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

Good morning, everybody, and thank you so much for joining us, and welcome to the 2024 Wolfe FinTech Forum. Again, I want to thank you all for being here, investors and corporates alike. I think it's going to be a great 2-day event. I want to give a special shout-out to my team as well as the corporate access team and sales and everyone here at Wolfe that's put this effort together. We're proud to have around 70 public and private companies participating in 30 fireside chats and panels and one-on-one meetings over the next couple of days. We do expect to come away with incremental takes on a number of high-level themes, including how companies are thinking about the current macro environment; balancing the need for growth while expanding profitability, which we've heard a lot more about the last year; competitive dynamics across the space, which again has also heated up across different parts of the ecosystem. We're going to have panels today, including the venture capital and private equity panel, which we really hope to hear more about where the private side is investing in and the key themes they're seeing that's attracting new capital; evolution of issuer processing, macro from our macro specialists and economists; software and payments converging at the point of sale. B2B payments, obviously, continues to be a hot theme we're going to talk about. E-commerce, gaming and payments and more. We'll have Global Payments, Pfizer, FIS. We have Jack Henry with us this morning. We have Visa and Mastercard. There's a lot of talk over incremental mergers in the recent headlines, whether it's Capital One or Discover or it's others. But -- and I'll stop there going through overall. But look, I think the key themes to keep in mind across our space is generally is our space, fintech in general, more or less underperformed in the last couple of years. Really, it was in line and then it underperformed in '22. This year, it's about -- it's off to an okay start, more or less in line with the market. But there's been some very strong capital flowing back in again. And we've seen that across the networks, across some of the core processors. And even names that the market had perceived as somewhat legacy before, we've seen money moving back in now. And I think you're seeing the focus on profitability drive a lot more attraction for investors, focus on structural strength. And obviously, the M&A headlines don't hurt either. So we're now trading at around 100% of the market multiple on an equal weighted market basis, okay? That compares to a 30% premium to the market that this space historically traded at. And what you would see is companies with profitability are obviously trading at a much better growth adjusted multiple than those without. And the consistency, recurring revenue nature drives the most attraction by investors. I think that's a perfect segue to Jack Henry, given it's clearly a name that has among the most recurring, sustainable low beta, strong capital return story, and so it fits that profile well for investors. And you do see it reflected in a very attractive and a relatively better-than-average multiple in our coverage, which shows you how much investors think about it. So with that said, I'd love to invite both Dave and Greg up to the stage to join me. Okay. Guys, thanks again for joining. Look, I mean, Jack Henry, a name we just picked up actually after having known it for many, many years, as you know, Dave, is clearly a name that, as I mentioned, has been very attractive to investors as a very consistent performer. $15 billion company, very core, sitting in the middle of fintech, providing banks with pretty much their lifeline of what they need to survive and live every day. 7,500 regional and community banks and credit unions, high single-digit top line growth, roughly double the typical across the core processing space. So obviously, you've been doing something right for a number of years.

But I think before we get into the weeds on the story, I'd love to just to hear, obviously, a big transition going on right now first. And Dave, maybe just kick us off with why now? Why -- and what I mean by that for everyone here is there's a shift going on where Greg's taking over the role as CEO shortly and Dave is just basically moving -- well, you already are on the Board, but moving into the Executive Chairman role.

