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

[indiscernible] company, Stifel Financial and Stifel Bank. So we're delighted to have everybody here. Just to give you some statistics, we have over 1,000 registered participants in the conference. In our 63-year history, we've never had over 1,000 registered attendees before a conference has begun. We've already organized 1,800 meetings over the course of 3 days. We have over 135 companies here with us today. And then also, we have another tradition with this conference. We're getting closer to opening day, and as everybody knows, in New York City, when someone throws out the first pitch, it doesn't go well if it bounces before it gets to the catcher. We like a first pitch in New York that's a fastball right down the middle. So we think long and hard for who's throwing out the opening pitch at our conference.

What a setup this is. This is a setup, right here.

And we couldn't be more delighted to have David with us this morning, and Jack Henry kick this off. David's had tremendous experience being in the middle and the epicenter of financial services. And Vasu, our colleague, is going to host the fireside chat with him. And so we're delighted to kick this off with this crew. So with that, I'd like to turn it over to Vasu.

Thank you, [ Tom ].

Thank you, [ Tom ]. Vasu, I will point out last year when we did this, it was standing room only in here. 8 a.m. maybe is not the -- more quality than quantity in this room.

Everyone sort of still listening in on the webcast. So thank you, everyone. Good morning. I'm Vasu Govil. I'm one of the analysts on KBW's fintech research team. Very pleased here to kick off this session with Jack Henry CEO, David Foss. Dave, it's always a pleasure to have you and thank you for joining us.

Thank you.

So maybe I'll start with a couple of high-level macro questions. I know you guys just reported your second quarter results, and you tightened the revenue range just a little bit around the midpoint. How are you feeling about the macro backdrop? How is it playing out relative to where you thought it would be at the beginning of the year?

Yes. So we're feeling very good about what's happening in our space today. And I think the tightening, as you mentioned, around the midpoint was because we had -- we felt like we had clarity at the beginning of the fiscal year. And by the way, just everybody is on the same page here, we're in our third fiscal quarter right now. We're a June 30 fiscal year-end. So at the beginning of the fiscal year, we thought we had a lot of clarity around the year, but then as the year has progressed, we felt like we could tighten that guide and make sure that we zeroed in on the range. But the spending environment is terrific. And you know that the -- on the last earnings call, I shared a number of notable wins that we've had, we signed 14 core deals in the quarter, which is a really strong quarter plus all the other significant signings that we saw. So today, bankers are spending money, and all the surveys that I'm seeing are indicating that is not slowing down. So for calendar 2024, the indicators are that we should see a nice continued increase in technology spending in our space. So that feels pretty good for the rest of the calendar year.

And we'll dig into some of that in just a minute. But I also wanted to address another question. The banking industry seems to have -- be having a bit of a moment again with the credit -- commercial real estate losses. And just curious if you guys have any exposure on that front? And the conversations that you're having with your bank clients, if anything, makes you take a pause on how they might be thinking about it?

Sure. So most of our banking clients, and of course, we're well distributed in both bank and credit union, not many credit unions doing commercial paper for large office buildings. But most of our banking clients are into CRE, but they're not into commercial real estate like a Manhattan office building. So when you think about the headlines that have been out there around CRE exposure and where those losses are coming, most of them are centered around office buildings because people aren't coming back into the office. And so when the lease renews, what happens to that lease, most of our customers are not in that business. Most of our customers are commercial lenders, so they are commercial banks, but they're really not centered in that business. And so there's some exposure there, but nothing that's really of note. And I talk to our CEOs very regularly, nobody wringing their hands right now about any tremendous exposure that they see in that space. Certainly, there is exposure in the overall industry, but among our customer base, not a real concentration.

That's helpful. As you alluded a little earlier, the demand environment has been pretty healthy based on the wins that you announced in this last quarter. I recall in the last year, you've called out -- you used the word record several times with the new sales environment...

Yes, yes. Starting to worry that I'm using record too often, but it's true, so I've got to share it.

Yes. So maybe you can talk to us about the drivers of that strength that you were seeing and the sustainability of it?

