Jack Henry & Associates, Inc. ($JKHY)

I'll go ahead and get started. First of all, again, thanks, everybody, for being here for day 2 of the Wolfe FinTech Forum. Really happy to have Jack Henry with us, a company that we've been recommending for some time now and really constructive on it, given it's really just invested in itself the right way and continues to add technology, add product and really take market share. And so with that, thank you for being here, Greg, the CEO of the company, really took over as CEO a couple of years ago now?

20 months.

So it's been about 2 years almost. And just start there perhaps. I mean, when you compare where Jack Henry stands today versus when you stepped into the seat, I mean, what do you view as the most meaningful changes in the positioning, culture, execution? And then just looking ahead, Greg, I mean, if you look at the company and where it's evolving over the next year or 2, why don't we start there, it would be great.

Yes. So just a little background. I've been with the company for 15 years. So I would say from a culture standpoint and from a service standpoint, we have a 50-year history of doing all the things that are right by our associates, which ends up driving service. So I haven't done anything to impact that other than I think we've done a good job of improving some of those areas. Our engagement scores are the highest they've ever been. Our service scores are the highest they've ever been. But that's a foundational part of our company that goes back to Jack and Jerry themselves. For me in the role, I really kind of had a few things that I was focused on. One of them was our SMB strategy, and you've seen us really come out with that very strong, allowing what we have as a merchant acquiring solution embedded into the bank and credit union instead of around them. So the Stripe and Squares of the world that are taking opportunities away from our banks and credit unions, we're putting them back in. And we've done that with a partnership with Moov, but that was a big focus of mine was the SMB and my payments background. And then I think when you look at what we've been doing, to your point, in innovation in general, I was COO before I became CEO. So we spent a lot of time refocusing the company back then into what we call the One Jack Henry mindset. So that was creating our technology and creating our service atmospheres to look even better with a one company approach. And so we're starting to see the benefits of that work that we did years ago in the fruits of our opportunities that we've been talking about. We're winning more deals because of the innovation we built, because of the fact that our service and culture continue to be driven in the right direction. I like to say culture, service, innovation, strategy, execution. Those 5 words are truly differentiators for us. And I think all we've done has made all 5 of those better.

Okay. That's great. At the start of the year, you -- well, at the start of fiscal year '26, adjusted revenue growth was guided to slightly below your normalized 7% to 8%. As much as that's still well above -- even below 7%, 8%, is well above your same peers operate right now in the low single digits or even lower. Just remind us of what trends drove that, let's call it, conservatism versus your normal range to start with? And how are those dynamics evolving today?

Yes. So good question. So if you look at the 7-year CAGR of our annual growth rate, it's been about 6.8%. So we did guide to less than that this year. To your point, we had 2 particular headwinds that we called out. One was M&A usually comes in ebbs and flows. And so the M&A experiences that are going on, obviously, everybody knows that follows the space that it's more prevalent than it's been even in years past. So we have 40 years of consolidation happening in our market. And so that's no different than any other year other than it's probably instead of averaging it at a 4% decline, it's probably around a 6%. So there were some timing differences of when some deals of Jack Henry clients that were acquired, and we kind of called that out as a headwind because sometimes you can't control the timing of that. What we also said is that we thought it would start to level itself out over the year, and it has. And so as you've seen, as we've kind of come over the first 2 quarters, our fiscal is July 1 to June 30. If you've seen over the last 2 quarters, we've actually bumped our guidance up each of those quarters because that started to level itself out. And the other big thing we called out was some price compression that we were seeing from how we did renewals in the past. And candidly, without going into a whole host of detail, we made significant changes on how we do renewals, how we incent our sales team and renewals. And both of those have actually performed -- outperformed what we expected them for this year. And so that's why you continue to see that eke up. And I expect that to happen in the future.

Yes. I mean, M&A post the Trump administration really did pick up, right? I mean we're at somewhere around 6%, 7% or so of total banks consolidating versus -- I think we saw around 4%, right, if you go back a couple of years before.

