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

All right. So we'll get started. Kicking off the conference day 2 is Jack Henry & Associates. We've got CEO, David Foss, here. David, thanks for being here.

Happy to be here, Will.

So look, I wanted to kick it off actually on the public cloud strategy, kind of maybe take the long-term view. Over a year ago, you announced the long-term strategy of migrating your platform to a cloud native architecture. Where are we on that road map today? And what's been the client response since you announced that?

Yes. So it's a pretty broad-reaching strategy. We refer to it as technology modernization for Jack Henry and it involves more than one platform. So it's not just taking a core system and putting it on the public cloud, it is essentially a rewrite of our core offerings, plus moving all of our complementary offerings to the public cloud environment. So it's been a process of moving complementary solutions. We have many of them now operating fully in the public cloud environment. Many have been rewritten to operate in the public cloud environment. But then the key piece that you're alluding to is taking our core systems and rewriting them into the public cloud. When I announced this about a year, 1.5 years ago or so, what I said at the time was 3 to 5 years to get everything moved over. We are moving along at that pace. So we have, today, I think 4 modules that are up and running on the public cloud. There will be 20-ish when all is said and done. So we still have quite a bit of work to do. But I think the important distinction in what we're doing is we're not doing what's called a lift and shift. You've seen other companies do a lift and shift, where they take what they had running in a legacy environment, and they make it work in the public cloud. But when you do that, that doesn't take advantage of all the tools that are inherent in a public cloud environment. And so what we're doing is totally rewriting our solutions onto the public cloud. And as we're doing that, we're rethinking the way we deliver some of those solutions to really take advantage of the public cloud environment. So as opposed to delivering a core in a box in the future like has been done for 40 years, as opposed to doing that, what we're doing is we're creating these separate modules, kind of breaking up the core into a suite of modules and then you can bundle those modules however you want to create your own version of the core on the public cloud environment. We're taking care -- taking advantage of the development environment in the public cloud, DevOps, specifically, for those of you who are technical, so a DevOps environment where you can do rapid release of software. We take advantage of all the security tools that are in the public cloud environment, the design tools so we can make everything look and feel like the things that you use on your phone. That's all revolutionary in our space, but it takes some time.

And I guess could you talk a little bit about the upfront investment required to build this out over that 3 to 5 years? When is the kind of like the heavy outlays going and...

Yes. So we -- and this I talked a little bit about when we first made the announcement about 1.5 years ago. So before that announcement 1.5 years ago, we have been working on this with developers actually writing code for almost 2 years before the announcement. We never said anything about it. We were kind of working behind the scenes on this project. But what we've committed to is that within our stated goal of 14% to 15% of revenue going back into R&D, and we've been running at that pace for about 10 years, within that goal, 14% to 15% of revenue back into R&D, we can deliver -- develop and deliver all of this technology that we're doing. So the objective was not to do some great, big additional spend, it was to try and keep within what we have historically done as a percentage of revenue. So of course, that's a rising number because revenue is rising, keep within that 14% to 15% goal. So if you look back at our numbers, you go back several years, you'll see that we've been in the 14% to 15% range. As we've been doing this work in the last 3 years, we're in the 14% to 15% range. And going forward, we can deliver on all the things that we've been talking about keeping within that 14% to 15% range. And while we're doing that, by the way, I'll just emphasize, we've been rewriting other solutions, as I talked about at the beginning, and we've innovated brand-new solutions. So we just rolled out our Financial Crimes Defender product. We just rolled out Banno Business. We just rolled out FedNow with the Fed. We have a number of new innovative solutions that we've also done during that same period of time that we've been rolling out.

So it sounds like basically all net new products will be cloud.

That's exactly right. Yes, the strategy now for Jack Henry is public cloud forward for everything that we do new. We're developing everything on one environment so that we're not supporting multiple environments anymore in the future. We're putting everything in one environment. You may have seen last year, we announced a significant strategic relationship with Google. So most of the development work we're doing today is in the Google Cloud environment, although we are running loads in Azure and AWS. We're a big consumer of both of those platforms, but Google is our strategic partner going forward.