Yes, that's exactly right. So first off, great to be with you, Darrin. I'm not sure how many times we've done this together, but it's great to have you covering us now. Ironically, for me, this is the first time I've been on stage with you as a covered company. This is also the last investor conference I will do because I'm in the process of phasing out. So it's great to be here. So the question of why now? And just to be clear, so I've been CEO for 8 years. Been at Jack Henry about 25 years, and we announced on January 22 that I'm going to leave the CEO role. Greg is going to become the CEO effective July 1 and then I'll move into the Executive Chair role for a period of time. I'm already Board Chair, but I'll take on the Executive Chair role at Jack Henry. So why now? First off, I'll be 63 this year and so you can't do this forever. But I think the bigger thing is when I first took this role, I identified about 5 big rocks, really big things that I wanted to do as the CEO ranging from when I became CEO, about 2/3 of our senior leadership team, and these are not all officers as far as 8-K filing, but our leadership team, they had indicated to me they were thinking about retirement. So when you have 2/3 of your senior team all talking about retiring and it was great for them, they had served Jack Henry for many years, that's a lot of transition that I knew I was going to have to work through as CEO. And so planning all that. I had 5 of them who wanted to retire in 2020. You don't have 5 of your senior leaders all retiring in 1 year, so working with them, kind of timing that all out, working through a leadership transition. That was one of them. Dealing with our debit platform. So you followed us at the time. We had a real issue at the time with our debit processing platform. Trying to decide what's the strategy, actually executing on that strategy. Greg owned the execution part, but it was a huge project for us at Jack Henry. Our tech modernization story, trying to figure out what does the technology landscape look like for the future. So as I sit here today, all of those rocks have been moved. The one that's still in flight is tech modernization, and I'm sure you'll want to talk more about that here today. But that's the one that's in flight. But we're now 2 years since public announcement, about 3.5 years since we started on that project and it is now just -- the ball is rolling. And so now having kind of accomplished all those big things that I really wanted to accomplish and the fact that I'm getting older, it's a nice time to step aside and Greg is well positioned to take on the role.

That's great. Greg, I mean, you've been here for some time now, obviously, for some years in the COO role. But if you could just help us understand a little more about your intentions and how you plan to put your stamp on the CEO shop.

Yes, thanks. So I've been at Jack Henry 13 years. So as Dave said -- and fortunately, I've worked for Dave my entire career. So we have a lot of similarities in our philosophical approach, but I've been involved in all of the strategic decisions, and in some cases, the execution of those decisions, as Dave alluded to. So I think from a standpoint of where we're going and what we have, and Dave just talked about our tech modernization strategy, we have some things that we still need to go execute on. So we have a strategy laid out that I am very passionate about, making sure that we execute on, ensuring that we keep the mindset and the culture that we have at our company and our customer service excellence that we've maintained for 47 years. So those will be very near and dear to my heart. But I will tell you, a couple of things that we'll look at doing maybe as an adjunct to what we've started is a little more focused on an SMB and a B2B type strategy that you mentioned earlier. We have some things that were in the works now. This would all be through our financial institutions, not around our financial institutions. So that's very important to know. But we're working on some things that we'll be talking more about over the next few months that I think will be exciting for our institutions and for the economy.

Maybe just as a team, help us understand -- I mean, it touches a little bit, Greg, on what you were just saying, where you're spending the most of your time. What do you consider the top 3 or 4 priorities for you guys right now?

Yes. So tech modernization is #1. So I'm working a lot with the team on execution. I'm proud to say that we have executed to the point where Dave announced this February of '22 we have a road map that we share with all of our clients. We don't share it publicly outside of that. But we've executed on every single day the last 2 years on all of the core modules and some noncore modules that we're building in the public cloud as well as One Jack Henry initiative that I've talked a lot about the last 4 years when I became COO. I wanted Jack Henry to be the easiest company to work with in the industry, not only with our clients, but with fintechs, everybody else. So we've done a lot to continue to open up our core and our digital platforms, which have always been the most open. But we've made things a lot easier. In fact, I'm proud to say that we issued 1.7 million tokens last year to fintechs to allow to play in our sandbox in a very easy way. So you'll see press releases all the time of fintechs announcing things that they've done with Jack Henry, that Jack Henry had nothing to do with. They did it all on their own in their sandbox.

Anything you want...

And for me, yes. Well, I think it's natural when you've been the CEO for a while and the company for a long time, a lot of what I've been working on lately is helping Greg, of course, get -- do these things and do those types of things. But for me, I've been meeting with investors, really starting in December before the announcement, but all of our key investors making sure that I'm in front of them, help them understand why am I leaving. Make sure they understand where we are as far as progress on key initiatives and so on. So a lot of investor outreach and a lot of customer outreach. I've been doing this a long time. I know a lot of customers really well. So talking to customers, making sure they're comfortable with where we're going and what we're doing. Those have really been focuses for me. And then I think the last thing would be this technology modernization project. I mean that was my baby as far as when we launched, and so just continuing to stay involved to make sure that we're on the right path with that one as Greg has taken the reins with that. I would say those are the key things I've been focused on here lately.