Well, 40 years. So you can go back 40 years, it's averaging 4%. And so to your point, the other thing that's really driving that in the Trump administration is the time it used to take to get an approval was averaging north of a year. In some cases, it's averaging about 3.5 months right now. So that's changed the dynamic.

I think M&A generally -- look, a lot of investors look at it like it could be a headwind for the space because you get consolidation of your customers. But it could be an opportunity, too, where you need integration work done, right? And we had Stephanie from FIS on stage with us. We have Mike on stage with us from Fiserv. It sounds like banks are in growth mode in terms of spending on tech.

They are.

I mean, what are you seeing out there in terms of demand for services?

Yes. And I think I'll just reference 3 quick data points. So one, we do our own benchmark survey at the beginning of the year. So at the beginning of '25, we came out with our survey, our clients, 3% to 5% expected tech spend. 4 months later, Bank Director came out with theirs, 6% to 8%. Two months later, Cornerstone came out with theirs, 8% to 10%. So all within 2025, you've seen an increase in tech spend. And I think that's why Mike and Stephanie have referenced the same thing that we do. We're seeing it. Now the ones that don't want to spend the money, they're the ones that are getting acquired. So that's where -- really where the change is. And -- so if you're valuing the things that folks like us are building on an innovation side, they're the ones that need to spend the money on technology to continue to thrive in the markets that they serve.

It's a good environment for you guys. What is the areas that you'd see the greatest potential upside to your current guidance? I mean, you have a pretty good backdrop from a demand from an end market right now, it sounds like.

So there is opportunities in the space with some -- whether you want to call it a market consolidation by one of our provider or one of our competitors or not. But the reality is there are a bunch of opportunities in play. We're already seeing that as part of our pipeline growth. We also -- we won 22 cores just in one quarter, which by far was a record for us in Q2. And -- so that is a pretty strong indication of the things that I've been saying. And those really happened really before the opportunities of what I referenced with one of our competitors. But the reality is that the tech that we are building is very creative and very innovative. And honestly, some of our competitors are starting to spend time and money and focus on service and innovation. And I think we're a little bit ahead of them, and it's starting to be a benefactor for us. So I think that will continue for the foreseeable future. And I expect -- I'll just go ahead and say this. We've been typically winning about 50 cores a year, and I am 100% confident that we will win more than 50 this year as a way that we've been working through this.

That's great to hear. Speaking of core consolidation and competition doing some -- making some changes, we know Fiserv and others are really trying to upgrade into a fewer number of cores that they offer, just generally trying to get their customers given they spend so much time and money on so many cores, it's frankly distracting from an investment standpoint, right? What are you seeing there? I mean, as an opportunity to take advantage of that, if anything? I mean, you have markets where you really are the go-to for the SMB. But as you move upmarket and compete with Fiserv and others, what are you seeing in terms of the opportunity there?

Well, the opportunity for us is going upmarket already. It's been part of our strategy over the last several years. reference again a couple of key points. We won 31 deals in the last 2 years, over $1 billion compared to 5, the 2 years prior to that. And so that gives us an opportunity back to innovation and getting additional bites at the apple. We're also seeing even in the M&A market when one of our institutions is acquired by a larger institution and in some cases, much larger institution. We are having opportunities to keep additional products with that acquiring where we never did in the past. We're seeing that on a regular basis. The other part is with the consolidation that's happening with Fiserv and others, I know Mike has announced that it is in a consolidation or necessarily a forced migration, which -- that's great. But the reality is there's still clients that get nervous when those type of comments come out. And our pipeline has significantly increased as a byproduct of that. So that's why I'm very confident in where we're going, both from a core wins this year and what we expect to see over the next several years.

Do RFPs, the number of RFPs look different than they did in the last couple of years?

They look different than they did in the last couple of months. So yes, so without quoting anything in here, we -- our pipeline has significantly grown in the last 2.5 months since those opportunities have been announced. There's roughly 1,400 core opportunities in play right now based on what they've publicly said could be consolidated. And not everybody is going to leave, not everybody is interested in leaving, but there are folks that...

There's more conversations happening.

Absolutely.

