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

Thank you for joining us for the afternoon component of the 16th Annual Electronic Payments Symposium. So we've got 4 sessions for you this afternoon after the 5 this morning. And we're very excited to kick off the afternoon with Greg Adelson, who is CEO of Jack Henry. Thank you for being here. We really appreciate it.

Lots of good stuff to talk about at Jack Henry. And I wanted to just kind of lead off, thinking -- kind of reflecting on you're just about at the 1-year mark since you took over as CEO. You've been with the company a very long time. But talk about how you're building on the success of your predecessor, priorities for the balance of fiscal '25, which hard to believe is coming to a close pretty soon. And then just as we start to look into fiscal '26, we'll kind of start top down there with just your top of agenda items.

Yes, for sure. So I started July of 2024, but I had been with the company for 14 years. And so my predecessor, Dave Foss, who did a great job leading the company for 8 years. I had worked for him the entirety of my time at Jack Henry. So was very involved in the strategy creation and execution of what we've been working on. So there's a couple of things that I still have as part of my priorities that were things that we talked about a couple of years ago, the biggest one being the tech modernization story and our level of execution on that, which we can talk about later. But that story of what we're doing with building out the core in a public cloud native format, kind of rebundling what are the -- what we call the 30 main components and building those out into micro services, that's a big part of that. The other big thing is just making sure that we maintain the culture that we've established over time. So we like to call out the fact that we believe our culture, our service, our innovation, our strategy and our level of execution is far superior than anybody else in the industry at this point in time. So I want to make sure we're maintaining that. We'll talk a little bit later about our SMB strategy that we've announced. That's been a big focal point of mine over the last year and something that we will continue to drive. We've talked a little bit in other meetings as well as earnings calls around our product rationalization. And that's really about taking some of the products that we have that are low margin or lower growth and looking at ways to either divest of them. These are all very small businesses, by the way, or products, typically from $5 million to $20 million in revenue. But should we divest of those, should we cash cow them, should we sunset them, and we're doing a much better job of that. And then lastly, we are really focused on driving more wins in the $5 billion to $50 billion market for our core banking wins and core credit union wins. And that's been a big focal point. And as you've seen through our announcements over the first half of the year, we've been pretty successful at that so far.

Right. So you got a full plate.

Yes. Yes. And a great team to do it.

Yes, yes, yes, for sure. So I wanted to kind of take your temperature on kind of the overall backdrop because coming out of November elections, it felt like awesome environment for banks, right, and felt like you're going to see deregulation, you're going to see a strong U.S. economy. And now in the last few weeks, obviously, consumer confidence kind of fading a bit, a lot of tariff uncertainty, uncertainty around growth. So I'm just wondering, are you guys seeing any impact of that uncertainty either on customer decision-making in your core banking business or in card transactions within your issuer processing business? Anything worth calling out?

It's a great question. I think it's a week-to-week answer. But I can tell you, I did survey our sales heads last week and kind of went through each of our main sales groups. We are seeing 0 slowdown on the core side at all. In fact, I think our decision and our pipelines continue to accelerate in some fashion. Now remember, we're 100% domestic, too. So there isn't anything going on in the international side from a tariff perspective. We may have some vendors of ours that we might have some things that we'll have to talk through, but not from a sales perspective. So we're not seeing that. And really, the only thing we've seen any slowdown is people making some decisions to move from one of our products to another one of our products because it isn't something that's urgent for them to do, and they may be slowed down. Financial Crimes is a perfect example of moving from Yellow Hammer, which is our existing product to Financial Crimes, they may want to slow that down because they don't have to make that move today, and it's a more costly product for them. But other than that, no slowdown at all. In our card business, which is predominantly debit, which you tend to see at a time of consumer uncertainty, you see a slowdown in debit and more of an increase in credit, which is a much smaller piece of our card business. Candidly, at this point in time, we haven't seen it. We've seen a little bit of a leveling off, but we haven't seen a slowdown. So we'll continue to monitor it. Again, it is a week-to-week. We've seen more issues related to weather and things like that where people aren't getting out. So they're using more of their credit card to do purchases that way or Uber -- or not Uber, but Uber Eats or whatever it would be to kind of bring some of that stuff home. But the reality is we have not seen an overall drop in that volume.