Yes. So I think there are several things. First off, and Jack Henry has recognized and has been for a long time as the most focused in our space. Our space, we are -- I'm very clear all the time to make sure that we are not described as a payments company. We do a lot in payments, but we are a well-rounded financial technology company. So it's a broad suite of technology for financial institutions. Payments happens to be one of those things that we do, but we're a broad suite provider. And so in our space, we've been recognized as a premier provider because we offer that broad suite. Our 2 largest competitors, of course, made these big shifts to be payments companies. Now of course, one of them has spun off that acquiring business. But I think when you look at the landscape, customers view us as focused on serving them. We're just focused on serving [ community and regional ] financial institutions in the United States. That's all by strategy. We have this broad suite of solutions where we don't have overlap, hardly at all with any of our products, so they know which solutions we're going to support and which ones we're going to go forward with. We're known as the best customer service provider in our space, which does make a difference. And we often have disruption that especially our major competitors have experienced in the past couple of years. And so I think all of those things come together as Jack Henry is a really good provider. Okay, now let's look at the technology Jack Henry is delivering. You know well that 2 years ago, I announced a technology modernization for our company and lots of customers, lots of prospects now are really starting to understand what does that mean? Where are they going at Jack Henry? That's created opportunity for us because we have such a well-defined, long-term strategy as far as technology and public cloud and how we're getting to the public cloud, that's receiving a lot of positive press. And then just the solutions that we're already delivering. So you know well Banno digital banking, leading us in the industry right now as far as new customer growth. We have our Financial Crimes Defender solution, brand-new, developed by Jack Henry. We're developing and rolling out all these new solutions ourselves, we're not depending on acquisition and that is also receiving a lot of positive feedback from customers and prospects in the space. So you put all those things together, Jack Henry is a pretty good choice. And so at the end of your question there was, is that sustainable? I think it is sustainable because that story isn't changing. We're still innovating new things. We're rolling out new solutions. None of the rest of that story has changed, and it's a good time for us right now.

Are you seeing a notable difference in what your banks are consuming versus credit unions? And where are you seeing most of the demand outside of Banno? And I know you called out a few others.

Yes. So banks and credit unions today, most consume very similar solutions So if you'd asked me this question 10 or 15 years ago, I would have given you a very different answer. What banks are focused on, what credit unions are focused on were very different. But today, the types of solutions they're looking for generally are very much the same. So digital banking, a digital banking experience that isn't just, hey, I want to look up the balance in my account, but I want to be able to originate loans with a really user-friendly experience. So the entire suite of digital banking experiences. Commercial loan origination. So 10 years ago, I would have said, no credit union is really focused on commercial loan origination. Today, lots of credit unions are trying to figure out how to get into that space. And so commercial loan origination -- digital commercial loan origination is a more prevalent topic now among credit unions than it used to be. And so when I look across the landscape, I think most of the things that we offer, certainly, whether you're running a bank or credit union, you're going to deal with all kinds of different fraud opportunities, challenges and so that certainly is of interest for -- across both bank and credit union. The unique thing for us maybe is that on the credit union side, and I think you know this, Vasu, we are the dominant player among large credit unions. So almost 50% of the credit unions over $1 billion use Jack Henry as their primary technology providers. We have a real dominant position among large credit unions. And again, many of them are starting to think and act more like banks. And so that's, I think, part of the reason why most of the things we offer we're getting similar levels of interest across both bank and credit union.

Super helpful. I think another area of success you've had of late is signing banks with multibillion dollar in assets, and you've called out several wins over the last few quarters. What's enabling that? And is there a more concerted effort to go upmarket? Is it the go-to-market strategy? Is it the product suite that you now have that's enabling that?

Yes. There is a more concerted effort to go upmarket, so that is absolutely true. We've had -- we have historically owned, I think it's 26% or so of the bank -- banks over $1 billion roughly 26% use Jack Henry as their primary technology provider. But we see opportunity in that space, above $1 billion because, a, the failings of our competitors; and b, because we have created the suite of solutions now that are really interesting to larger banks. One of the things that is creating opportunity for us is the technology modernization strategy that I started talking about a couple of years ago. Lots of larger regional banks are trying to figure out how do we get from our old technology stack to something that's new, and for them, new is often centered around public cloud. How do we figure out how to take advantage of the public cloud offerings? How do we move from whatever we've been running for 30 years over to something brand-new public cloud, but we want to do it with a technology provider that is proven, that actually knows how to deliver to commercial banks in the United States, understands the regulatory environment and all those types of things. And so with this technology modernization strategy that we've been talking about and working toward and delivering, we're delivering this pieces along the way, it's not a big bang delivery at the end. We're building a lot of credibility among those banks. We've had a number of them now come and take a look under the covers, really trying to figure out what we're doing. I know that some of the banks we've signed recently have signed because they see that future with Jack Henry and they want to get on the train now. Even though they can't fully deploy public cloud now, they want to get on that train now so that they can kind of evolve with us to the public cloud. And then put that together with -- so SilverLake, our flagship commercial banking solution, well recognized in the industry, and it was called out a couple of years ago by one of the analyst in this space as the best commercial banking system available today. So when you've got the best commercial banking system, you got this leading digital banking solution with Banno, we have brand-new treasury solution, brand-new fraud solution, all these things that we've been rolling out and we're being recognized on the payment side as supporting the majority of the live customers on the clearinghouse and real-time payments -- clearinghouse with real-time payments, okay, that's a lot of positives for Jack Henry that's causing these larger institutions to look at us and say, okay, maybe we need to be talking to Jack Henry.

That makes a lot of sense. How has the competitive backdrop evolved over the last few years because we know that there are a lot of different fintechs that have point solutions that are competing with select products that you have. There are also a lot of fintechs that are trying to build more modular, cloud-native cores and sort of going after the core tech business. So just curious -- and many of them from the numbers we see are seeing good growth. So just curious if you were seeing any discernible shifts in the competitive backdrop and also the willingness of banks to maybe engage with modern tech players?