Could we take it a step back now and just maybe recap a little bit on the quarter? You obviously have strong bookings. And there's been a consistently strong recurring pipeline for you guys for some time now. Any big highlights from the last quarter that's worth sharing with investors?

Yes. I think the notable thing -- the most notable thing is we -- so we're known as a core provider, but we provide a broad suite of technology solutions. So I always say we're a well-rounded financial technology company. We're not a payments company. We do a lot in payments. But we are a well-rounded financial technology company because we have all these different solutions. On the core side of our business, which a lot of people focus on, our track record here recently has been just astounding. We announced these 14 core deals in the quarter, 4 of them over $1 billion in assets. So getting that many large deals in a quarter, I think, is significant. The most significant piece of that story is our Q2, which is the December quarter, we're on a June 30 year-end, our Q2 was the strongest Q2 in the history of the company and the second strongest sales quarter in the history of the company. And by the time I got to the earnings call in February, our sales pipeline was larger than it had ever been in the history of the company. So you think about that. You just booked a whole bunch of business, second-largest quarter in the history of the company. And within 5 weeks, we have a sales pipeline that is larger than it's ever been in the history of the company. I mean that's really significant. That shows you the interest in what Jack Henry is doing. There's a lot of excitement about this technology modernization initiative. And I know we've referred to it several times and we'll describe it here in just a little bit, I'm sure. But a lot of interest in that, that's particularly driving interest among larger institutions. And then -- but then the broad suite of solutions, we have some many notable successes there as far as sales that have actually been booked here recently. So it's a very exciting time for Jack Henry. And if you follow the industry at all, there's been a good bit of disruption with several of our competitors, and Jack Henry has just been steady Eddie and I think people recognize that.

Yes. It's usually a slow-moving industry, to be honest with you, in terms of customer switching or taking on new large projects given the banks are just pretty reluctant to honestly make big moves, right?

Well, and there's a reason for that, though, right? So if you change out your core processing system, it's heart and lung surgery for the banker. The thing I say all the time is, if you're the CEO of a banker or a credit union, the hardest decision you will make ever when it comes to technology is to trade out your core system because everything you do with your bank or credit union is impacted by that. Every customer is impacted by that change. And so it's a really big deal. So they have to -- their level of pain has to be really high for them to say, hey, we want to go through this change. Now with that said, there are about 100 changes a year in the industry. Jack Henry tends to win right around 50 to 55 of those. And by the way, there are 30 competitors in the space. Everybody thinks there's 3. There's about 30 competitors in the space. So Jack Henry is winning 50 to 55 of those 100, the decisions that are made each year, and it's because of the reputation we have for great technology, great service and being a great partner.

So following on from the quarter itself, it sounds like demand continues to be strong, as you just said. Nothing has changed in the last couple of months, right? And when I think about the type and the composition of that demand, you were just touching on it a little bit, but maybe a little bit more color on what you're seeing? What is it that your customers really are asking?

Yes. So it's interesting. So first off, we've rolled out several new solutions. We are a technology company after all, and so we've been really focused on the last several years on rolling out brand-new technology solutions. People are recognizing that. If you look at our primary competitors other than merchant acquiring, name me anything that any of them have originated and rolled out in the last 5 years. They're not doing anything as far as new technology. We rolled out a brand-new treasury solution. We have Banno, our retail digital banking solution. And now Banno Business is in market. We have a new brand-new financial crime solution. We've rolled out a number of different things here in the past few years. That has created excitement in the industry because everything we're doing is digital first, public cloud native, the new look and feel. And then they're comparing that to our competitors who, again, are rolling out nothing as far as new technology in this space. And so that, I think, is driving much of this interest in Jack Henry. The other thing that's notable is the larger banks that are starting to look to us. So I said in the earnings call in February, at our client conference, we host a great big client conference every year like most companies do. In October, our client conference, we were rolling out -- or announcing a number of new things. We have never in the history of Jack Henry had a bank over $20 billion come as a prospect to our client conference, come and say, hey, I'm working with your sales guys. We want to look at Jack Henry. Never has happened in the history. We have customers that are over $20 billion, but we've never had a new prospect come to our client conference. This year, we had 3. And it's because of all this new innovation that's happening, we have a lot of larger institutions, regional banks that are looking at what Jack Henry is doing. A lot of them been kicking the tires to see if what we're talking about with this modernization effort is real. CIO says, yes, it's real. So then now you get the business line owners coming to investigate Jack Henry further, and that's pretty exciting for us.