Got it. So maybe switching gears to the bread and butter. You have a consistent track record of roughly one competitive takeaway per week that's helped you gain market share over time. What are you seeing as it relates to the competitive environment right now?

Yes. So that statistic is around our core sales. And just to make sure everybody is clear, when we use the word core, I know some people are new to the industry, core is that kind of heart and soul accounting system for a bank or credit union that processes loans, deposits and general ledger. That's the core system. And then you wrap the core with all kinds of other things, so digital banking and teller systems and ATM systems and all that kind of stuff. But the core is that primary accounting system for a bank or credit union that processes deposits, loans and general ledger. And when you own the core for a financial institution, that's a big deal because they will generally buy a whole bunch of other stuff from you that wraps around that core. They don't have to buy everything from us, but they tend to buy a lot from you if you have the core relationship. And so this run rate that you're alluding to of one new core per week, that's a new logo, somebody leaving their existing core provider and coming to Jack Henry, we've been running at that pace pretty much for the last 5 years. Pandemic kind of disrupted some of that a little bit. But if you look back over the 5, 6 -- the last 5, 6 years, we've been running at about that pace for most of that period of time. That is -- and we're well ahead of anybody else in the industry. Nobody is close to one new core deal a week. That is significant not only because we get the revenue, significant revenue associated with the new core deal, but because, as I just mentioned, that additional closing rate that they -- that we tend to see where they buy other solutions to wrap around the core. So it's a key piece of the growth algorithm for Jack Henry, has been for a long time. It's the traditional part of our business. Core is where Jack Henry started. So it's been the longest area of focus for our company. But as I mentioned, it drives a lot of other revenues. So it is important for us to continue to see that type of win rate.

And I guess what is the kind of the makeup of these core wins? Has there been any change in the makeup of new customers? It sounds like a competitive backdrop is pretty strong in the business right now. I mean is there an opportunity for you to incrementally move upmarket over time?

Yes. So 2 different things in that question. One is the competitive landscape. We have a couple of major competitors and then we have a whole bunch of smaller competitors. There's been a fair amount of disruption in the last few years with our major competitors as they've really shifted toward the merchant acquiring business and trying to become payments companies. We have kind of stuck true to who we are. I always say we are a well-rounded financial technology company. We do a lot in payments, but we are not a payments company. That's not what we are. We are a well-rounded financial company. Payments happens to be an area of specialization, but it's not -- it doesn't define who Jack Henry is. Our 2 largest competitors have really made left turns to try and become payments companies. That has created a positive environment for us because people see us as the more well-rounded provider in our industry. So that's been good as far as our ability to maintain share and to gain share overall. And I'm forgetting the second half of your question.

The makeup of the new core wins.

Makeup of the new core, yes. So you kind of alluded to the idea of us moving upmarket, and that is absolutely true. So part of that is being driven by this technology modernization strategy that we talked about in your first question. So it's been interesting for us because when we first announced technology modernization, we believed it would appeal to larger financial institutions. But it's been really remarkable how many of the larger regional banks in the United States have started to dive into what Jack Henry is doing and come back and say, wow, you guys are way ahead of anybody else in the industry. They're not ready to take a leap right now because, as we discussed on the first question, we're not far enough along for them to make that leap. But we've had some really good feedback from some larger institutions. But even those larger regional banks who have said, we're going to kind of wait and see how this goes, we've had good success with some of the smaller regional banks, so in the $5 billion, $10 billion space, I think, because of the strategy that Jack Henry has. Because they know that we're committed to their success. We are a pure-play player in the -- as far as being focused on the U.S. market, focused on their success. That is by strategy, by the way. We could be international, we choose not to be international. And so our customers, banks and credit unions in the U.S., like that about our company. We're focused on their success. We're a best-of-breed provider of a wide variety of solutions. And so that has helped us win just in our normal space, but also has helped us push upmarket into the larger regional bank space.