I think you used to have somewhere around, what, about 100 or maybe 200 RFPs a year. Am I right?

Works. So roughly 200 a year, roughly 100 make a decision, and we won roughly 50 of those 100.

So that 200 number has moved.

It has increased.

All right. That's good to hear. When we think about the idea of you moving upmarket, again, I mean, Jack Henry has always been thought of by us at least as either credit unions or smaller banks, right, generally speaking, credit union banks. But you've been successful moving upmarket. You have banks over $50 billion in assets, right? Tell us a little more about how important that is for you and really what's allowing you to succeed there?

So it goes back to what I keep saying. We're in these opportunities today because of the innovation we've built. So our cloud-based tech story that we started roughly 4 years ago is now starting to get to a point of a level that we can show folks. So it's no longer a PowerPoint, it's all demos, and that impresses the heck out of the folks that are at that space compared to what they see today with their current provider. So there's a $50 billion institution that acquired one of our $5 billion ones, and we're talking to them because of the level of folks that have seen and talked about our technology. We're getting folks like McKinsey and Deloitte to call us where they've never paid attention to us before because of what they're hearing in the space. So it still goes back to everything I said. The reason why we win and the company has been very successful has always been about culture and service. But now we've added innovation, strategy and execution as 3 key differentiators. And again, that's a big part of it.

Greg, are your cores able to handle those kinds of asset size banks in a meaningful way that needs to be done?

There's never been a limitation of our ability to handle the size. It's always been a focus. And so yes, we test our cores over $200 billion. So we can actually do that from a -- it's never been a software perspective or that. And actually, we have -- some of our products like our payment and complementary products, we support $200 billion credit union today in a $75 billion bank. So never been an issue. It's always been about focus and credibility. And candidly, that credibility is starting to change with the things that we've been doing and getting us in the door.

Okay. You've also been selling more outside of your core base, right? I mean some of the ancillary products and really main products like Banno, Financial Crimes, Defender, Debit Processing. Just talk a little more about it, moving outside of your core base with some of these products and how that's been trending for you.

So we're still early stages of all 3 of those. In fact, even Financial Crimes, we're still not doing it yet. But Banno, we just started in January. There were several reasons, again, some...

It was pushed back by competitors, right?

Some of it was pushed back by competitors. And again, some of our competitors are now saying they're going to be a lot more open. So we'll see how that plays out. And then -- but the bigger part was is we needed to get to feature parity with a lot of the larger players. And candidly, we weren't there. And so we weren't going to go out and try to chase opportunities outside our core base when we knew that you get sometimes only a onetime chance to go to win these. So what we did is we announced this at our Investor Day in September '24, that we were going to spend the next year building out that level of feature parity. So I'll give you again some data points that I think are important. Last quarter, we announced 84 Banno wins in the quarter. 50 of those were Banno business, 34 of them were the Banno retail platform. All 22 of our core wins last quarter had Banno attached. So it was 100% attach rate, which has never happened before. And then the other part is there was 12 other wins that were competitive takeaways that were Jack Henry core clients that were on a competitive digital platform that are now moving to Banno. So those are all proof points that the things that we've been doing over the last year to get that level of feature parity is allowing us to now win, which means we are now ready to take Banno outside the base and tie it to the card platform. I talked about trifecta wins in the last earnings call. That's when we sell core digital and card together. And that's an important metric because lots of times, a core deal in and itself really the driving force of the revenue is the tangible products that get tied to it, digital and card being the 2 biggest. And so we are really focused on making sure that when we sell a core deal that we're selling both digital and card with that as well. And that's why I'm starting to track the trifecta.

Nice. You also talked a lot about SMB as a key strategic initiative more recently, right? I mean when we talk about what that could be and why that so -- just why is that so important to Jack Henry? And why is it important to your bank and credit union customers?