So is demand -- it sounds like everything you're saying is demand is strong. I mean, what's interesting is that we hear -- we cover IT services companies that also deal with FIS. They're not doing so great right now. They're not seeing that much in the way like green shoots on picked up demand. But is what you're saying a Jack Henry-specific thing or is it a market thing? I mean...

It's mostly a Jack Henry-specific thing.

Well, I mean, I think a couple of things. We do surveys. We obviously -- there's various surveys that come out in this industry. There's 4 in particular. We do our own and 3 others that we follow. And all 3 -- all 4 of the surveys are averaging 5% to 10% for technology spend in 2024.

All right. So there is a growth there...

I think the most relevant survey is the Jack Henry survey because it's our customers, and it was closer to 10%. So -- and we're seeing that play out in our pipeline and in the wins that we're having.

Right. So there is, I mean, an overall market growth we're seeing, but you guys are obviously seeing some outsized element. Maybe just touch on Banno for a minute. I mean, it had very strong numbers. I think it was 135 new Banno Digital suite customers. I know Banno Business also did well, over 50, right? And so can we just touch on what's going so well there? Maybe help the audience understand what that is and how it's resonating?

Sure. So Banno, we rolled out about 5 years ago. At this point, it's the fastest-growing digital platform. So we, in 5 years, now have over 11 million registered users on the platform in that period. So as Dave mentioned earlier, it started out as really just a retail platform. So we sold it. Again, got a ton of retail experience and kind of accolades, too, because of some of the features I'll talk about in a second that are different. But Banno Business was something that we've rolled out over the last, oh, 7 or 8 months. And what we end up doing is adding the business to the institution. Whether they have business users or not, it ends up going into the registered user pricing point, so whatever the price point is. And the reason why we're able to go back and kind of take another bite at the apple is because we didn't have it to start with and our competitors originally started with both retail and business, so they were able to sell it as a single solution. So we're able to go in, provide the small business applications for that. And we have various parts of our product that, I think, are huge differentiators. So one, I talked about the 1.7 million tokens. Well, we have a lot of fintechs that are integrated into our platform, well over 50 that today provide products and services to the Banno customers through some fintech related. So I'll use one, Array, is one that's in there that we use and there's a whole bunch of those examples. And then we have a product called Banno Conversations, which is truly one of a kind. It's the only one in the industry. That's a full authenticated chat that allows the contact center or the service organization of the institution to directly communicate with their member or their account holder through an authentic chat so -- authenticated chat. So if you had a transaction that you said was fraud and the customer service person wanted to see it, you could actually attach the transaction directly to the log and have them look at it. So it's a really, really cool solution and we're actually building some AI components to it and all that right now. But also, we're the first digital platform to go fully without allowing screen scraping into our platform. So if you know, kind of the regulatory pushes right now is to eliminate screen scraping over time. So we now have direct integrations into Plaid, Finicity, MX, Intuit, Akoya that allow only an API access into the digital platform, which allows us not to share credentials. We own the credentials. They are not shared anywhere else. And it cuts down on kind of credential stuffing and things along that line because of that. So we are the only platform that doesn't allow screen scraping into the digital platform.

Let me take one thing on Banno, just to make sure everybody in the audience here kind of understand. So Greg says the fastest-growing digital banking platform in the industry. Let me tell you why. So we'll use this group right here as our little focus group and you can be included if you want to, Darrin. So I don't know any of you. I don't know who you bank with. I don't care who you bank with. But I would bet, whoever you bank with, when you're on a PC and you're interacting with your bank, the experience is totally different from when you're on your phone, right? I bet you, you can do things on your PC that you can't do on your phone. You can add a biller here, you can't add a biller, you can do whatever. Most banks and credit unions in the U.S. that's the experience. Banno has solved that problem. It's a single platform, public cloud native. I don't care if you're on a PC, a tablet, a phone, the user experience is the same regardless of form factor. And you can do all the same things regardless of form factors. That's what I say. We have solved that problem that most banks and credit unions are trying to solve, and we've been in market with that solution for 5 years now with more than 11 million registered users. That's why it's the fastest-growing platform in the industry.