So we're not seeing a notable shift, I'm very well aware. I can talk all day about a lot of the different players that are in the space. It's interesting because a lot of folks get into our space thinking, oh, this would be cool. This is where the money is. Let's go work with these bankers. And then they get into it and realize the regulatory environment is really difficult. And they say, this isn't that cool. Maybe we'll do something that's a little bit more of a sliver of what we were originally planning to do. So we've seen that happen over and over and over again. And we've seen upstart fintechs that we've been competing against for years. As some of you know, we were what was called a serial acquirer back in the 2000s. We acquired 28, I think it was, fintechs during that period and kind of folded them together under a single brand of Jack Henry. So we're very well aware of the fintechs that are out there and what they're doing and who wants to kind of get into the space. And there are a few that have seen a little bit of success. Not so much on the core side, they make big headlines when they sign somebody. But it's the delivery part that you really got to do. So it's fun to say, hey, we signed a bank. Okay. Now let's talk about how many have you actually delivered? And what has been the experience for those customers that you've delivered? And are you really doing core? Are you just doing deposits? Because, oh, by the way, deposit is easy. Loans and all the rest of the stuff is where -- and processing payments is really difficult. Delivering deposits and saying we've got a deposit-only core out there, that's an easy thing to do. And so I think it's a reality sets in for a lot of these folks as they get deeper into delivering whatever solution it is that they have. We don't take any of them lightly. We follow them closely. We've seen a few flame out on the core side. We've seen a couple that have actually signed some customers, and we're watching what they're doing. But on the core side, especially with our tech modernization strategy and what we're doing there, I feel very confident we can compete with anybody and I'm not worried about our ability to sustain our company on the core side. When it comes to all these complementaries, there are some really good solutions out there. And again, we acquired a lot of them back a few years ago some really good solutions out there. We are very well prepared to compete with anybody who wants to come and play in our sandbox. And we're delivering this really wonderful technology today. Financial Crimes Defender, brand-new, state-of-the-art AI-enabled public cloud-native fraud solution that we've just rolled out here a couple of months ago, getting great recognition in the industry. Why? Because it's the first brand-new fraud solution that's been delivered in 20 years. So it's really positioned us well on the fraud side. Banno business, really positioned us well for digital banking. We have online commercial loan origination, a very deep solution. Complete brand-new ground-up treasury solution. We have thousands of commercial customers now through their banking relationship who are using our treasury management solution. So we're well positioned to compete with any of them. But the thing that I'll point out is we don't try to be all things to all people, right? So we know there are some things we're not going to be experts in. That's okay. Our philosophy, as you know, has been we're very open. If you're a bank and you decide to choose something over here that you want to integrate into the Jack Henry tech stack, we try to make that really easy, we always have. Try to make it inexpensive because our job is to help our bankers be successful. And so if we're -- if there are a slivers of the market that we don't serve, that's fine. We don't have to win everything. We like to win more than our share, but we don't have to win everything. And so we'll create those integration opportunities for those solutions that we don't have.

So I think Banno is one where we get a lot of questions, and I think a lot of people trying to understand the contribution of Banno to the overall business, which I know you don't disclose. So maybe you can help us think through how fast it's going? And how should we think about the growth drivers there? Is it pretty much going in line with the registered users that you call out every quarter? Or are there other products that you sell into it where the growth algo could look different than just the growth in users and maybe pricing is a lever as well?

Yes. So for those of you who don't follow us closely, so Banno is the name of our digital banking suite. It's a public cloud-native digital banking solution that offers all the stuff that you do with [ ours ]. If you think about mobile banking and Internet banking, put them together, one of the unique things about Banno is most banks and credit unions have a mobile banking solution and an Internet banking solution and they are two different experiences, right? So you can do things when you're on your PC that you can't do on your phone. And there are some things you can do on your phone that you can't do on your PC. And the user experience is totally different. They look and feel different, frustrating for people. Banno has solved that problem. It's a single platform, public cloud-native. I don't care if you're on your phone, your tablet or your PC, the user experience is the same. The functionality is the same. It all looks the same. Very appealing. Almost any bank or credit union in the U.S. needs to get to a solution like that where you have a single experience, and this is true for commercial customers and retail customers where the experience is the same. So that's gotten us a lot of attention. We're signing -- have signed a lot of customers here in the past couple of years with that solution. It is not a segment for Jack Henry, though. So that has rolled into our complementary segment. We have 3 segments: core, payments and complementary solutions. Complementary solutions has a variety of products in it, well over 100 different products. And so Vasu, this is one of our regular debates. Vasu pushes me all the time, hey, you've got to give us the breakout on that individual solution. We just don't do that in that segment. But it is certainly a notable growth driver for us in the complementary area. So what I have had said on analyst calls and in sessions like this is we share with you the registered user count every quarter, and I've been loyal to that every quarter. I share with you the user count so that you can kind of project, if you look at pure-play competitors that we have that are in the digital banking space and only in the digital banking space, you can kind of compare then and kind of model based on our growth. And registered users is the primary driver for growth for the business even as we roll out Banno business now. So registered users will be the primary reflection of the growth of the business and kind of what we're doing in that line of business. The thing that is a little -- it's going to be a little bit wonky here for the next couple of quarters is we rolled out Banno retail a couple of years ago, and I started sharing all that information with you. Well, now many of the Banno business customers that we've just announced and that we'll be implementing are already existing Banno retail customers, right? So they're adding business because we just rolled it out. They'll become Banno retail customers. It will throw the numbers off just a little bit, but I'll do my best on the calls, or Greg will, starting -- after July 1 to share on the calls kind of what's happening as far as the growth of that business. The really exciting thing for us is the growth drivers are all still there. We are continuing to see a tremendous amount of interest in that platform. We have, as you know, Vasu, have not been selling it outside our core base. We will start selling it outside the core base later this year. That creates a whole new opportunity for us again because most banks and credit unions have an Internet banking experience and a mobile banking experience, and they need to fix that. They need to bring that together with a single platform. Jack Henry has that. That problem is solved. We've been in production for 3 years with that solution. So we just need to now start selling it outside our core base.