So most of the payments companies that we have up here, we ask them how macro is affecting their business. But I'll ask you, how is the macro impacting your end market? There's a lot going on. Banks are in the news, which is never a good thing. How are you thinking about the macro environment?

Yes. This has been interesting. So the day after Silicon Valley -- so Silicon Valley really hit the news on that Thursday or Friday in May, and then over the weekend, things kind of imploded. The following Monday, I was on CNBC talking about what's going on in banking, and that was a prescheduled call. So yes, it's been an interesting late summer, I'll put it that way, as far as banking is concerned. The good news for our customers is much of the conversation around the concern in banking is centered on 2 things. One is CRE, so commercial real estate, the other is on the rising rate environment, right? So that's where most of the discussion is centered when it comes to what's happening in banking. So if you look at our customers -- and just to be clear, our customers, we tend to not serve the really tiny banks and credit unions in the U.S., and there are thousands of them. We tend to not serve those customers. We don't serve the top 20 banks in the U.S., so BofA and Chase and Wells are not our customers, again, by strategy. But it's all those banks and credit unions in the middle, those tend to be Jack Henry customers. So if you look at those customers, they are not doing specialized financing like Silicon Valley, for example. That is just not a thing. If you're a community or regional bank serving customers in your community, that's not something that you're focused on. And so our customers haven't been impacted really at all by -- like, by some of that noise that's been happening with the specialization, the banks that were focused on crypto and so on. The rising rate environment is an interesting topic because certainly, rates have been going up. But the thing that I remind people all the time is -- so think back to 3 years ago. At that time, banks were paying nothing on deposits and loan rates were very low. And so the net interest margin spread was very skinny. Okay. In the past year or so, rates went up. What did they do? The first thing, they raised loan rates. So now all of a sudden, they got a nice net interest margin spread and they've been running with that for a year or so, all except now deposit rates are going up, squeezing net interest margins again. Well, they ran for years with those skinny net interest margins, it's just that now the difference is up here at a higher rate. So most of the banks I talk to, they're certainly challenged, but it's not like they don't know how to run their financial institution in that environment with a skinny net interest margin. And so they're having to kind of figure their way through that. On the topic of commercial real estate, so most of the concern in the CRE space has been around office buildings, right? So the people aren't returning to the office and so what's going to happen when these leases renew and all these office buildings. Well, our customers are primarily -- when you look at their CRE portfolio, primarily, they're serving small businesses, manufacturers, warehouses, that kind of thing -- that type of thing. They're not financing high-rises in Dallas or New York or Chicago. They're financing small, medium business customers who generally have other types of commercial real estate. Not nearly the amount of stress or concern in that area as you see with office building lease renewals. And so as I talk to our customers, there's certainly challenge, they're trying to figure out this new environment, but there's not a whole lot of hand-wringing out there that we're going to have to close up shop or sell the bank or something like that. They're just having to work their way through this. Just like they did 10 years ago when rates dropped to nothing, they had to figure out how to run their bank in that environment where the net interest margin spread was really low. And back at the time, there was a lot of concern about banks that were financing oil and gas at the time, things like that. So it's just a different environment, but they figured it out and they seem to be doing pretty well with that.

Got it. So maybe can you talk about the shift to the cloud? I know another big part of the growth algorithm comes from banks upgrading to your private cloud environment. What does that decision tree look like? What is the impetus for a bank to make that decision?