What kind of percentages do you know of at least at the, so call it, community banks or -- anything below the regional bank category actually have a mobile app at this point? I mean, I know it's better than it was but it's still pretty far from...

Well, as far as the mobile app, I think everybody has something these days. Most everybody has something. A lot of them are very rudimentary. So just not a very good experience, but they have something so that you can access banking information. But again, the significant thing for us is we have this single platform now that is in market fully and it is a consistent delivery.

Right. Closing the gap between desktop and mobile.

For sure.

Well, one thing on that. So I think to Dave's point and maybe where you were going, there are a lot of institutions that have 2 different providers because the one provider doesn't offer a mobile solution. So that's another thing, which really disjoints the experience for the customer because of that. So obviously, we have both and that also helps.

I mean, I'm bringing it up because I have seen plenty of banks and I actually saw a survey that showed a pretty decent percentage. They'll have an ability on mobile, but it's not an app form. It's not. It's actually you have to go on to the browser or if you are going on the app, it's pretty basic, to your point. When we put all of this together and we think about your targets, guys, before we go to the tech modernization strategy for a moment, just how does this all play in? I mean, maybe remind the audience of your forecast, your targets in terms of guidance for a moment.

Go ahead.

As for our financial guidance?

Yes.

Yes. So we're -- as Darrin alluded to in the introductory comments here. Today, Jack Henry drawing about 8% top line so double anybody else in our space. And it's gotten to be a little bit difficult, more difficult than it used to be to compare us because the former true comparisons that we have, have really gone down the merchant acquiring path and now you know what's happening with one of our major competitors trying to get out of merchant acquiring and kind of get back to normal numbers. But as far as the financial technology space that we're in, we're growing top line about double as compared to anybody else.

And that obviously is driven by a lot of these initiatives we just talked about.

For sure.

Maybe we'll just touch on the tech modernization strategy now. I mean, assisting in -- it's really been assisting in serving a lot of larger FIS. Maybe just touch on what that is and why it's going well for you guys? And what the latest signs you're seeing of how the trends are?

Yes. So I'll start, you want to pick it up? So really, the origination of this many -- several years ago, so as I said, this was one of the big rocks that I really wanted to move when I became CEO. We've been in this industry now for 47 years. Pretty much anybody in the U.S. who's in the core industry was focused on kind of traditional technology. And we were trying to figure out, is there an opportunity for us to go full public cloud. So AWS, Azure, Google, go full public cloud for those services. We determined a few years ago not only is there the ability to do that, but there will be demand. There isn't demand today. So you're not going to talk to bankers who are going to say, "Oh, yes, I want to go full public cloud right now." And the reason they don't want to do it right now is because the regulators aren't ready to kind of regulate in that environment. But they're all talking about it. They're all trying to figure out how and when do I get to public cloud for everything that I do for my institution. And so we saw that demand coming. So we decided, okay, there's a few approaches you can take. You can do what's called the lift and shift, take some old stuff and make it work in the public cloud. Well, when you do that, you don't really take advantage of all the public cloud native stuff that's available to you. So we considered that. We considered some pieces putting on the public cloud, others sticking with traditional programming methodologies and systems. But we decided to go all in. We're doing everything on the public cloud. And so what that requires then is a rewrite. So we're essentially -- we have 4 core processing systems today. We're rewriting to 1. So we're taking all the best of the 4, rewriting on to the public cloud. So it's a brand-new solution taking advantage of the public cloud technology stack and all the tools that are there underneath that stack, including security, by the way. Rewriting everything. And we're putting it on this platform. So we actually refer to it as Jack Henry platform. So it's this platform. We've settled on Google as our primary partner today, although we have loads running in AWS. And I'm told we're the largest financial technology provider in the Azure environment today. But Google is our primary partner for this platform. So we created this platform. All these core functions are going to sit on that platform. But then all the new technology I just alluded to earlier, Banno, Financial Crimes Defender, our Payrailz payment platform, those all sit on that same platform so they can take advantage of the underlying database functionality and reporting functionality that you get with Google.

Right. You can turn it on...