Okay. Well, that's certainly good to hear because there's a lot of speculation out there across the economy. How are you guys thinking about the M&A landscape just for the banking industry for the remainder of this fiscal year and into next? I mean, do you get the sense that any of this macro uncertainty could complicate or stall out M&A plans among the banks?

I'll give you some data points that I've read recently. So for the first 2 months of the year, there had been a slightly -- actually, January was pretty active. February was the lowest M&A month all the way back to August of 2023, okay? But interestingly, in the first 2 months of the year, the M&A market between a $1 billion institution and a $5 billion institution is the second largest of any other year. So in that one segment between $5 billion, we're seeing a lot of M&A continuing to happen as well as announcements. But below $1 billion and above $5 billion, it has slowed down a little bit. But in January, it was pretty active. In fact, we saw a lot of activity with our client base, both for mergers of equals and mergers of just smaller institutions. So we'll wait to see. I still think the big boom that everybody is expecting to happen will increase. I don't know if we're going to see what everybody anticipated, but we're going to continue to see. And we've actually ramped up our install groups to make sure that, that happens on a timely basis.

Understood. Understood. So let's spend some time just talking about the line of sight that Jack Henry has into this fiscal year's revenue. I know that's been a big topic since the beginning of the fiscal year. And you reiterated guidance on the last earnings call. The ramp in growth between the first half and second half is obviously higher than in kind of a traditional typical year. So just remind us what the drivers of that are. And I guess, more importantly, sitting here today with 3-plus months left in the fiscal year, how do you feel about the visibility on what you need to do in both Q3 and Q4?

Yes. Fair question. So just to remind everybody, so we -- our fiscal year is July 1 through June 30. So we are approaching our -- the end of our Q3. And so the second half of the year for us had much easier comps. That's number one. Number two is that we have really great insight into the number of wins that we've had over the last couple of years where those installs are now starting to come in the second half of the year. And they end up going into what we call our cloud revenue because it moves into our private cloud environment. And so that's really where the bulk of where you'll see growth is in the cloud side. You're also going to see it in our complementary segment, where we have a lot of products that get added on to a core win, both from a complementary and a payments perspective. So when the core goes live, a lot of those products go live with it. So really between core and -- by the way, Banno is in the complementary segment as well. So you'll continue to see that, which is our digital offering. So back to your comment, we have about 90% visibility into what we do from a recurring basis. But that 1% gap of what we have as our range between 7% and 8% for our guide is roughly $22 million. So it's not a lot of money, but it can sway the outcome from the low end to the high end significantly based on what really does happen. So we've been very confident, which is why we reiterated to where we were to stay in that range. And so time is going to tell. We'll be a lot smarter in the next couple of months as a few things come out. So I think as you look at where we're going for our May earnings call, we'll be able to kind of, I think, shrink that level of guidance and certainty a little bit more too.

Right. You'll have a better sense of where within that range you're going to land.

Yes, exactly.

Okay. That sounds like the confidence level on getting somewhere into the range is still high?

Yes, we still have not changed that. That's correct.

Right, okay. Okay. Got it. Core takeaways. In a typical year, you target 50 to 55, and it seems like clockwork, you guys pretty much get there. You have a great sales force. This year, you had 17 in the first half and not that it's always going to be perfectly ratable, but naturally that raises the question of how do you do kind of roughly double that level in the second half. So anything around leading indicators or just pipeline or specific feedback from your sales force that tells you, yes, we still feel good about that very much.