So a couple of questions on that. I guess one in the most recent quarter, you did see a spike in new signings in Banno and you had called out a pent-up demand for Banno business. So should we expect that to remain elevated here for a period of time as demand for Banno business close in?

Yes, that's a good question. I don't know that I can answer accurately because I haven't seen the exact sales numbers on that. I think it's logical to expect that would happen. And just to make the point, we have a whole bunch of customers that have signed up for Banno retail, and they were running something else for usually Internet banking for their business customers. So they had Banno retail and then something else. And then when Banno Business came rolling out, they signed up for Banno Business and moved over. But as Vasu alludes to, a number of customers said, I want to do everything all at once. I'm not going to go retail now and have my commercial customers running something different. I'm going to wait until you roll out Banno Business and then we'll sign up for the whole thing and do both retail and business at the same time. And so that's the elevated point that you remark about. I think it's logical to say this quarter would probably be like that, but I honestly have not looked at the numbers. I can't say that with any degree of accuracy. But I think that's logical. But that will kind of sell down again and I think you'll see our normal growth rates after that.

And then Banno regular versus Banno Business as we think about the number of registered users that typically we get at in the bank, is it sort of similar or is it smaller, larger?

It will be small -- well, so the number of additional registered user will be smaller, but the price that we charge for registered user will be greater, yes. So the pricing goes up when they add Banno Business per registered user, so that will increase revenue flow regardless of whether or not the number of registered users on the banking side -- I mean, on the commercial -- the business side is anywhere in the same range as the consumer side.

And then just going back to your point about starting to sell outside of your core base, that was a decision you sort of stopped. You took a step back in sort of selling outside of your base because of competitive reasons. Sort of what has been the thought process to get back to a point where we're willing to sell again outside the core?

Yes. So the story Vasu knows that some of you may not know, and I was transparent about this on the call. We were -- about 1.5 years ago or so, we were fully prepared to start selling Banno outside the base. And what we learned was, particularly one of our competitors -- a couple of our competitors, but particularly one of our competitors, their sales reps were going on to their customers saying, hey, we know you don't like your technology from us, but you'll be able to get Banno Business now and so you can kind of just -- you can kind of live with what you've got -- or you'll be able to get Banno, you can kind of live with what you've got. You won't need to upgrade your core system because you'll have a really great digital banking experience. And so our thought was, okay, we had not expected this that our competitors use this against us on the core side of the business where they'd convince their customers, hey, just sit tight on your core. You don't need to change core because you're going to get this great solution from Jack Henry to address your digital concerns. And so we had to kind of put a stop to that and say, let's make sure we're being very strategic about which bases we will sell into. So what we've done now is we've defined 3 different core customer bases. And no, I'm not going to tell you which 3 they are, that we are going to sell into and because we know that regardless of our selling Banno into that customer base, we know there is a great opportunity for us still to displace their core regardless of what happens with them acquiring Banno and their sales reps trying to convince them to stay on an old core. So we've been very strategic about this. We have our pricing set, have our strategy set, have most of the integration ready to go. So later this year, that's when we'll start to roll this out.

Great. Maybe shifting gears back to tech modernization strategy that you talked about earlier. It's now been a couple of years since you rolled that out. Maybe sort of give us an update on what all you've accomplished to date and sort of what's on the road map for the next year or two?

