Jack Henry & Associates, Inc. Price & Performance (JKHY)

Reconciliations for these measures are included in yesterday's press release. Now, I will hand the call over to Greg. Thank you, Vance. Good morning. I appreciate each of you joining this morning's call. I'm pleased to report overall solid financial performance results in the second quarter of our fiscal year twenty twenty five. I'd like to begin by thanking our associates for their hard work, and commitment to our success by doing whatever it takes in doing the right thing for our clients. Our focus on a people first culture, service excellence technology innovation and a well defined strategy supported by consistent execution continues to set us apart in the market. I will share three main takeaways and then we'll provide additional detail about our overall business.

First, our financial performance. We exceeded our second quarter outlook We had non GAAP revenue growth of 6.1% in Q2 slightly ahead of the 6% anticipated on the November call.

Our non GAAP operating margin of 21.5% was also slightly better than expected. We continue to expect results in the second half of our fiscal year that are consistent with full year guidance provided in August. Second, our sales performance. After record sales attainment in Q1, we continued our positive momentum by setting a sales record in Q2 for the second consecutive year. During the quarter, we had 11 competitive core wins and of the eleven, three were financial institutions over $1,000,000,000 in asset including one seven point five billion dollars asset win. We also closed 13 deals to move existing client to our private cloud. Third, and maybe as impressive as anything this quarter was our success with client renewals. We typically don't spend much time talking about renewals on these calls, but I am making an exception this quarter because of the volume inside of our renewals. In Q2, we closed 28 core renewals bringing our total for the fiscal year to 46 That is up 21% over the first six months of last year. Among those renewals are multiple banks with over $10,000,000,000 in assets including a $17,000,000,000 bank that provided the termination notice several years ago but never deconverted to our competitor.

They recently determined that the best choice for their go forward technology strategy is Jack Henry and resigned for seven years as well as moved from in house to outsourced processing. We also re signed our third largest bank and won several mergers of equals that brought us two more banks between 10 and $20,000,000,000 in assets.

This success reflects clients' continued confidence in Jack Henry our service quality and our ability to deliver innovation that helps our clients grow and meet the evolving needs of their account holders. Our core retention rate excluding M and A remains over 99%. Now for more detail on our overall business starting with some recognition for the team. Are pleased that for the seventh consecutive year, our Scimitar core platform ranked as the largest platform for credit unions in Cowen and annual ranking. Simitar also remains the most utilized core service with over $1,000,000,000 in assets with nearly 50% of the total market share.

In addition, we are proud to recently received two prestigious National Workplace Awards. Forbes most trusted companies in America and Newsweek's greatest workplaces for diversity. These honors reaffirm our steadfast commitment to doing the right thing for both our employees and our clients. Now turning to specific products on our technology modernization progress. In our Payments segment, we signed 14 new debit processing clients and two new credit clients in the quarter. We now have three thirty eight clients on the Zelle platform three fifty seven clients using RTP, representing about 42% of the live RTP clients and three thirty nine clients using FedNow, representing approximately 28% of the live Fentanyl FitNow client, In our complementary segment, we signed 17 new financial crimes defender contracts in the quarter, In addition, we signed 30 new contracts for the financial Crimes Defender faster payment fraud module. A real time solution designed to help mitigate fraud in Zelle, FedNow, and RTP transactions. As of the December, we have installed 104 Financial Crimes Defender customers and have another 80 in various stages of implementation. We also have 54 faster payment modules installed and 162 in various stages of implementation. [indiscernible] Our Bano digital platform continues to see very nice growth through competitive wins.

For the quarter, we signed 18 new clients to the Vanno retail platform as well as 33 new Vano business deals. At the end of the quarter, we had nearly 1,000 Banno retail clients including two twelve live with Banno business. We finished the quarter with 13,200,000 registered user on the Vanno platform. At the end of Q2 last year, we had 11,000,000 registered users a 20% increase over the past twelve months. On Monday, we posted a press release and update on our SMB strategy. We've collaborated with Visa to provide Visa Direct through Jack Henry Rapid Transfers which is the first phase of our partnership with Move. Visa Direct will enable the delivery of funds to eligible cards bank accounts and digital wallets. For example, in individuals and SMBs, can make real time transfers between linked external accounts to cover same day transaction needs. In parallel, we are working with Mastercard to facilitate similar part of the Mastercard Move platform. We will begin testing Jack Henry rapid transfers with a small number of clients later this month. Rapid Transfer service will be closely followed by our unique merchant acquiring solution with Move. We are on track to deliver that solution to or early adopter clients in May 2025.