Yes. So private cloud, as opposed to the public cloud discussion we had earlier -- so it sounds like you're honing in on the private cloud offering that we've been doing for quite a while now. So private cloud, essentially, a data center that Jack Henry owns, right? So that's the private cloud offering that we've been selling for several years. In the private cloud environment, the idea is the customer moves from being on-prem, where they've licensed software, they're running everything themselves in the back office, and they move it over to the Jack Henry private cloud or a Jack Henry data center. And we've been in that process now for many years. We used to -- when I first got to Jack Henry, which is 22 years ago now, at the time, the majority of Jack Henry customers were running their software on-prem in their back office. We had very few customers in the Jack Henry data center. But over the years, we've seen this dramatic shift. So today, we're at, I think, [ 70% ] of our core customers are running in a Jack Henry data center. Why would a customer do that when essentially they pay us more than double what they would pay to run in-house? Well, the real reason for them to make that move is composed of a few different pieces. Number one, when you're running on-prem today, the regulatory environment is really strict, right? The examiners are in your back office constantly monitoring what you're doing as far as cyber and those types of things to make sure you keep customer information secure. Bankers want to be bankers. They don't want to be cybersecurity experts. And so that's one thing that oftentimes will drive them to say, we got to get this over to Jack Henry. We don't have to deal with the regulators and all the stuff that we go through here. Tied to that, if you're a high-tech kid coming out of college today, do you want to go to work for ABC Bank in Dallas? Or do you want to go to work for a technology company like Jack Henry or Google or whoever? These kids coming out of college don't usually want to go work at a bank. They want to go work for a technology company if they have a real high-tech degree. So a lot of banks have trouble recruiting the tech talent they need to stay ahead of what the examiners are expecting them to do when it comes to managing their technology infrastructure. So that can be a motivator to move everything to Jack Henry. A third thing is when I -- if we look back 20 years ago, when you bought hardware to run your solution in your back office, you would have to refresh that hardware every 7 to 10 years. Today, it's maximum of 3 years that you have to refresh the hardware. So what they're looking at is a capital outlay, just over and over and over again, to refresh the back office, not a very appealing thing to a banker either. So it's generally one of those things, or there might be other pieces, that drive them to make that decision to come to Jack Henry, to our private cloud environment. I get questions once in a while, why don't you guys just go and push harder to get them to all move over? Us pushing harder doesn't have an impact. They have to kind of reach that decision based on one of those factors I just discussed. And then once they do reach that decision, they move everything over to Jack Henry. They're essentially paying -- they're paying more than double because when they're in-house, they're only paying for their maintenance, annual maintenance fee. When they move over to Jack Henry, they're paying a significant amount more because we're supporting their entire infrastructure. But the other good news for us is they sign a long-term contract then. When you're running in-house, your obligation to Jack Henry is really only 1 year of maintenance. When you move to the private cloud environment, you're generally signing at least a 7-year contract, so it's a long-term revenue stream that they commit to. And normally, when they move to our private cloud environment, they will also add other solutions. And the reason for that is because it's pretty easy to add a solution when you're just saying, well, we're going to pay another $300 a month or $1,000 a month, as opposed to licensing something where you have the capital outlay. So it's very common for us to see customers move from in-house to the private cloud environment and then add products because now it's an operating expense as opposed to a big capital outlay for them to add new solutions.

Got it. So maybe we could talk credit unions for a second because I know this is a big part of the business. You have very significant market share, I think 50% for credit unions, over $1 billion in assets. Kind of beats to its own drum. I'm a former bank analyst, we never really thought about them that much. But what are you seeing in that segment of the market? And how are they different from the traditional banking...