Well, it's really important to the bank and credit union customers, which makes it important to us. And so everything that we do is about making sure that our banks and credit unions win. That is our #1 mission, and we have not wavered from that in 50 years. So what we had seen that was going on in the space is that the Stripe and Squares of the world were going in, penetrating the customer base, taking those clients away, not only taking the deposits away, but taking the lending opportunities away as well. So what we decided to do was -- and I even have a merchant acquiring background, and we didn't get into the merchant acquiring space in 2018 when everybody else did on purpose because we didn't think it really fit the mission of who we are as a company.

I remember Dave pushing back on that. And also said now we're seeing them online [indiscernible].

Right. And so -- but it didn't fit our strategy of -- as you -- they became competitors of their own banks and credit unions with the merchant acquiring. So what we wanted to do is make sure all that stayed inside of the bank and credit union. So we created a very unique solution that I could probably spend a lot more time getting into detail on it, but I will tell you this, it's only Phase 1 of what we plan to do over the next 2 years. of rolling out a lot of feature functionality that will allow these customers to stay within the bank and credit union, compete very favorably with Stripe and Square with actually solutions that -- and features that Stripe and Square don't offer. So there's a whole host of things that we're even patenting from a standpoint of very unique ways that we've created the innovation. And so what we like to say is that this is the worst the product will ever be. And we got 600 clients live in 2.5 months since we came out with the product.

This is cross-selling money movement and merchant acquiring and...

Yes, it's that, but it's also the ability to have 8 settlement windows that they can use, instantaneous approval, the ability to -- for any of the small businesses that have to go back and manually reconcile their deposit to their transactions, which every SMB has to do, we did it automated. So we built some solutions back 3, 4 years ago. that take all the aggregators that are out in the market. They wrote APIs to our stuff. So we don't allow screen scraping. And so anyway, all that being said, it allows the SMB to actually do full account reconciliation to the deposit amount. Literally, it shows up on their Banno app. They push a button and upload it to QuickBooks and it's done.

How meaningful could this be? I mean we've talked about this potentially boosting your overall company revenue growth maybe by -- I mean, you're a very steady grower usually, but can we see this move you above the 7% to 8% range?

So yes, the short answer is we believe the things that are happening within the market itself, the numbers we talked about with tech spend, SMB focus. I truly believe that if the SMB deal is as big a home run as we think it is in the next 5 years, that it's going to be worth a 50 to 75 basis points of growth tied with what we think in the actual market itself has some similar. So short answer is a lot of the things that are happening are going to happen more in '27 and '28, especially market penetration because any core deal you win today doesn't get implemented for 15, 24 months. So as you start to look at fiscal '28 and beyond, that's where I think a lot of opportunities to get above those numbers. So I do believe -- just one last thing. I do believe that the SMB opportunity could be the second largest payment business inside of Jack Henry behind our card business 5 years from now.

Wow, that's great. When we think about segments, just to put it all together now, I mean, just help us remind us the growth algorithm for each of the 3 areas of your business, if you don't mind.

Yes. So it roughly has been 6% to 7% on the core side, anywhere from 6% to 8% on the payment side, depending on the year. A lot of that's driven by our debit volume, which is 23% of Jack Henry's revenue and 60% of our Payments segment. So some of that is contingent on consumer sentiment and things along that line. So 6% to 8% range, we're kind of at the middle range of that this year. And then complementary has been somewhere between 7% and 9%, and we're kind of in the middle range of that this year. All of those have opportunities to continue to grow based on the things that we've been talking about throughout the year.

Some of them have outperformed actually. I suppose a lot of it is also consumer spending and some macro dynamics to some degree.

For sure.

All right. And when we think about operating leverage, where are you kind of prioritizing investments today versus where you would have potentially done a couple of years ago?

So the prioritization has really been around what we call 6 anchored capabilities. So anything that has to do with core, digital, payments, fraud, account opening and lending are the 6 core capabilities, and there's a whole host of things in there. And there's other tangible things that ended up happening with our CRM system or our imaging solutions and things along that. But the things that right now, those 6 capabilities and everything in it is about 80% of Jack Henry's revenue. So my message is you can't be all things to all people. So that's why we have a lot of fintech integrations into us. And where we've exercised AI, we'll probably get into AI at some point. But the reality is we're using a lot of AI and have been for the last 3-plus years to build out our capabilities faster within the things that I just described, but we're driving that level of innovation at a pace that's much faster than our competition.