It will be provided exclusively through financial institutions, and will include key features for the merchant. Instant decisioning, tap to pay for both iOS and Android devices, option to receive settlement funds up to eight times per day and continuous account reconciliation to the accounting solution of their choice. Together with Move, we will enable banks and credit unions to offer innovative digital payment solutions attractive deepen relationships and grow deposits. Which remains a top priority. I know we have talked a lot on these calls about our technology modernization strategy and the development of our cloud native API first Jack Henry platform. It's important to point out that none of the work with modern fintech like move or the integration of services such as Visa Direct would be possible without the cloud native infrastructure we have built over the past several years. We continue to execute very well on the Jack Henry platform. We are live with domestic wires international wires, Data Broker, which serves as our centralized data hub for reporting and analysis, and entitlements, which manages permissions, and access rights for users and systems. We are in beta testing with both exception processing and general ledger. We remain on track to deliver the retail and commercial deposit core functionality of the Jack Henry platform in the first half of calendar year 2026.

Some of you Some of you may have seen Cornerstone's annual survey of Jack and credit union executives published in late January. According to that study, 73% of banks and 79% of credit unions expect to increase their technology spending in 2025. This correlates with information we've seen from other sources including an American Banker survey fielded last fall in which 83% of the respondents said they plan to increase their technology spending in 2025. We are in the midst of conducting the annual Jack Henry Strategy Benchmark [indiscernible] with our clients and we'll share those results on our May earnings call. In closing, we are laser focused on second half performance and remain optimistic about our full fiscal year outlook. The demand environment our sales pipeline, and the competitive wins we have seen this year provide confidence for the future. Our customer and prospect conversations continue to validate that Jack Henry's key differentiator sorry, key differentiators of culture, Service innovation, strategy and execution have positioned us well for future success. With that, I'll turn it over to Mimi for more detail on the financials. Thank you, Greg. Good morning, everyone. The Jack Henry team's continued focus on execution and supporting our community and regional financial institution clients resulted in another quarter of solid revenue and earnings growth.

I will discuss the details behind our second quarter year to date results then conclude with commentary on our fiscal twenty twenty five guidance. Due to GAAP and non GAAP revenue increased 56%, respectively. Consistent with our expectations and providing the base for achieving our full year guidance.

Quarterly deconversion revenue of approximately $100,000 which we released prior to full earnings was down $5,000,000 compared to the same period last year, reflecting minimal consolidation of our clients. We remain confident in our 16,000,000 full year guidance While we see indicators for increasing industry consolidation, this activity will have minimal impact in fiscal twenty twenty five but potential for greater impact in fiscal twenty twenty six. Now taking a look closer look at the detail. In the quarter and for the year, GAAP and non GAAP services and support revenue increased 4% to 5%, respectively. [indiscernible] Data processing and hosting continue to dominate services and support revenue growth. For both the quarter and year to date. Hardware revenue was down $2,000,000 for the quarter and seven and creating headwinds for services and support revenue. As a reminder, hardware revenue is both non recurring and low visibility. Our private and public cloud offerings increased 11% in the quarter and year to date. Reflecting strong persisting growth trends. This reoccurring revenue contributor is 33% of total revenue and continues to be a key double digit growth engine. [indiscernible] Moving to processing revenue. Which is 44% of total quarterly revenue and is another significant contributor to our long term growth model.

We saw a strong performance with 7% growth on both a GAAP and non GAAP basis for the quarter and year to date. [indiscernible] quarterly and year to date drivers include increased card, digital and payments processing revenues. [indiscernible] Completing commentary on revenue, I would highlight quarterly total reoccurring revenue splitting deconversion revenue was 92% focus on key revenue a non GAAP measure, key revenue is comprised of our cloud and processing revenue Non key revenue includes product delivery support, on premise annual maintenance, Quarterly key revenue was 7076% of total revenue and grew at 9%. For year to date, key revenue was 74% of total revenue growing at 9%. Excluding hardware, quarterly non key revenue decreased 1% while year to date it increased 1%. [indiscernible] moving to expenses. Starting with cost of revenue, which increased 4% on both a GAAP and non GAAP basis for the quarter. The quarterly increase was due to higher direct costs and increased personnel costs. For clarification and to assist with models, the amortization of acquisition related intangibles was $6,000,000 in the quarter. Next, R and D expense increased 6% on both a GAAP and non GAAP basis for the quarter. The quarterly increase was primarily related to personnel costs.

And ending with SG and A expense, it increased 9% to the quarter above the GAAP and non GAAP basis. This is also related to increase in net personnel costs. We remain focused on generating annually compounding margin expansion. The quarter delivered 25 basis points increase in non GAAP margins 22% and this offsets the year to date to a 34 basis point decrease in non GAAP margin to 23%. We remain confident in our ability to deliver margin expansion in line with our full year guide. These solid quarterly operating results produced a fully diluted GAAP earnings per share of $1.34 up 6%. Reviewing the three operating segments, we're pleased by both positive top and bottom line performance across the board. Quarter segment revenue increased 6% for the quarter on a non GAAP basis against a tough comp. Performance primarily came from organic growth in data processing and hosting, partly offset by lower software usage revenue and lower maintenance fee. The result of our core customers continuing to shift from on premise to private cloud. Non GAAP operating margin for the core segment increased 139 basis [indiscernible] from improved operating leverage. Payments segment quarterly revenue increased 6% on a non GAAP basis.