The credit union is a great business for us. And as you point out, we're the dominant player in credit unions, over $1 billion. So about 50% of the credit unions, over $1 billion use Jack Henry as their primary technology provider. They're an interesting profile because every credit union has some definition of their membership, right? So originally, it was people who worked for these various companies, there would be a credit union. Oftentimes a telephone company or whatever, there was a credit union associated with that telephone company. You had to be an employee of the telephone company in order to do business with that credit union. Well, over the years, those charters have changed and grown and kind of morphed. So a lot of credit unions we deal with today are regional. So if you live in a region -- sometimes that region can be very large. And if you live in this region, in this area, you can be a member of this credit union. So today, we have many credit unions that are getting very large. I mean nobody anywhere near the scale of a top tier bank. But they're -- we have many now that are in the billions of dollars in assets. They're primarily focused on consumer activity, so the member as opposed to businesses. Although more and more credit unions are hiring former bankers, and so they are making a push into the commercial side, generally small, medium business offerings for their members who own a business. So that's becoming a much bigger topic of conversation among credit unions. Credit unions are not for-profit, so they share their profits at the end of the year with their membership. So it's an attractive thing. And particularly, as you look at younger generations, Gen Z-ers for example. The idea of belonging to a credit union, that's a -- it's a membership thing and it's -- we're doing something good and we're giving money back at the end of the year. That's really appealing to Gen Z-ers. And so there's been a real groundswell of new memberships among credit unions with younger folks as far as making a deposit, getting their first home loan, getting their first car loan, that type of thing. So credit unions today generally are very healthy in the U.S. Membership has grown. Account volume has grown. Account balances are growing. But there's this real dichotomy. You talk to bankers, they're constantly lobbying in Congress because credit unions don't pay taxes, and so they're trying to get credit unions on a level playing field in their opinion as far as taxes are concerned. So there's this real give and take that's been going on for a long time between banks and credit unions and kind of how people feel about them. But the credit union industry today is very strong and continuing to grow. And I think you'll see it continue to strengthen, as I point out, largely because young people really like the idea of being part of a credit union, being part of a movement, if you will, that's different from a banking environment.

Got it. So maybe we could talk bank M&A. I mean deconversion fees, which tend to result from M&A with a headwind last year. What are you hearing from clients about the M&A environment?

Yes. So Will's reference to deconversion fees, in case you're not aware. So when one of our customers is acquired by another customer, if they're in a private cloud environment, they have an obligation to pay out their contract, right? They're running on a long-term contract. They get acquired by somebody else. They still have, let's say, 5 years left on their contract, they have to buy out that 5-year portion of their contract. That results in what we call deconversion revenue. It's a GAAP number, but we exclude it in our non-GAAP reporting because it's not a reflection of our operation of the business. So you'll always see us disclose the deconversion revenue number. So to what -- Will's point is, during this past year, M&A essentially came to a stop. Not literally, but really slowed down significantly during this past year. And so the good news is when M&A isn't happening, we're not losing a customer or one of our customers isn't being acquired by somebody. The bad news is that deconversion revenue really slows to a trickle. And as I mentioned, it's a GAAP revenue and it's a high-calorie dollar because there's no expense essentially that goes along with that. And so yes, that really came to a significant slowdown last year. That is -- it's a pressure as far as shareholders are concerned. But for us, it's really good news like I said before when deconversion revenue slows down. What we're hearing right now is there's generally pretty good feeling among bankers that I talk to regarding economy. Nobody that I'm talking to feels like there's going to be really a hard landing. It's really probably going to be okay. And so they're starting to talk M&A again. The challenge is bank stocks have taken a beating. And so a lot of bankers who are interested in doing M&A feel like they don't have the currency to do a deal. Sellers don't feel like they're getting the valuation that they should be getting. Buyers don't feel like they have the currency to get a deal done. And so I think as bank stocks -- as things kind of settle in around banks and as bank stocks recover a little bit, I think you'll see M&A pick up again because there is this general feeling that things are going to be okay and the economy is going to rebound, not in the next month, but in the next several months, and so there's a lot more talk now about getting back into the game again and doing M&A. The flip side of the M&A conversation for us is many of our banks are acquirers. And so whenever they go out and buy an institution, they pay us to convert that institution over to a Jack Henry platform. And that is a good revenue source for us. We call it convert-merge revenues. So you'll hear me on earnings calls once a while refer to deconversion revenue, which is one thing. Convert-merge revenue is something totally different. It's when one of our customers is acquiring somebody else. And we generally are the benefactor. When M&A is popping along, we tend to be -- it tends to be a positive for us more than a negative, meaning, we're adding more customers than we're losing because our customers tend to be very acquisitive, and so it tends to be a tailwind for us. But in this past year, obviously, it's been a headwind because M&A has pretty much come to a stop.