Yes. So -- and I think we also need to start off by saying that not every core win is equal. So one of the things that we've done over the last year, in particular, is win larger deals. So I announced last year that we won 15 deals that were multibillion in assets compared to 5 the year before. While we've already won 6 this year, 2 of those being $7.5 billion institutions. So again, a $7.5 billion institution is greater than a $1 billion institution. So we're winning larger deals, and there's still several more $5 billion-plus opportunities in our pipeline. To answer your question and to put this in perspective, last year, we won 22 core deals in the fourth quarter alone. And so we always have a large fourth quarter. It is the end of our fiscal year. There's a lot of sales incentives. There's a lot of other things that go with that. So there's a lot of work that gets done. But we feel very confident that we'll track to that 50 core win or above this year. But I do want to remind everybody that winning 50 this year compared to maybe winning 57 last year are far greater. And one of the things that I've been talking about is that we will be calling out more asset size as well as the number of wins because I think it will put it in better perspective of what we are truly doing to be successful in this larger market that we're going after as well.

Yes. I mean, I guess just thinking through that even one step further, I mean, at some point, does it make sense for Jack Henry to talk about like some kind of like bookings dollar number, just so people can see like average contract size or anything along those lines?

Yes, that's something to still be discussed. But to your point, as we roll out more of our core components, the core itself won't necessarily be the core anymore, right? Because we may sell 2 or 3 components to an $80 billion institution. They didn't want to buy the full core, but they wanted to buy our general ledger or our authorization management or our exception processing. Well, how do we count those, right? So we're actually looking at a different way of figuring that out. But the short answer to your question is we are on track and feel very confident with our pipeline and our win rates.

Okay. Okay. Yes. I mean, are you seeing more like, I guess, I'll call it, like upfront attach rate? In other words, when you first win a core, that those customers are taking more modules upfront?

I won't say more. I think it's still very consistent. So the average Jack Henry core client has 56 components tied to it. And typically, when we win those on the banking side, it's about 50 on the banking side and 35 on the credit union, it grows to about 56. Now we do have some with well over 100 of our products today, but the average is that. So we're not seeing anything more. I would say that we've been more successful with winning new deals with Banno, where we've had opportunities to displace one of our more traditional competitors in the digital space because of Banno business and things that we've been able to do there. We've also been more successful in winning things with Financial Crimes Defender and replacing some of the big competitors that we have on that side. So that's where I would see -- but the attach rate isn't necessarily growing to anything greater than what it is today.

Okay. Okay. I want to hit on competitive landscape in core banking. We actually had a note out on this yesterday from some recent checks that we've been doing. And part of what we talked about in our note was a recent ABA survey that came out. And I mean, not to toot your horn just because you're sitting here, but you guys did really well actually in that survey. I recommend everyone check it out. It's actually got a lot of detail in it. So I'm curious just to get your take on the overall lay of the land because as you've already articulated, Jack Henry is moving upmarket, right? You're winning deals of an asset size that in the past, you did much less of. Conversely, we have others talking about having more success in -- from their perspective is more down market. So is it fair to say that there is more competitive overlap, if you will, among some of the bigger traditional vendors than there was historically. What's your take on that?