The segment had impressive non GAAP operating margin growth of 170 Performance was due to continued higher card revenue from volume increased payment processing revenues including BedNow, RTP, Zelle and elevated EPS payments. Margins in the Payments segment also benefited from ongoing improvements to operating leverage. And finally, complementary segment quarterly non GAAP revenue increased 6% from strong product mix with hosting and digital driving consistent growth. Segment margin expanded two zero seven basis points Now let's turn to review cash flow and capital allocation. Second quarter operating cash flow was 90,000,000 an $8,000,000 increase over the prior year period. Strong cash flow reflected higher profitability increased receivables collection, lower prepaid partly offset by tax payments. Trailing twelve month free cash flow was $296,000,000 resulting in a 73% conversion in line with full year guidance range.

Our dedication to value creation resulted in a trailing twelve month return on invested capital of 20%. And for the quarter, we repurchased $17,000,000 of Jack Henry shares aligned with our intent to offset dilution from Stockholm. We move into the back half of fiscal twenty twenty five, will conclude with comments on full year guidance metrics. Yesterday's press release included fiscal twenty twenty five full year GAAP guidance along with a reconciliation to our non GAAP guidance metrics. All of which we are reiterating. And while the press release also includes the fiscal 2025 non GAAP EPS metric, This is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers and it should be noted that a 24% tax rate is used. All of the current fiscal year guidance metrics are aligned with our near term targets as the business operations remain healthy and on track. Our outlook for the financial performance remains positive with continued expectations for a strong second half it will be more pronounced than typical. The appropriate performance indicator for our business is the full fiscal year financial In conclusion, the positive first half of fiscal twenty twenty five was consistent with our expectations and provides a base for a full year aligned to our stated long term target.

Our focus remains on delivering long term profitability growth this grew compounding revenue growth and margin expansion. In pursuing these goals, we appreciate the achievements of our more than 7,200 dedicated associates and our investors for their ongoing confidence.

Michael, please open the line for questions.

We will now begin the question and answer session. The first question comes from Reina Kumar with Oppenheimer. Please go ahead.

Good morning. Thanks for taking my question. Could you just talk a little bit about what gives you confidence on the back half of revenue accelerate Good morning, Rena. The confidence we have comes from two things. One is the confidence we have in the results for the that we've just delivered through the first half. And then through the metrics, and drivers we've previously talked about, which are consistent, And those are the ones we meant on last quarter's call.

That we see cloud continuing to grow We see card ramping up in the back half. We see the installation of new products and consulting for things like financial Crimes Defender, And we see digital continuing to be strong On top of that, we're now past some of the headwinds like the hardware headwinds we saw And I will mention that cloud growth Now we're over in the back half. We're going to grow over a lower comp. So the combination of those factors gives us confidence in addition to seeing the execution on the operational side of our business. Thanks, Mimi. That's very helpful. And as a follow-up, are you seeing any increased competition at the low end of the market from a large competitor that's been calling out these wins? Like specifically, are you seeing any pricing pressure?

Hey, Reina, this is Greg. Thanks for the question. So yes, I mean, we're not seeing anything different than we have before. I know that those have been called out. We haven't really seen much on our side unless they're taking them from somebody else, but from our The part that we have seen a little bit of a difference is their approach on some of the clients that they're trying to keep less than what we're seeing in the clients that they're trying to win. And so I think part of the question would be is some of the references to clients that they've actually ring to maintained from a renewal standpoint. We're not. So I talked about renewals today, but of course they're not in the 11 competitive wins that we Jack about. I just wanted to reference the fact that we had a lot of large institutions that renewed with us. As well as institutions that were winning in Wyndham Mergers now related to what I would call mergers of equals. By the way, some of those mergers of equals are coming from that same competitor. So it's interesting to see some of the comments, but not seeing anything different than what we've seen in years past.

Very helpful. Appreciate the color.

Sure.

The next question comes from Kartik Mehta with Northcoast Research. Please go ahead.