On this platform, yes. You have the development tools now, so everything looks and feels like things you're used to in mobile. It's a major initiative. We're doing it inside of our committed R&D spend. And by the way, we're 14% of revenue per year. We're able to do all this inside of that rate that we've been running at for several years, but it's a complete modernization of the technology platform. And I suppose I talked too long. I didn't give you anything to add, but go ahead.

No. I'll just add a couple of things. So one thing that you didn't say is that we're actually breaking up the key components of the core. So there's roughly about 30 components that we're building out. So we're decoupling it, creating it in a singular public cloud native environment and allowing that. So back to your point about larger institutions, some of the larger institutions, especially the super regionals who may have a homegrown core that they built or they're using somebody else's that they're not happy with, there may be portions of that, that they want to replace, general ledger, things along that line. So we're actually creating bundles of core components. So we do think that everybody is going to end up buying the full core eventually. But if they want to kind of dip their toe and only do a migration of a certain piece like the general ledger, that's a lot less intrusive than it would be to do the full core. So that's a big piece of this. But as Dave said, all of our other products lay on top of that platform, too. So it allows them to get bites of all of our public cloud offerings even before they buy some of the core stuff.

Where are we on your customers actually transitioning this -- into this?

So as Dave mentioned, so Banno, PayCenter, the Financial Crimes Defender all in the public cloud. We just moved Banno to Google over this past weekend, almost next to flawless. So that was awesome. And so we're now up there operating. So we're in the process of moving all the things into Google and kind of rewriting. But from a road map perspective and a customer perspective, as I mentioned earlier, we're hitting on the dates. I mentioned on the last earnings call that this calendar year we will be rolling out our general ledger component. We've already rolled out our wires, both domestic and international. We've come up with a new data solution called Data Broker, which is utilizing all of the big query stuff that's in Google Cloud today. Allows us to have a central repository of all core payments, digital fraud data all in a single repository, allowing our institutions to have access to that using generative AI as a way to access it. And then also building an executive dashboard for the C-level folks to truly, I don't know, every morning do push button type stuff to access their information and even verbally ask questions.

Let me emphasize something Greg said there. So Greg talked about the components that are coming out in core. So he said, wires, he talked about Data Broker, he talked about GL. So the good news for investors in Jack Henry then is this isn't some big bang release in 5 years. We're releasing these components along the way. So you can see success, we'll talk about customer signing. It won't have a huge revenue impact. But that was important to us so that investors and our own customers could kind of track, okay, is this real. And you're actually rolling out customers and you have stories that you can tell about people using these components along the way rather than saying, okay, this is going to take us 5 years and we'll tell you how it goes 5 years from now. This was an incremental release of components of this solution. And then when we get to the 5-year mark, then we have a bank fully running.

No. You said it may not have a huge revenue impact. But I mean, you mean now, I think. We've had clients -- investors telling us this could be a very meaningful driver and materially higher than what we've seen today.

It resets. So the way I phrased it internally to our employees, because it's probably logical for you to understand, you've got a whole bunch of employees who've worked at Jack Henry for a long time who now look at us making this major shift to this brand-new technology stack. And people are like, oh, is my job in jeopardy, all that kind of stuff. So we've had a lot of conversations about the fact that this initiative right here resets the bar for Jack Henry for the next 47 years. So this is what sets us up for many more years of success and totally differentiates us against any of our domestic competitors. But even some of the international competitors who are trying to establish a foothold in the U.S., most of them what they talk about is public cloud. Haven't really delivered anything, but they talk about public cloud.

I was going to ask you that. When we hear from your competitors that they say they're also offering cloud-based solutions, how does that compare to what you guys are doing today?

Yes. So there is a -- and I'm not going to name names here, but you got to be really careful to understand, okay, did they do a lift and shift because that's been going on out there. And people say, oh, we're running in the public cloud. That's true. But when you do a lift and shift, you're not taking advantage of all the things that are there in the public cloud, for example. So if you hear somebody say, well, we're public cloud native, and oh, by the way, you need Db2 as your underlying database, that is not public cloud native. Db2 is not a thing when you're a public cloud native, right? So there's those things. There's a lot of mixed messaging that's been going on as far as just trying to say we have things in the public cloud. This is truly a public cloud native ground-up strategy.

And I guess in terms of the percentage of your customers that have already shown that they're going to adopt some of this and taking it on versus what's to come and then maybe what kind of revenue uplift per customer, you could generate more revenue and margin once you transition the customer over, right?