Yes. Let me answer 2 different things. So just because you tooted our horn, I'd like to a little bit -- the ABA Core survey is very important for you to see because for the first time since they've been doing this survey, they actually named names. It always used to say player A, player B, everybody could point and say they were player A, nobody could invalidate that data. But now the names are there, and it's very clear where we are compared to our biggest competitors. So that's out in the market. We're seeing a lot more from prospects that are now getting that data that -- because we've been telling them the things that we're doing when I talk about culture service innovation, strategy execution, well, that's all very well articulated in that doc. Exactly, right? So it's very interesting. So now to answer your question, I think there's a couple of components to this. I've been at Jack Henry for 14 years, and I've been involved in all of our sales deals because I led payments for a long time and then I was COO prior to becoming CEO. I don't remember a deal that we didn't have our 2 largest competitors that were already in the deal. So from an RFP perspective, I don't see them necessarily "going down market". I see them refocusing from maybe lack of focus over the last 5 to 7 years when they got into the acquiring business. And so when I look at win rates and I look at the things that we talk about, the 57 core wins that we talk about are 57 competitive core wins. None of them are moving from a Jack Henry platform to a Jack Henry platform. If we announced those, we'd have 80-plus easily, and -- but we don't announce those. Some of the ones that they're talking about, we know that they're still their own customers staying with them or moving to one of their platforms, but they're announcing them as a new win. And so I think part of that part of that dynamic of what is being discussed about them going down market or maybe as I use the term, refocusing down market, is that they're keeping customers that they had and they're moving them to a different platform. Okay, that's great. And they did win the business back, and that's all well and good. But I don't consider that the same as us taking business from our competitors and moving them to a completely brand-new platform, which is us, which is a huge move, by the way. And only about 100 of those decisions even get done a year, and we won 57 of them last year. So I think what we are seeing is a continuation of some level of rational pricing sometimes, right? And so there's times where we've gotten involved in a deal where I've said, we're not going any lower. I mean if they want to go to that price, they can have it, and we'll walk away. And that has happened a couple of times. But the reality is that you can't always continue to win on price for a long time. You have to be able to provide that level of technology innovation because the bank or the credit union, the one thing that they have to recognize is that if they want to survive, and that is Jack Henry's sole mission is to make sure that community and regional financial institutions continue to thrive in the United States. That's all we're focused on. As we like to say, we don't have a plan B. That's what we do. And so we will ensure that we're building the right technology. They can take the money that will buy them some time, but that's not going to ensure that they're going to grow. And so through technology, through innovation, through other things, that's what's most important for their ability to win and survive and thrive.

That price-based competition that you referenced and maybe in some cases, like you said, bordering on irrational. Has that dynamic intensified over the past 6 to 12 months?

Yes.

Okay.

Yes.

Okay.

And particularly from deals where, again, they're trying to keep their current clients.

Right. Okay. Okay. Got it. Got it. All right. So let's switch gears a little bit. I want to flash back to your Investor Day, which I guess it was 6 months ago, it feels longer.

Yes, September, yes. Yes.

September, yes. And you guys gave an algorithm for pretty consistent margin expansion. And this past quarter, margins were definitely a bright spot in the quarter. So how are you thinking about balancing growth with margin expansion for the balance of this year? And then just more generally and structurally, what are some of the margin levers that you have at your disposal? How do you and Mimi think about that?

Yes, for sure. So what we announced as part of our guidance and reiterated at Investor Day was a 20 to 40 basis point improvement each year as kind of our guide. So 20 kind of being our floor minus a macro event, we feel very confident that we can get to 20. But 40 is not a ceiling. And as a reminder, last year, we went to 60 basis points, our improvement. So we're -- constantly, we just want to make sure that we're providing a solid range for our investors to see where we're going. And by the way, we feel very confident in what we're tracking for, for this year to be in that range or better. So that's it. Now what are we doing to pull the levers there? Well, obviously, the #1 piece is headcount. And we do a tremendous job of controlling headcount without doing layoffs. So in the history of Jack Henry, we have never done a layoff more than 20 people in the history of the company, 48 years. And so we are always able -- and that's back to culture. And that's why we have an average tenure of 10 years at Jack Henry as well. So it's really important for us to figure out ways to do process improvement to do other things where we signal to our staff that we do more with the same. And that's an important comment because if you want to get the best ideas in your organization, you get them down in the contact center and you get them down in the areas of the organization where they're living out every challenge that you can see in your organization, and they have the best ideas. And if you end up telling them that every time they come up with a great idea, they're going to lose their job, you're not going to get very good ideas. So we're all about making sure we protect the employees that we have today, and we really only affect what we hire. So if you look at our growth last year, we only hired -- had 2% headcount growth last year, even with all the growth that we ended up doing. And that is by design. So 30% of our staff are trained in process improvement Kata, so Toyota stuff, Kata in the classroom. So 30% of our staff is trained on that. They're all green belts. Then we have another portion of our group that are black belts and others that go around training, and we do a lot of work with that. So we've been focused on process improvement for about 10 years. And we've been driving that in the payments business for a long time, and then we took it out. So now AI is playing a part of that. So we're building out ways to do QA to move code faster to hire less people in our HR department because everybody wants to come work at Jack Henry. So we get a lot of applications. And so ways to improve that process, ways to improve our billing process, ways to expedite how we do contracts. One of the big things that came out of the ABA is they wanted -- customers want their contracts faster. Well, we did 55% of our contracts last quarter without ever touching a legal person.