Yes. AI is important -- I mean, listen, it's come up as both an opportunity and a risk throughout our conference and from investors. For you guys, I mean, number one, I think Anthropic has been trying to make it easier to upgrade COBOL, right? And so help us understand, is that something you can utilize to take share? Is that something that you can work on your own customers with?

Yes. Well, there's not a COBOL and [indiscernible].

So really from a market share standpoint.

But either way, I mean, there's still advantages to using Claude to do a lot of things, and we're taking advantage of it ourselves. So to your point, it is an opportunity and a threat, and I'll kind of give you a quick kind of clarification of that. So from a banking standpoint, let's think about all the regulatory scrutiny, all the certifications, all the network things that you have to do. It can help you do things faster, but it doesn't help you have those conversations, right? So that's a big challenge. In the complementary segment, even today with fintechs, you see fintechs that get created to go build a full solution set to replace a feature that 1 of the 3 core providers has today. You either integrate with that fintech or you don't. We do a good job of doing that. And so you end up looking at it, they become a distribution partner and you either buy them or not, right? That's how a lot of these acquisitions happen over time. There's no difference in what AI can do today. From a benefactor standpoint for us, we're using AI to build things across our entire organization. We have 100 AI tools that we've allowed inside the company today. We've trained all of our 2,500-ish developers and QA folks and everybody else in that world through the uses of AI, how to use vibe coding. We have 30 use cases of vibe coding that are going on today. We had somebody actually use Claude coding. So we've been all over AI for the last several years. So we're seeing it as an advantage for us to stay above what we've already built and do things faster. There's always going to be some kind of third party that you have to pay attention to, but the reality is none of them -- if you were going to pick an industry to disintermediate, I'd pick something besides banking.

Yes, I was going to say. I think that's an underappreciated point because I mean your other stocks in fintech generally that do have these regulatory barriers, they've gotten hit as much as others. And so just to reiterate that again, you're saying, look, you're the ledger system for the banks, right? It has to be reviewed, regulators have to sign off on the technology the banks are using, right? I mean, how big barrier really is that?

It's a big barrier. I'll give you a couple of examples. All the things that we're doing with coding and AI today, we have to get regulatory approval. The things that we're doing within Stablecoin, we built a Stablecoin initiative in 2 weeks on our new platform, and we're getting ready to roll it out to 2 clients, and we can't roll it out until the regulators go into the banks and approve it. So those are things that you just don't have in a lot of other industries. So -- and even the fintechs that are getting charters, you should still have some challenges with that.

You have pretty good margins, and you've had a very clean GAAP, one of the things we love about the story. But I mean, is AI going to be an efficiency opportunity for you guys to potentially either reduce expense or grow expense at a slower rate than otherwise?

Yes. So we've already done a really good job of that. So this will be our sixth year in a row that we've grown headcount by less than 1%, even though we're growing top line at 7%. Why? Because we have a discipline at the company on a couple of things. We started with business process improvement 15 years ago. 40% of our staff is trained and [indiscernible] in the classroom, which is the Toyota Lean Six Sigma way of doing things. So that's been a mindset. AI has only been a benefactor of that. In fact, halfway through the year -- through our fiscal year, halfway through the year, we're already 60 headcount less than where we thought we were going to be. So that same dynamic is going to happen. Now I will tell you one thing that we do differently than a lot is our mindset with our staff is we do more with the same. And there's a way big difference than saying you're going to do more with less. As soon as folks think that every good idea they have, they're going to lose their job, they're going to quit giving you the good ideas. And so we do a really good job of zero basing roles, and we basically get to where we need to do through attrition or backfilling other roles that we think are more important and moving those over. So that's a mindset that we've had for many, many years, which has helped us drive a lot more innovation and happy associates, which equal happy clients and versus just saying that every quarter, we're going to look at maybe laying some people off because we got better and efficient.