Yes. So we -- so again, just to make sure everybody is on the same page. So about 2 years ago on the earnings call in February, I announced that Jack Henry was embarking on what we refer to as technology modernization. So it was taking our core system and entirely replatforming that core. So rewriting core functionality onto the public cloud. And we've been very public about our partnership with Google. So we announced the partnership with Google. We're writing a whole new technology stack brand new. So we did not do a lift and shift. We didn't take some old stuff and make it work on the public cloud. We're rewriting ground up to create a brand-new technology stack. And so my point in announcing that was to make sure that customers and prospects know this is the road forward with Jack Henry. We are not going to do some lift and shift, take some old stuff and try to create an API layer and kind of just piecemeal it together. We are committed to being in this business for many years to come and that required a full replatform. And so since we shared that, and now we've had 2 years of lots of people looking under the covers and bringing in consultants and trying to figure out are we doing the right thing, we have a tremendous amount of interest now in what Jack Henry is doing, and people kind of waiting to see when do you actually get a full bank into production. I said at the time, by the way, 2 years ago that it would be at least 5 years before we'd have a full bank in production. It's been 2, so we still have a ways to go. But as I also alluded to earlier, we're rolling out pieces along the way. So for example, wires is now in production. So wire origination is in production. We have -- are just about to release what we call Data Broker. So Data Broker, the idea there is using the power of Google -- so think about this for a moment. We're in the Google Cloud environment, using the power of Google. We're consolidating all the data for the bank into a single environment and using the Google tool set to interrogate that data and create reporting, create dashboards, all that stuff that's inherent in the Google environment, we're able to use that as core functionality, but it's using the power of the Google environment. And so slowly, but surely, we're rolling out these pieces. And so what we'll end up with in the end is, as opposed to a core solution, which -- and I've been in this business almost 39 years now. I know I don't look like it, but 39 years I've been doing this. Not at Jack Henry, the whole time. Technology, I started out as a technology developer and been at 4 different companies, but my whole career has been around delivering technology to banks and credit unions. And when we get done with this, instead of a core, which has been what we've been doing for almost 40 years, you buy a thing. It's a core, it has loans, deposits and general ledger and all this other functionality. We've done away with that model and we've kind of unbundled the core to create all these discrete components that sit on this public cloud platform that we've created. And as you buy those components, they become enabled for the bank or credit union. By the way, Banno Business sits on that same platform. Financial Crimes Defender sits on that same platform. Payrailz, our newest payments platform, sits on that same platform. So the idea is now all these technologies you get from Jack Henry sit on a single platform that is all API enabled to connect other solutions in, and it's all supported by the power of the Google Cloud with all the functionality that Google provides that's the new deliverable. So as we've been rolling out pieces and people can see them and touch them and kind of see where we're going, that's what's created a lot of this excitement. But again, I continue to be transparent. You're not going to see us announce a full bank in production for a few more years, but the model is proving itself out and we're seeing great interest and great success in that regard.

And the modules that you rolled out to date, are you focusing only on going after new clients? Or is there an element of converting the back book as well?

Definitely, working on converting customers who are already running a Jack Henry core system. So today, I don't think we have -- I may be wrong, I don't think we have any brand-new customers who have signed for any of those modules yet. It's been existing customers that are signing for the modules because they like the new functionality. We -- from day 1, we created all these modules to easily integrate it into our existing cores because we knew some people would want to consume them along the way. And so it's just like them buying a complementary solution from some fintech, it's just integrated in through the same API layer. It just happens to be a Jack Henry module integrated into our existing core system. So I think that every one of those customers that has deployed one of those modules so far is an existing Jack Henry core customer.

And does the revenue potential change a whole lot if they moved from whatever they were using with Jack Henry to this modern tech platform?

It changes because on the modern tech platform, there are new solutions that were never a thing before, right? So Data Broker, for example. There's data warehousing technology, but Data Broker is a whole different experience. So that's never been available from anybody, not just Jack Henry, from anybody as far as a complete solution like we have where it's consolidating all the data, allowing reporting on all the data and doing dashboarding from that same data set. That's a new opportunity in the space, not just for Jack Henry. And so there is -- we've expanded the TAM essentially because we're creating new solutions that were never there before in any core system.

And I guess one of the areas of focus for you with the tech modernization strategy was that you can start to do things for larger banks, regional banks even. So how is -- how have the conversations gone on that front? And when might we hear -- when might we see a press release that you signed someone?

Yes. Well, so the conversations are going great. I'm not -- I can't predict for you when you'll see a press release. But we -- I think I mentioned it on the last earnings call, we host a big annual client conference every year. And this past year in October, we were in Indianapolis. We've never, in the history of the company, never had a bank over $20 billion show up as a prospect at our client conference to say, hey, we want to spend time with you. At this year's conference, we had three. Three banks over $20 billion in assets who came. Our sales teams were working with them, of course. They came, they wanted to sit in on sessions, meet the people, meet me, start to understand what it is that we're doing at Jack Henry. I think that's a really good indicator that we're on the right track as far as interest and kind of the perception of what it is that we're doing. Now of course, we have to prove ourselves. Nobody is going to switch their entire core platform just because it sounds good. They want to be able to see what we're doing and actually see us deliver. But again, I would contrast, what we're doing to some of the upstarts out there, it's fun to talk about some of these upstarts. But if they've never delivered a bank before, never, okay, if you're a bank CEO, that sends a shiver up your spine to say, I'm going to go and put the crown jewels of my institution in the hands of somebody who's never delivered a financial institution. And you look at Jack Henry, who has a 47-year history now successfully delivering complete functionality for a bank or credit union, I think we're in a different league along those lines.