Really? Wow.

That's all through AI and other process improvements...

Maybe the lawyers, they don't worry about...

No, no, no. I mean -- and trust me, we've got plenty to do. But it keeps us from hiring more lawyers. So that's the other part of that.

Okay. I mean, since you brought up AI, I mean, I'm curious how you're integrating it into your products? I mean, does it become a revenue driver? I mean, clearly, you're seeing some efficiency benefits on the margin side, but...

Yes, in both cases. So we're taking what we call a responsibly bold and balanced approach, meaning that we want to make sure that we're being very aggressive internally. But outside, there's still a lot of things that you got to be careful on. So we have rolled out AI into one of our products called Banno Conversations, which is a one-of-a-kind product actually in the market. We rolled it out several years ago. It's an authenticated chat that happens between the bank or credit union and their customer or member. And that allows them to put transactions in the flow of the chat, all kinds of things that you would be able to do because it's all fully authenticated. So we added an AI component to that, and we've rolled it out to 2 customers. And they've been able to give us the data back that they're seeing about a 50% to 55% decrease in their overall cost of their contact center by being able to use the stuff that we created for them, and then we refine it. But one of the things that we do to keep that responsibly, bold and balanced approach, is we keep a human in the middle. We make sure that there's still a human on the bank or credit union side or in the Jack Henry side because we don't want somebody asking a question of that AI and is coming back with, yes, Elon Musk is an idiot, whatever I mean whatever the trend. You've got to be able to have that oversight. And so we're 100% done. The other part is everything we're building in our new components for the core, general ledger, several of our other key things, all have AI being built into them as well.

Yes, okay. Okay. Great. Great. So I want to come back to the topic of complementary solutions. And you touched on a couple of them. There's Financial Crimes Defender, there's Banno, et cetera. I guess which kind of have the most momentum in the market right now? And are there any others that are kind of coming down the pike that you'd say like, hey, keep an eye on this one a year from now?

Yes, it's a great question. So back to the innovation component. So Banno business has been out for about 15 months now. We have 212 customers live, 110 in the install queue. That's about 30% of our retail base on Banno today, which we have roughly 1,000 clients using our retail application today. And so lots of opportunity in there, and we continue to see as we build feature parity to our biggest digital competitors, we're seeing more and more of a win rate versus that competition. And so that will continue to be driven. Financial Crimes is a little bit newer, a little bit slower rollout, some of the things I mentioned earlier about the slowdown of moving from our existing product, Yellow Hammer to Financial Crimes, but we have a pretty good win rate versus the 2 big key competitors in that space as well and expect to have a nice uplift in '26 and in fiscal year '27 for both of those products, Banno Business and for financial crimes. Two other things that I would highlight. One would be what we're doing with our SMB product, which is in a partnership with Moov, which I think we're going to talk about in a little bit. And we're very bullish on what we're doing there and the uniqueness of that offering that has really got us exciting. And then the second one is I'm very excited to announce that we'll be launching this week for our first customer is our enterprise account origination solution, which is something that we've been building for the last almost 3 years. And it's basically taking our account origination solution that we bought, which was a company called BOLTS several years ago and tying it into our LOS solution, which is called LoanVantage. And LoanVantage is a single platform for both consumer and commercial loans minus mortgages. We don't do mortgages, but every other commercial loan that you can think of, consumer and commercial tied to the account opening solution tied together. So it's a single platform for all that. So it's going to compete very favorably with the likes of several players that are out there today. But we're excited because that's something that we've been focused on. And again, we delivered at the same time frame that we said we were going to do. So 3 years ago, we said we would deliver it in the first quarter of this year, and we delivered it in the first quarter of this year.