Last question for me, and then I'll turn it to the audience. But Greg, what do you think investors are most underappreciated that you're most excited about? What do you want to see the company do between now and the end of '26 to really say this was a great year, a successful year.

Yes. So I'll answer the second part first. I mean, we're on the path to having a great year for '26 based on core wins, based on financial performance, based on the culmination of everything that we've been building over the last 5 years that we've been so much talking about. So I'm very, very bullish about what we've guided to and the things that we're going to accomplish, especially at a time when our competition isn't at that same pace. The part that I think is underappreciated is the level of innovation and the significance of the type of innovation we've built. I will give you a couple of anecdotes. So McKinsey and Deloitte have been calling us and never had any conversations with us in the past because they're hearing about what we're building in the space, and they want to get to know us better. That is something that, again, back to underappreciation of the innovation. Folks just think, okay, it's a core processor, and we got some really unbelievable people we've hired from Amazon and from X and from Block and from all these other places that came to work for us because of the cool technology that we're building and a lot of the leaders within our company that they want to work for. So I think that's the one thing I would leave is that folks -- as I like to say is we're not your father's Jack Henry, and it's all because of what we do with culture, service, innovation, strategy and execution.

All right. You might have some more talent up for grabs with the 40% RIF.

Yes, yes. We already had calls.

That was really helpful. It seems like a really good road ahead of you guys. Guys, any questions in the audience? Happy to take a couple.

Yes. Thanks, Greg. For banks and credit unions, are you starting to see any increased demand for instant payments, for Zelle, for RTP for FedNow? And are those volumes actually starting to get material? Or are they just thinking of that as like a -- I mean, is that a must-have for mid-market banks?

So great question. And I think the short answer is yes. So Zelle itself has had a variety of challenges because of fraud. And so there's always been concerns about -- I think one of the things that we created with our Financial Crimes Defender product is a fraud module specifically for Zelle and specifically for faster payments. But we're starting to see a pretty good uptick in the number of institutions that are willing to now start to buy that since they believe fraud. The bigger opportunity is in the other 2, in my opinion. So as things continue to change, opportunities for B2B transactions to get translated that way. I think with the Fed looking to probably mandate some things on how payments are going to be paid out, that will drive a lot of those use cases. And the difference is, is that most of our institutions today, and I'd probably say about 98% of our institutions today are on receive only. So they're set up, they take a transaction if they get a transaction. You're going to start to see where send only or send transactions will start to generate dollars instead of pennies, and that's when I think a lot of folks are going to start to come on board. We're also pushing it with a lot of our new solutions for real-time settlement, whether it be through our SMB solution or things like that. So we have roughly 500 institutions live across Zelle, the Clearinghouse and FedNow, but our pipeline is a couple of hundred deep now, and most of that has come in the last year.

One more question, guys? Justin?

Yes. On the -- could you give us an update on the competitive landscape, especially as you guys are trying to move up market? Are you seeing any new players? Are there kind of newer entrants that you think are doing well? Or how is Jack Henry differentiating itself?

Okay. Yes. So don't really see any new players. You see some of the former new players that have really slowed down. So you just don't run into Temenos or Thought Machine or others as you did several years ago in a variety of things. And again, I'll save the reasons for another time. It's also part of the reason why trying to disintermediate the banking industry in the U.S. is really hard to do. which, again, you can go back and ask them. So I think from our standpoint, there's been significant advantages for us to go upstream. I mentioned before our 31 wins over the last 2 years compared to 5 to the 2 years before that. And -- so we haven't seen anybody "new" come into the market. We've seen some folks, obviously, the news that's going on with Fiserv and various things that FIS has done through the years. But nobody "new" Nimbus is out there. They have a side core. They're trying to build out some components to that. But really, it's usually the same players. I will tell you right now, for every core RFP evaluation, you're going to see Fiserv, FIS, Jack Henry, maybe CSI, maybe correlation and then you're going to have maybe some others. There's 26 core providers out there. Most of you have never heard of any of them, but they may have 5 cores, 10 cores, 50 cores, but they're out there.

Okay. All right. Guys, thank you very much.

Yes. Thanks.