Great. I know you mentioned the payments segment before, so wanted to chat about that quickly. Historically, that's been pretty accretive to total company revenue growth, but we've seen some slowdown there. It's still pretty healthy growth, but some moderation. Is that related to the debit slowdown we have seen from the networks? Or is that the business just becoming more mature and so we're seeing some leveling off on growth?

I think it's more related to the comps from -- so a couple of years ago, we saw -- let me back up a second. Just make sure everybody on this page here. Our payments segment is composed of 3 different pieces. We have our debit business, which also we offer credit, but we're a minor player in the credit business. It's primarily a debit business. We have what we refer to as Enterprise Payment Solutions, which is a remote deposit capture ACH origination business, which, by the way, is still very strong. And I know you say, okay, checks, really, but it is a very strong business. And then the third piece is, historically, what we've referred to as our bill pay business. We've expanded quite a bit beyond bill pay now in that space, but it's all in that same type of platform. So in that second segment, Enterprise Payment Solutions, coming out of the pandemic -- during the pandemic, but really coming out of the pandemic, we saw tremendous growth in that leg of that 3-legged stool in the payments area. That growth has really spiked. I mean it's still a very successful business for us, but it's -- but growth has slowed. So when you look at the payments segment overall, what's kind of changing as far as the growth as compared to our prior year comps is primarily because of the slowdown in Enterprise Payments. It's not because of any major shift on the card processing side of our business. And speaking of cards, so if you look at the debit business, you follow what the public reporting that Visa and Mastercard does, that's -- our business flows right along with their numbers. And so any reporting that they do almost every single time, you can predict what Jack Henry is going to do in the card business because we flow right along with them.

And then maybe you can also give us a quick update on Payrailz. I know when you acquired that, I think the expectation was that you would double revenue and EBITDA from that business that year? Is that on track?

Very small, yes. Very small business. So it's easy to say that. So Payrailz, again, just to get everybody on the same page. We acquired Payrailz now 1 year, or yes, 1.5 years ago or something like that. The reason we Payrailz, back to my point earlier about we're trying to do everything a public cloud-native in the future, so we're moving everything to public cloud. We have this very successful bill pay business. We had a lot of demand for PB payments and B2B functionality that we didn't really offer on our iPay platform, which is our bill pay platform. We could do those things, but it wasn't a very elegant delivery. And we weren't public cloud-native. And so we were facing this rewrite of our bill pay platform and a demand for additional functionality. And the option we chose rather than go through all that was to acquire this company called Payrailz. So we've been following them for quite some time. They had a very nice platform. Very small company, but a very nice platform. And we saw them as that company that strategically fit into what we're doing from a business point of view, but also from a technology point of view. So we slide them in. We knew we had some work to do around integration and kind of propping them up for prime time. But it was a really nice opportunity for us to get some technology that we could now lean on for the future to fit with our overall strategy. So we rolled them in. We -- at the time, we knew that, that business was very dependent on 1 reseller. They had a sales force and they were performing well, but they had 1 pretty significant reseller relationship. The reseller fell down on the job, I'll just put it that way. And so no, we did not exceed the -- we did not hit the revenue target that we had hoped for originally. We have definitely hit the operating income target and the overall bottom line financial performance of that business. But we did not hit the top line performance primarily because of 1 reseller partner. We fixed all that now, and so we're on the right track. The other thing we had said was that we would be EBITDA positive in that business by the end of the fiscal year. We've actually achieved that already. So not June, but we're in there now as far as being EBITDA positive. But again, a little short on the revenue side, but the business is performing well. Customers are happy. And so we're going to move our existing customers over time onto that platform, but then we're also signing new customers onto that platform with a broader offering that we can -- obviously, you can charge more because you have more functionality.

So I have to ask about generative AI. It's a very hot topic these days, and I think the initial focus of many companies has been on the operating cost side. For Jack Henry, I think it could also be a revenue opportunity. And I think you had mentioned on the last call that at your client conference, you have rolled out a few offerings. So maybe help us think through the use cases, both on the cost and revenue side.