Great. Great to hear. So yes, I do want to talk about Moov, and you guys announced that also back at your Investor Day right? So maybe for those who are a little less familiar, talk about kind of the SMB strategy broadly, and the partnership with Moov that's underneath that.

Yes. So it starts with the fact that just so you all know that I actually have a payments background. I've been in payments since 1995. I started at a merchant acquiring business. So when the other 2 of our largest competitors were going down the merchant acquiring route, we made a very strategic decision not to. I won't spend time with why. But a lot of it is because it flies in the face of what our mission is that I already told you, to make sure that community banks continue to survive and thrive. So we wanted to find an SMB solution that would allow us to do that, that we would be able to sell it through the financial institution and not sell it around them. And so fortunately, we've been working on this for a while, and we ended up teaming up with a company called Moov. Some of you may be familiar with them, but they are the very first public cloud native acquirer processor built with direct connections to Visa, MasterCard, Amex, everybody else. And why that's important is because it's public cloud native, it matches up really nicely with what we have been building on the back end with our new public cloud-native core and a lot of our technology. So it's enabled us to do some things that are very unique. Oh, by the way, the other thing is the Moov's CEO -- and Moov is backed by Andreessen Horowitz, Commerce Ventures, Bain Capital, Visa are all investors in Moov. And so one of the things that we were excited about is the CEO of Moov is the former co-founder of Banno, the company that we bought in 2014. So we know him very, very well. Our CTO is the other co-founder. So those 2 together are a dangerous group. And so you put them together, you come up with some really great ideas. So we challenged them to help us figure out a way to make this work. So why it's important is we are able to sell this through our financial institutions, and it has 4 unique features that I want to point out. So one, it's got instantaneous decisioning. So a lot of the applications that are out today usually take 2 to 3 days for that SMB to get approved. We've already figured out about a 98% instant decision rate. So that's great for the SMB to know whether they're approved or not. Once they are instant decisioned and they're approved, they get a message directly to their phone that says you are now able to start taking payments on your phone. So tap to pay is the application. We will be the very first provider live with iOS and Android available for tap to pay. Most everybody has iOS today, nobody has Android. and about 40% of the phones are Android. So it's very important to have that as part of your overall offering. So you get instantaneous approval, you get instantaneous the ability to start taking payments. The point-of-sale device is the phone. The bulk of where we're really chasing is the sole proprietors. So if you think about sole proprietors, they don't necessarily want to invest in some of the big devices that are out there on the market. So being able to use their phone is a perfect example of a great tool utilization and a less costly for them. So think about the plumber who has a plumbing company, has a plumber on site fixing your faucet or whatever. And as they're leaving, they're taking their payment directly. They're not carrying around a point-of-sale device. They're using their phone. So great application. So sole proprietors, it's a perfect example. The other thing that we're able to do through Moov that nobody else has been able to take advantage of is there's 8 settlement windows with both Visa and MasterCard. Most people don't know that because nobody takes advantages of the 8. We're going to be able to take advantage of all 8 settlement windows, meaning the SMB has the ability to get their money 8 times a day. So from a cash flow perspective, that will be significant as compared to what they see out in the market today, even from the likes of Stripe and Square and others. The fourth one is, I think, the most significant, and we actually are patenting this. And the -- it's an ability for us to not only send the deposit of whatever that total amount is, but actually give them every single transaction that they did that equaled that deposit. In today's world, the SMB has to go back and manually reconcile, especially a sole proprietor, has to go back and manually reconcile every transaction that equated to that deposit amount. And we did some proof of concepts, and we saw that it was taking about 5 to 6 hours per week for them to do that. So that's 25, 30 hours a month that they're going to save in not having to do that where they'll get every single transaction on their phone. They'll be able to uplift it -- upload it into QuickBooks or Xero or whoever they're using. And we're able to do that through technology that we have built along with Moov, and that's where the patent is coming in. So very excited. We've presented this to our clients, to prospects. Honestly, we got a standing ovation at an advisory board meeting from our clients, which you don't get very often. We got a standing ovation when they were able to see the demo and everything that we're doing. So the next question is, when are you going live? So we are going live in May. We'll have our very first customer live in May. And then our plan is to push this out to all 1,000 Banno clients by the end of September. And most people are going, well, how are you going to be able to push it out to 1,000? We're not going to charge our clients for this. We're charging the SMB. We'll be making the money just like Stripe does, just like Square does, but the concept of extra deposits for the bank, stickiness for the bank, all kinds of other things. So this also will not be our only phase. We are already working on several other phases to bundle more solutions like AP/AR. We have a relationship with a company called Autobooks. We're actually their largest investor. There's an opportunity for us to leverage things that we do with them as part of this solution as well. So a whole bunch of that, that I'm kind of compiling in, but that's where the bundle will be able to be accessible as a sales mechanism to our banks and credit unions that they would be able to resell. But for this first phase, we're treating it just like they would be if they were a Stripe or Square, it's that it's just own payment processing to the sole proprietor with a lot of unique features which is better, right? The solution is better.