So maybe we can pivot to your Complementary Solutions segment, which -- I know there's a lot of products that actually comprise this segment. What [ do you mean ] the most traction in that segment? And what is bank appetite for ancillary modules in the current environment?

Yes. So it's -- the complementary segment at Jack Henry comprises well over 150 products. So sometimes people will tell me that -- ask me to describe what's in the complementary segment, I could talk for a couple of hours on that because there's a lot of things in there. But there tend to be some really hot solutions in that area that drive conversation and drive more revenue. And by the way, so complementary, I described core earlier as the primary accounting system, loans, deposits, GL. It's all the things around the edges that we refer to as complementary solutions. So all those products that kind of tie into the core. So right now, it's an interesting thing today. So in 2023, if you're running a bank or credit union, the good news for Jack Henry is almost -- if you're the CEO of a bank or credit union, almost any problem you're looking to solve today, you need technology to solve that problem. You don't -- you're not going to gain new customers by running a special and having people drive up to your branch. That just -- in 2023, that isn't it, right? You figure out how to use technology to gain new customer share, how to automate lending for your customers. And so the good news for us is almost anywhere a banker turns as far as, I got a problem I got to solve, the answer is technology. And of course, that's what we do. We're a well-rounded financial technology company. And so this environment for us, regardless of what happens in the economy, the environment that we're in, in 2023, with its dependence on technology, with this expectation of customers, whether they're a commercial business or a consumer, this expectation that they should be able to do things online, they should be able to apply for a loan online, they should be able to check everything they need online, that really is a positive for us. So regardless of what's happening in the economy, things -- just because of the time that we're in, those tend to be drivers for Jack Henry. Today, in the complementary area, a number of solutions getting a lot of attention. So one is our Banno digital banking platform. And the best way that I have to describe why Banno digital banking is getting so much attention, I've used this example many times, I'll use it here. So I don't know any of you in the audience. I don't know who you bank with. I don't care who you bank with. But I would bet a dollar that your experience on your phone is totally different from the experience you have when you sit down at your PC. There are functions you can do on your PC that you can't do on your phone. And you want to do something on your phone and you're like, oh, I can't enter a new biller and bill pay on my phone. I got to go to my PC to do that, right? There's all kinds of those types of things. We have solved that problem with Banno. Banno is a single public cloud platform, where the user experience is the same regardless of form factor. Whether you're on your phone, your tablet or your PC, it's the same experience. Most banks and credit unions need to move in that direction. Most are not there yet. Regardless of the size of the bank, most of them are not there yet. And so that tends to be a terrific driver for us because we've gotten a lot of attention in the space for having this unique solution. And there are a number of other functions within Banno that are unique, but that's a key part of the value proposition. So Banno has been a key driver for us now for the last 2, 3, 4 years. We just rolled out Banno Business this summer. So the same type of functionality for business customer the consumer has had with Banno, we have that in production now. That's live. So that's grabbing a lot of attention because now small, medium business customers have that same experience that the consumers have. We just rolled out during the summer Financial Crimes Defender. So a brand-new, ground-up financial fraud solution. Hasn't been a new one in the financial space for years. Jack Henry just rolled it out in July. Tremendous response. Tremendous adoption. So we see that as a driver for us going forward. We did just roll out FedNow. We've been at the table with the Fed for, whatever, 3 years or something like that, working on FedNow. Rolled out FedNow just, whatever that was, 2 months ago, I guess. So that's an opportunity for Jack Henry. Our treasury management solution. So we rolled a new treasury solution about 3 years ago, public cloud native treasury management for large commercial businesses. Have now thousands of users on that platform. So hundreds of businesses, thousands of users on that platform. So just a wide variety of different solutions in the complementary area. But again, the really good news for us, just because of the time we live in, as I said before, most problems a bank or credit union CEO has are solved through technology, and that's what we do.