For sure. Do you want to...

Yes. Well, I think it depends on what it is, right? So each of the modules we've created as well as each of the products that we've been rolling out, Defender and Banno and all that, all have upcharge from what the old products that they're replacing at this point. So there's that. But I think the bigger thing is that it's what it's doing is creating that lift of the pipeline that we've talked about. So some of that lift is just going to come from more customers. Some of it's going to be -- there's a transition for early adopters to take some pricing and kind of how we do that. So there's some time for that all to kind of take place. What it ends up meaning ultimately, hard to still tell. But I do believe that when you see the interest in the customers and the larger customers -- just so you know, in average core -- so we talked about 14 core wins that we had, by the way, all 100% competitive core wins. When we win a core on a bank, typically, they come with 50 complementary products that come with that. If we win a credit union, it comes with 35. So as we go up in some of these larger institutions, that may not be 50 just because of the process. So this gives us opportunities to sell a multitude of our high-performing products into these larger institutions to get them excited about Jack Henry because they weren't used to seeing us in the space, and I think that...

The other thing that's important to note in this whole strategy is we're expanding the TAM. So we're doing things now with Jack Henry's new core solution, which we're not really referring to as core, but we're doing things that nobody has ever done in core. So Data Broker that Greg alluded to earlier, that isn't a thing in the core industry today, but we can do it because if we have all these things sitting on the same Google Cloud environment and using this gigantic database that's inherent in the Google Cloud environment, we can do all kinds of reporting and dashboarding and so on. So we're creating solutions now because we're public cloud native that nobody could do before as a core provider, but they're just inherent in the options.

So have you given anyone a sense of if a customer shifts, it's going to be this x percent uplift?

Not publicly. Obviously, we talk about that a lot internally, but we have not.

You do think it, obviously, there's a decent or a notable I think you've mentioned to us before. All right. Maybe -- so we talked about core. We talked about the tech modernization and Banno. Maybe we shift to the payments for a minute. I mean, and Greg, I know you have a fair amount of experience on this side. Just touch first on FedNow, what you're seeing on instant payments. And what kind of uptake it's having from your customers?

Yes. So a couple of things. So just so you all know, so I've got 25-plus years in payments, mostly in prepaid, Bill Pay, other things like that. So -- and I led our payments business for about 8 years. So on FedNow, we have right about 170 live today, which is about 35%, 36% of the live institutions. Almost the entirety of all of our institutions and in general are in a receive-only environment. So some of the larger institutions are doing some send. The bulk of the transactions are really like account-to-account, moving Grubhub driver -- or Grubhub or Uber drivers or things like that, moving money in and out and some transfers from bank to bank. But really, you're not seeing the bulk of those transactions. So I think the real meat and what still is yet to come is around B2B, which you mentioned earlier, Bill Pay, request for pay, things along that line. Treasury opportunities that we think there are some opportunities if the treasury really gets significant. And those become dollars instead of cents for the institution, and honestly, for Jack Henry. The problem is and it's really what's kind of, I think, been the limiting factor in everything with faster payments is fraud. And so everybody is kind of scared to really release the hounds kind of thing with faster payments because they're scared to fraud. Even Zelle has taken some of a hit. So one of the things that we're excited about to help our institutions, and honestly, the entire ecosystem is our Financial Crimes Defender product. It's a real-time product that allows us to actually combat fraud. So we've built modules that we're rolling out for both -- for Zelle, RTP and FedNow that will allow, I think, more people to get comfortable with the send transactions component of this. So we're continuing to work on that and rolling that out to our customers. So right now, in our 160th or so pipeline -- or backlog for Financial Crimes Defender, about 60 of those are truly only buying the faster payments modules. So I think that's it. So FedNow, I think when I did a comparison, just to put a couple of things in perspective, I did a comparison. We had at 150 institutions that took us right about 7 months for FedNow to roll out. Took us almost 30 months to get to 150 institutions for RTP because I think it's way more of a comparison between RTP and FedNow than Zelle and all that. So -- and you look at the average transaction, the average RTP transaction is double what a FedNow transaction is today. I can't tell you why, but it is because it's basically a lot of the same things. There's a different settlement, as you know. So one is still ACH on RTP and one is truly more real-time or near real time on the Fed. So there are some components to that, too. But I think as we continue to watch, I think the adoption of FedNow will significantly increase because of the comfort level of the smaller institutions not watching the larger institutions that own that network. And I think we're starting to see that in our contracts.