Okay. Okay. Interesting. Interesting. Yes. So they -- I mean the FI should be incented to push it? I mean, is there any rev share back to that?

So it depends on a couple of components. But the short answer is, no. The reality is, is that they're seeing about 4.5x. So I'll give you a couple of data points. Only 16% of sole proprietors that have a retail account at their bank, or credit union, have their business account there too. Why? Because most community and regional banks don't offer this type of solution. So they end up banking at XYZ Bank, community bank, but they take their commercial account to Chase or to whomever. And so when only 16% are doing that, there's a huge opportunity for us to decrease or increase that number of penetration. And then you may or may not know that the average deposit for a commercial account versus a retail account is 4.5x that size. So if we're able to get -- increase their deposit growth, and increase their stickiness and penetration with those customers, that's a big win for them, again, as part of the initial phase.

Right. So it's deposit gathering. It's customer stickiness and...

Exactly, right.

Okay. Yes. So the incentives are aligned, right?

And again, getting the feedback we already got from our customers is validation that they're good with this.

Yes. So let's just say that you hit this target. You've rolled it out to all 1,000 Banno clients by September I think you said is the goal. Can that start to move the needle on revenue in fiscal 2026? Do you think?

Some in '26 more in '27. And so we haven't worked on our 2026 budget yet, so I'm not really ready to confirm anything at this point. But the short answer is we believe this will be the fastest growing opportunity that we have at the company, specifically over the next 5 years.

Okay. It is a big statement.

It is. And one of the things that I do want to recognize is that we're doing this also in partnership with Visa and MasterCard. So we did just announce yesterday, our MasterCard agreement that we are doing with them. And Visa was announced about a month ago. And they are helping us significantly with building out the marketing aspect of this for -- to help our banks be successful selling the product to the end SMBs. To get assets involved to help us promote it. And so when we presented this to both the card associations about a year ago, they were very impressed.

More volume for them, right?

It's more volume, but also it's the ability -- they have the same belief that we do is that if we're able to keep this -- these transactions through the community banks and credit unions, then they're going to be around and be a lot more successful and they have that same belief. And that was something that we sold them on when we presented this. And it was myself and Wade and Ben, our CTO, that went presented. And we spent a lot of time with both of those brands, and we've now finished both of those contracts.

That's great. That's great. So are you or have you done any kind of like Salesforce retraining to...?

So it's a great question. Now the biggest part of why we're pushing it out is it doesn't require a ton of training, because we're able to push it to all 1,000. But what we want to do in our next phases is, we actually -- I told you I have a merchant acquiring background. We've already hired a couple of people that I know very well to come in help us build out that. Or...

Coming with that mindset.

Exactly right.

Right. Right. And then it sounds like the next evolution is almost more like a small business, like a bundle, right? And will help you with your cash flow management and will go beyond the point of sale.

Yes. And it's more -- much more of a traditional SMB bundle of solution sets, like I said. You got accounting software, you've got ARAP, you got acquiring, you got other components that you want as a small business. So we're already forecasting to have 3 or 4 phases of this over the next 12 to 18 months.