And maybe before we switch gears to payments. I wanted to ask about the regulatory opportunity. It seems like every 10 years, the regulatory requirements ratchet up, and we're kind of going through that cycle right now. What's the exposure within complementary to things like regulatory capital modules? Or is there anything you can do more to kind of take advantage of this?

Yes, to some extent. So it is an interesting time. Since Silicon Valley, you can -- it's noticeable that the change in tone from the regulators with the banks regarding the exams that they're doing and so on. We are a significant provider when it comes to cybersecurity. So we have a division called Gladiator, where we secure bank and credit union environments. We do all the reporting that they have. We even have a Virtual Information Security Officer offering for banks and credit unions. So that presents somewhat of an opportunity. Beyond that, we -- in the areas of fraud, we provide technology there. As I highlighted earlier, we do a lot in the area of reporting for banks and credit unions to adhere with what the regulators are expecting of them. So there are some opportunities, but that isn't an area of specific focus for Jack Henry. So I wouldn't classify it as a huge opportunity, but there are some opportunities there for sure.

Got it. Okay. So maybe turning over to payments. It's a major sector -- major segment for Jack Henry. I know there's a lot of debit card issuer processing in there, but you've also got things like FedNow. What are you kind of most excited about? And what's the outlook for payments at Jack Henry?

Yes. So the outlook is strong. Again, I said at the very beginning here, we are not a payments company, but we do a lot in payments. So we are definitely very involved when it comes to payments and doing some really innovative things around payments. So the things I'm most excited about, FedNow certainly is an opportunity. We were at the table very early on with the Fed. I just did a meeting in D.C. in May with some of the Fed presidents and the folks that are running FedNow, and it was an interesting conversation because that was prelaunch of FedNow, but we were talking about the future and their expectation. And it was an interesting conversation to me because I didn't realize how kind of adamant the Fed presidents were about pushing FedNow as a required service long term. So not short term, but long term, they want to push that as a required service for federal payments. So for example, their idea is if you want to get your tax refund, you get it through FedNow. You're going to go to your bank and say, hey, we need FedNow for me to get my tax refund. You have VA benefits, you're going to get that through FedNow. You want to get Medicaid reimbursement, you get that through FedNow. So that's where the Fed presidents are thinking this will go long term. That's a really interesting idea. When you think about all the different federal government payments that flow out to the federal government, if the goal is to move everything to FedNow, that is going to drive a ton of volume in the long run. So -- but still early days of FedNow. Most banks and credit unions that have adopted FedNow are still in the testing mode. They're doing send -- they're doing receive only and they're trying to really understand how this works. They're all trying to make sure that they're not setting themselves up for some risk like they have seen with Zelle. One of the challenges with Zelle has been around fraud, and so they're really trying to make sure that they enter this space very carefully. But that's, I think, long term, a really interesting opportunity. Payrailz for us -- so we acquired Payrailz in September of last year. It's a payments -- public cloud native payments platform. Couple of objectives in that acquisition. One was we were facing a total rewrite of our bill pay platform. We have around 3,000 banks and credit unions running on our bill pay platform, but it's not a public cloud native platform. So we're going to have to rewrite that to be consistent with our long-term strategy of being public cloud native. But by acquiring Payrailz, we have the opportunity to move our existing customers over to this brand-new platform and do that migration without having to do a total rewrite. The other thing we got with Payrailz though was we also got a P2P platform, where the sender and the receiver don't have to be in network, which was a unique offering. So your bank and my bank, if we're going to send money to each other, they don't both have to be in network. My bank can be on Payrailz and your bank can be whatever. All I need is your phone number, your cell phone number or your e-mail address and we can get you money. And so that presents a wonderful opportunity for us with P2P. The platform also had an account-to-account transfer function. So if I want to move money from one bank to another bank but they're both my accounts, I can do that using this feature without going through an ACH and several days to clear, 2 days for an ACH to clear. This is a real-time payments offering. So I have that functionality. And then the other functionality on the Payrailz platform was a B2B platform or a payments opportunity in the real-time payment space. So lots of opportunity for us to grow that business. The other one that I talk about a lot is what we call PayCenter. So PayCenter is a payments hub. The idea behind that, when Zelle first came out, most people in our space wrote point-to-point integration between the Zelle platform and the bank. So if you wanted Zelle or bank or credit union, you would buy this piece of software to connect the Zelle platform to your bank or credit union. Well, now you want to go to the clearinghouse to do real-time payments, you buy another piece of software to connect the clearinghouse to your bank or credit union. Jack Henry took an entirely different approach. We wrote a payments hub. We call it PayCenter. The idea was there's going to be more real-time payments rails that are going to come down the pipe in the future. We want to build this once and then allow people to connect into that regardless of the payment platform. That has been recognized by a number of folks in the industry as being kind of the premier approach to dealing with real-time payments. And so we think we have a real opportunity with PayCenter to offer more connectivity for payments options for our customers. And so a lot of other opportunities, our debit card business, as you pointed out. Debit has been around forever, but it's still a growing business for us. We're a relatively new player in the credit issuing space. We've had this debit business for many, many years, but never had a credit business. So we launched that a couple of years ago. That's an opportunity for us. So still a lot of growth opportunity in the payments area.