Yes. So this is about a 3-hour conversation right here, but I'll try and distill it down to a few minutes. You're right, lots of opportunities for us as a large public company. Also, of course, lots of opportunities for our customers. So our banks and credit unions, they're all trying to figure out where do they use AI, what do they use it for. The thing to distinguish here is so there's traditional AI machine learning. We've been in that business for many years. We've had solutions that have traditional AI built into them and have done that for quite some time. Generative AI is the new hot topic. And so when I think about those opportunities, first off, for our customers, just to point out what you alluded to as far as our client conference, what we demonstrated onstage at our client conference here a couple, 3 months ago, was we had used AI through Banno, so our digital banking application. We had used AI to learn. And what we did onstage was we had our CTO, we had the woman who heads up AI for Google and we had the CEO of one of our banks. And the CEO said, I want to come and be there in person onstage to tell all bankers how great this is and what it's done for us, which, by the way, is pretty cool when you have a customer who insists on coming and getting onstage to say, I want to tell you all how the great this has been for my bank. And so what they talked about was how we used generative AI to learn the entire employee manual of this bank, right? They have this playbook essentially about how you deliver service, how do you treat customers, the vernacular that they use within the bank. We also learned their website, learned everything about the bank, their documentation, everything that they have using AI and then created, using that, this add-on to our already digital experience for customer service. So when a customer service agent -- or a customer of the bank contacts the customer through the Banno application on a normal workday, they can have a conversation through the application with somebody in the call center and that's technology nobody else has in our space, but we have that and it's been in production for quite some time. But after hours, when there's nobody in the call center, the Gen AI offering from Jack Henry steps in. And they have those conversions using the vernacular of the bank. They know the policies of the bank. They know how to answer questions because they've learned it using the same tools that an employee would learn, but now we're using technology to deliver that experience to their customers. And so again, the CEO is onstage kind of crowing about how great this has been for their institution. So that's just one experience that we can and have already delivered. And then you look at Jack Henry as a company -- running our company. We actually have a meeting coming up next month or maybe it's 1.5 months from now and it's all for the senior leadership of the company, and all the speakers are senior leaders. And they're all laying out for each other, here's where we're using AI in our business. So our Chief People Officer, for example, here's where AI is going to be used in my line of business. Our General Counsel, here's where AI is going to be used in the legal part of Jack Henry. Our CTO, of course, here's where it's going to be used for developing code, but also things we're going to deliver to customers. So we have all these different folks lined up to share at the senior management level, here are my plans. And of course, they all roll together under a single master plan for Jack Henry. But it is amazing how many opportunities are there. And of course, you pick up any paper or look at anything online, everybody is talking about how amazing it is, but it's just been really interesting and exciting. And I was talking to [ Tom ] before we got up here, I've been doing this for a long time and the opportunities now in technology are so much more exciting than any other time in my career. It's really, really interesting. Now with all that opportunity comes a lot of risk, right? So we have to be really careful about managing the risk side of this. We house a lot of customer data. We can't do anything that would possibly expose customer data, our bankers' customers, to the public environment. And we can't create -- we have ensure that we're not creating any code because IP is our life. We can't be creating any code that would now become part of the public domain. And so making sure we have all the guardrails in place around all the things that we do is paramount. So I want to move fast, but not that fast, right? I want to make sure that we're really managing the risk on all these things before we just try to do things that look fun and kind of get ahead of ourselves. But lots of fun to talk about, I'll say that.

So in terms of a time frame, would you say we'll start to see some things that move the needle in the next 12 months? Or is it more of a 2- to 5-year time frame?

Well, I think it will depend on which needle you're talking about. So on the revenue side, I think -- I would think within the next 12 months, you'll start to see things that are directly impacted by Gen AI that are creating opportunity on the revenue side. On the cost side, it will be sooner than that internally. How big that will be, I have no -- I can't predict that at this point. But just lots of interesting opportunities. The governor, again, is risk. You've got to -- we've already come across a bunch of really good ideas that look really good on the surface. And then you start getting into it and you think, okay, but what about this? And so we really have to be careful about the risk side, but I think we're going to find some really great opportunities.

A couple of last ones. I know you mentioned before you have been a very acquisitive company historically. And it was interesting that you noted on the last call that you have no deals on the line.

Zero. And that is still true, by the way. Nothing.

So just curious what's the case? Is it mostly valuations?

It's -- so I had dinner last night with an investment banker I've been friends with for years here. And he said he thinks that things are going to start to show up on our desk. It's not been around valuation -- well, maybe some of it has been. But we haven't even had bad deals to look at, deals where I would go, oh, we're not going to pass on this. There's just been such limited deal flow in our space. And I know that investment bankers in our space know our profile, how we look at deals. So I'm sure there are some deals that have been going on out there that they say, well, we're not going to pass this by Jack Henry because we know that they wouldn't take a run at this. But it's just been incredibly slow. And as I talk to investment bankers in the space, just not much going on. But I've been assured now by several in the space that it's kind of one of those just wait until next month. So I'm waiting until next month. We'll see if things start to open up a little bit. The good news for us is we don't need to find a deal right now. We don't have a problem that we have to solve with a deal. What we've done historically is we've done a lot of deals over the years, and they have been opportunities for us to find something that positions us better for the future. We don't do deals -- never have we done a deal on cost synergy. Never once that we've done a deal where we say we're going to take out a whole bunch cost and that's going to make this thing work. It's always been around technology that's innovative, a team that we believe in, something that we think customers are really going to grab on to and say we want more of that. Every deal that we've done has been along that line, and I think we'll find some more of those in the future. But the good news is we don't try to -- we don't need them to juice top line growth in the next 6 months or something like that. We're always taking a long-term view as we do these acquisitions like Payrailz. That was a long-term view. We're going to do this deal now because we see 2, 3, 5 years down the road this is going to totally change what we can offer to customers. That's the way we view deals and that's the way we kind of evaluate deals. And so we just haven't had any of those to look at and literally 0 on my desk as I sit here right now, which is still shocking to me.

