is having the FI customers, the financial institution customers actually moving money from external wallets into the depository accounts as well. So there's a whole host of use cases that are being built out of those 2 scenarios as well as -- and Dave was just there, there's going to be some -- I don't know if I would call them mandates, but there's going to be some strong requests for things to be done through the FedNow account for stuff like various tax payments and...

One of the things we talked about Monday was VA benefits.

Yes. Yes. So there's going to insurance payments, things like that. Things that the treasury and the Fed can control, they're going to be pushing that. So that's why it's important for processors like Jack Henry, who can really kind of help get to that last mile of institutions to get that received now turned on. So regardless of where that payment is being initiated from, it has a place to land.

Okay. That's helpful. And then just to clarify, though, again, with that now, it doesn't sound as if there's a lot of applications that are currently either cash-based or card-based that will be replaced with real-time payments. It's primarily some form of ACH or interbank transfers. Is that how you see it?

No. I do see some reasonableness to some of the card products. There's various things that happen today in the B2B world that where transactions that typically would have gone out paper maybe would have gone out through a virtual card program or things like that where there's interchange. And some of those programs could be disintermediated because of this type of solution. So I think there's going to be some heavy focus on B2B solutions as well because there's so much paper in the process today and other types of card payments may be at a merchant level, where depending on how the merchant is set up, could those transactions to them or from them end up going through that channel as well. So yet to be determined, but I think the card part of this, specifically on merchant side and specifically in B2B payments could have some chances for disintermediation.