Got it. And just...

[indiscernible]

Transaction revenue, exactly. Yes. So we don't participate in interchange, we get per transaction revenue on all those platforms.

How much of your revenue is transaction [indiscernible]?

The portion of the payments segment?

[indiscernible]

That -- I couldn't quote that for you accurately. I don't know. We can -- I think it's fairly large, but we couldn't get that number for you.

Got it. Maybe on that note, any last questions before we wrap up? Got about half a minute.

Can I just ask a question in terms of margins? The great story about Jack Henry has been 6% to 7% revenue growth and 150 bps margin expansion. Last year, we know with inflation, et cetera, people would understand. But that seems to be slightly broken again. Can we -- how do we get back to that track of 150 bps?

Yes. So there are a few things going on this year when it comes to margins, and you're referring to the guide that we've given for FY '24. Yes, so a few things going on this year. Number one, we -- so for FY '23, the fiscal year we just wrapped up, we did not pay 100% of bonuses. And for the coming year, we're budgeted for 100% of bonuses. So there's a headwind there because of bonuses that are planned for the coming year, assuming we hit all of our financial targets. We had this offering that we refer to as VEDIP, Voluntary Early Departure Incentive Program, that we talked about in the earnings call. That's a headwind when it comes to margins for this coming year. It's the right thing to do for the long-term future of the business, but it's a headwind when it comes to margins for the year. Travel, we were still kind of recovering, I guess, from COVID as far as travel is concerned. We've planned a full travel budget for this year. So that's a headwind when it comes to margins. So there are a number of different factors. Nothing has changed as far as the kind of the overall fundamentals of the business that would lead us to say there's going to be some drop-off in margin expansion in the coming years, but it was a little bit of a challenging guide for this year because of some of those headwinds.

[indiscernible]

Yes. So almost everything we do today is outsourced, meaning we're not selling software usually, it's the hosting services. And we have escalator, CPI escalators built into essentially all of our products, and we've been increasing, using those CPI escalators for our solutions throughout the year.

Got it. I think we're out of time now, but thank you so much for being here. Great conversation.

Certainly. You bet.