And what are the implications for you of that? I mean just -- it's always been a little bit difficult for us to understand the economic model of FedNow and Zelle and some of these, even RTP, for a company like Jack?

Yes. Zelle is not a great economic model for the financial institution, right, because nobody charges for it. So -- and that's why I was saying about some of the transaction types. When they become dollars and not cents, then it may be a little more impactful for Jack Henry and for our customers because right now it's basically in line, roughly double-ish of an ACH transaction. So it's not a ton of money. What it is becomes stickiness and it creates opportunities to throw other things on our platform. And our Payrailz acquisition plays into this and some of the other things that I think, so at this point, until some of those use cases truly become, I think, mainstream, it's going to be some time before it becomes truly impactful.

And just in the interest of time, maybe we shift and talk about your capital allocation strategy. You guys have still had, for a pretty long time now, very low debt levels, very strong cash reserves. You've always had a dividend, obviously, and share repurchases. But you've coupled that with quite a few deals albeit smaller, more tuck-in sized deals. Can you just Help us understand the way you're thinking about capital allocation going forward?

Yes. So I'll start and then Greg can tag on. So as some of you know, we -- historically, we were known as a serial acquirer. So between 2004, 2015, we did 26 deals. A lot of really good successful deals, albeit a lot of them tuck-ins, but really, really helped position Jack Henry. And then in the last few years, when everybody was IPO-ing or SPACs were a thing, it was tough to get a deal done because everybody thought their company was worth this much and it's really only worth this much. And we don't do deals like that. We're a very disciplined acquirer. So it's been challenging here for the past few years. We did Payrailz about 18 months ago or a little than that. Greg alluded to that earlier. The challenge really has been around valuation. We don't chase the shiny object. And so when we combine that challenge with valuation and not many deals to look at, I said on the last earnings call, shocking to me because I used to lead the M&A practice, I have had 0 deals on my desk to look at in months. I mean, literally 0. And so it's tough to get a deal done when you don't even have anything to look at, let alone valuation. The other thing, though, kind of coupled with that is the fact that we've had so much success here with all this new product innovation that we've been doing. So as we're rolling out all these new solutions, we don't feel the pressure to go get a deal done either. Now I have a whole bunch of folks in the space telling me that it's going to get easier here pretty soon and M&A is going to be back again, and I hope so. But for the moment, not an objective.

I mean, from a competitive landscape standpoint, in terms of the sort of the ankle biters or the startups, I mean, are there enough out there that even look interesting to you? Or has that changed?

There are. We don't need -- we don't have holes in our portfolio that we have to fill. So we don't need to do a deal. There are some interesting things out there that would be nice for us to kind of as add-ons to some of the things that we're doing today, either through our digital platform or on the payment side like Payrailz. So there are some nice assets out there. But again, valuations are just out of line right now and hopefully that will change.

Okay. Well, look, you guys have obviously executed well and there's been very strong recurring revenue. So you don't need anything, but it's been a while. So maybe we'll see some to come. Guys, any quick questions in the audience before we go to the next? I think there's one in the back actually.

You talked about the 30 competitors in the market. Are those primarily from a core perspective? Or can you just speak to like the product breadth that they have when competing with Jack?

Yes. So primarily on the core side was what I was alluding to. We have hundreds of competitors. When you look at all the solutions Jack Henry has, we have hundreds of competitors. But what I was alluding to there was on the core side. Most of those -- so there are probably 6 or 8 that have something beyond core. Obviously, Jack Henry has many solutions beyond core. But then most of those are smaller companies that have core and maybe 1 or 2 other things. But the reason I bring it up is because when you think about that there are only 100 deals in the whole industry that are being done per year, if Jack Henry is winning 50 to 55 of them in the core space, those other companies are -- some of them are winning and yet we are winning the vast majority of those deals.

Guys, I think we're going to have to stop it there. But thank you so much. It was great having you guys.

Thanks, Darrin. Appreciate it. We'll see you again.

Thanks, again.