Okay. Okay. All right. Well, we'll look forward to that. Where are we in the transition -- in the cloud transition going both on-prem, private cloud, private to public? I know that's been a journey. You mentioned it at the outset as one of your priorities. How far along are we? When are we done?

Yes. So let's start with the private cloud transition. So we're 75% penetrated in our base today. That's both banking and credit union, 75% penetrated. So will we ever get to 100%? No. Will we get north of 90%? We believe so. And that still gives us about a 4- to 5-year runway at least at doing about 30 to 40 migrations per year. And we're on track this year to do close to that 40 that we've been doing. Why is that important is that we get an uplift from in-house to private cloud of an average of 1.75% -- I mean, 1.75x the revenue. And so it's about 1.5 on the credit union side. It's about 2 on the banking side, so an average of 1.75. So we'll continue to see that. We'll continue to focus on it. But there will be an opportunity at some point here in the very near future for them to skip the private cloud and go directly to the public cloud. And so back to that question, we announced in February of '22 that we were going down this path of building out the public native -- public cloud native core. And at that point in time, we announced that we would be done with the first phase, which was a retail deposit-only core for both consumer and commercial clients, public cloud native at the end of calendar year 2026. Well, back to our level of execution. We are 6 months ahead of that time frame. So we'll be releasing that in the first half of calendar year 2026. And so what does that mean is that we'll have some customers that opt to use that as a way to test the process and use it as a side core, use it as a lot of other things that they'd be able to do. But the difference is, is that it will all be one big application. So there's a big advantage for our clients to do that with us versus somebody else. And then the second part of your question is, when is it going to -- when does it end? Our plan is, and I'm not ready to commit to this yet because, again, I like to do what we say we're going to do. But the reality is we believe it will take us 2 to 2.5 years to build out the lending side of that. So sometime in '28, maybe into '29 at this point, I need more -- a little more time to get that finalized. But some time 2, 2.5 years later, we expect to have the lending, and that will be a full core. So we will have a full core built, and there is nobody close, nobody close to having a full core built. And even people that have had a head start on us, they're not even close to building out the lending side because it's really tough to do. So anyway, that's really what our focus is, is to make sure that by that 2028, 2029 time frame, we have full core to be able to move people. That should align very nicely with the regulators and everybody else as well. So the one thing that we've been able to do a really good job with our customers is Banno is cloud native when we built it. So we built it 6 years ago. It's cloud native. And so our customers are very used to working with us in a cloud-native environment. The regulators are used to working with us in a cloud-native environment. So I think we're a little bit ahead of the game from some of our competition because of that. And then now we've started to move our enterprise account origination. We moved some of our payment platforms all into the cloud as well.

Yes, yes. Okay. All right. So we'll continue watching for that. Last topic, we have 1.5 minutes left. Capital allocation.

Yes. So capital allocation. So we're very committed to our dividend policy and approach. I think Vance, just reminded me, we had 21 years of consecutive growth on our dividend side. We're very actively always looking at repurchase options and things along that line. So we've definitely made some through the year, and we'll continue to look at purchase buybacks on that. The other part that I would say is that we are looking at M&A opportunities that will augment or accelerate what I just described. Around our SMB strategy, around our overall payment strategy. What we're doing with our tech modernization strategy. So one of the things that we're going to be very focused on is that we don't want to buy anybody that we have to rebuild that isn't already public cloud native. So our focus will be companies that are already public cloud native, that will allow us to accelerate and not have to rebuild. And there are a couple of companies right now that we're looking at that could fit that bill depending on kind of where we end up in the process. But that will continue to be a focus. And then -- but I am a big person about execution. I think you can kind of hear that. And so as I said, we're going to do what you say you're going to do kind of company. And we have a lot of great strategies out in front of us. And I think if we just continue to execute on what we're doing, we're going to be okay.

Excellent. Excellent. Well, I really appreciate the time. Thank you, Greg. That was great.

Sure. Thank you.