Maybe we'll take a couple of audience questions if anyone has any. [ Tom ]?

So I have 2 quick ones because I know we don't have a lot of time left. Number one is there's a lot of talk about scale in the banking industry. From your seat, do you have an observation about how you see banks using technology based on size? Or is it more consistent than we would think? So that would be my first question.

Okay. So I think -- I don't know that it's so much based on size. The interesting -- the really interesting thing for me right now when it comes to bank's use of technology is those who find niches that they can serve -- so think about most banks have thought in terms of serving a geography historically, right? My bank, we serve this city or this county or the state or whatever it is. Okay, with all the digital things that we're doing today, if you find the niche that you could serve better than anybody else, geography doesn't have to matter anymore, right? I can serve customers nationwide out of my town using technology. That's the really exciting opportunity that I have been witness to many times over now. Bankers that -- or banks that you would think, well, that's a $1 billion bank, how are they doing this nationwide? Oh, they're doing it using technology. Lots more opportunity to do more of that. So I don't want as much think about it as the size of the bank, how much technology they're using as I think about more of the creativity maybe of the leadership team.

And then number two is, we are going to have FedNow as part of this conference over the next couple of days. But what do you see developing in real-time payments? And can you give us any update on the uptake in terms of the acceptance of real-time payments?

Yes. So for RTP with the clearinghouse, I think we're still over 60% of the banks live with RTP in the country today are using Jack Henry to facilitate that. So we're very much into the real-time payment space, very much a provider in that space. When it comes to FedNow, FedNow is continuing to grow slowly, most -- I don't -- most every bank out there is doing receive only today, right? They're receiving payments, but they're not sure they want to be originating payments today. They're all taking it slow. I think much of that is around their experiences with Zelle. A lot of them feel like they got burned with the experience with Zelle and so they're kind of taking it slow on FedNow. I think the really interesting thing, so I was in D.C. right before FedNow went live last year. I was in D.C. meeting with some of the Fed presidents and the leadership team for the FedNow offering at the time. And we got into a conversation about Jack Henry. We've been working with them for 3 years. We've been at the table with the Fed for 3 years. We were about to go live and we were talking about what the future looks like. And when the Fed President said their goal was to push the treasury to make almost all government payments flow through FedNow, I was like, okay, that is going to be a game changer. So you want your VA benefit payment, FedNow. You want your IRS tax refund, FedNow. You want your Medicare reimbursement payment, FedNow, right? If that really happens, and of course, the Fed can't mandate this, they have to negotiate with the treasury for that to happen, but if that happens, if that day comes, then you're going to see an explosion of FedNow growth. And of course, every banker is going to want to be on that platform. So today, it's continuing to be slow growth. We're very much at the table. We have many banks live today on that platform. But I think if that comes, that's going to be a game changer for FedNow.

We have time for maybe one last question, if anyone has any.

How do you view build versus partner versus acquisition? Do you consider partnerships as like let me try before I buy? Or is it, no, we're going to like we love this. We're just going to -- is it binary, we build or we acquire?

Yes, it's a great question. So build/buy/partner has been a topic that we have changed our thinking on a lot in the past few years. We used to be very much heavy towards the buy, almost never partnered. We would build things, but we were very much heavy on the buy side. And I have I [ ran ] the practice at that time, by the way. So I was the culprit in all that. And as in the last few years, we've shifted, I think, very appropriately to where we evaluate build/buy/partner very evenly on every opportunity. You will still find it's rare that we partner, and the reason is we hold dear our customer service reputation. And if you partner and you put the customer experience in the hands of a partner, now you risk damaging your reputation for service and we're not willing to do that. So we only partner very selectively. But I would say we're really good now at the build or buy equation and then we partner when we really feel strongly about partnering.

I think with that, we're out of time. Thank you very much, Dave, for doing this. As always, appreciate it.

Certainly. And you didn't even mention that I'm leaving. This is my last one.

That was actually going to be my last question. So this is actually going to be Dave's -- is this your last conference call that you're doing?

No, no, I'm doing other conferences. But with you, this is my last time onstage, so yes. So I'm retiring July 1.

[ He's positioning ] to be Executive Chairman in a few months and leaving the company in the great hands of Greg Adelson. And I would have loved to hear if there's going to be any change in strategic priorities as Greg takes over, but we'll have to leave that for Greg.

Okay. Thank you, everybody.

Thanks very much.

Yes. My pleasure.