Hey, good morning. Greg, in the past, we've talked about when we've talked about market share, you usually referenced or usually on average 200 deals and maybe 100 come to market and that Jack Henry usually wins their fair share, if not more. Is there a difference in that environment at all in terms of number deals coming to market and also maybe the number of deals you're winning It's a great question, Kartik. Thanks. But I don't think there's anything that's changed significantly yet. I do believe that some of the numbers could change based on M and A. And we are seeing an increase based on our customers and as I mentioned before several of these mergers that have already occurred. So that may lower the overall number. But we are still tracking to our traditional 50 ish wins. We still feel very confident about that. The good news is also we're continuing to win larger deals for the second quarter in a row.

I referenced a almost $8,000,000,000 win for us And again, we have $7,000,000,000 over $1,000,000,000 already this year. So So we're tracking very nicely there. I just think the only thing that is yet to be determined is some of the decisions that could have been made do they get wrapped up in an M and A? And then just moving over to your partnership with Move, I know you were Very excited about that. It seems like that's moving in the right direction, especially with the recent announcement Visa Direct. I'm wondering when you would expect revenue from that partnership to have an impact on Jack Henry Jack. Yes, I would expect that in fiscal year 'twenty six.

We might see some small pieces of that still in fiscal year twenty twenty five depending on on how things go. But the reality is I was expect anything meaningful to happen in 2020 Perfect. Thank you very much. Appreciate it. Yes.

Thank you.

The next question comes from John Davis with Raymond James. Please go ahead. Hey, good morning, guys. Greg, I wanted to touch on the renewals for a minute. You called out the outsized number. Maybe talk a little bit about the pricing dynamics. On one hand, you usually get they get better price as they grow. On the other hand, we have the opportunity to sell them and bundle more product So on average, maybe talk a little bit about you expect more revenue from those customers going forward or is that a potential headwind in the back half of this year and then point six?

Yes. Good question, J. D. Thanks. I don't think there's anything that is we haven't already planned into forecast that we are giving for the guidance. So we knew exactly who was going to renew and when. But yes, to answer your question directly, there's always some potential for early some level of price compression that happens But what we typically do is we offset that with additional product sets that we have. So some of it's the timing of when those products actually come on on. Did they come on at the exact same time as any level of price compression? Or do they happen in a year or two later based on let's just say it's a card deal and have a couple more years left on their card. Contract and you have to wait for that to expire. But all of that is factored into what we are planning to do for the back half of the year. But what I wanted to call out really was the point of, yes, there was a significant number But again, just showing the strength of what we are doing to be able to in a time when a lot of our competition is talking about things that they are doing to win deals, they haven't been winning them from us.

Okay, great. And then maybe just on the shape of the back half of the year, are we expecting you need about 300 basis points so of acceleration, one half to two half.

But is that more 4Q weighted or any color that you can give us there on the cadence of the back half? [indiscernible] question. I would say at this point, we continue to expect an acceleration throughout the year. But we're not going to give specific color on any particular quarter. Some things whether it be installation dates or other things can switch from quarter to quarter. We feel good about the full year and I would continue to point people in the direction of full year guidance. When you say acceleration, I. E. 4Q should be higher than 3Q? Correct. Great. Thanks guys. The next question comes from Chris Kennedy with William Blair.

Please go ahead.

Good morning. Thanks for taking the question. Can you just talk about the current operating environment for your customers. You do have a new head of the FDIC who's made some comments broad comments would be great. Yes. I mean, I think at this point, based on I was just with two clients last week, I mean, everybody still remains very optimistic I think the biggest thing that we've seen is will there be any lessening of some level of regulatory scrutiny. At least for us, and in some cases our institutions There hasn't been anybody that's raised any concern. And honestly, anybody that I've been with so far this year has been nothing but optimistic about the environment, the demand environment for us remains really strong and their willingness and need to continue to buy the products that we are focused on to help them increase deposits and their loans and build efficiency. All of those things remain top of Top of mind, Great. Thank you for that. And then any update on your efforts to rationalize the number of products that you guys service?

Yes.

Thanks for that, Chris.

Yes. So absolutely, right now, I would say that we are in progress of all three things that I've mentioned. We have things that we are considering divesting, we have things that we are looking at sunsetting and we have things that we are looking at cash cow. And so all three of those are in progress right now.

Thank you.

The next question comes from Peter Heckmann with D. A. Davidson. Please go ahead.

Hey, good morning, everyone. Maybe just one quick more housekeeping question, but in terms of getting to the $16,000,000 of deconversion fees for the year, would you at this point should we just kind of think about that as be weighted between the third quarter and the fourth quarter or should we expect a bigger step up in the fourth quarter?

First of all, I just reiterate, we are we are affirming the full year 2016 and I mean, look a little odd given the low number in Q2, but we feel comfortable based on the calendar we see, the slots that are already taken So the line insight we have gives us confidence for the 16. I think it's fair to assume kind of an even ish weighting but you never know kind of some date movement between things that are on the calendar. But I think pretty safe to say even across two remaining quarters. Okay. Thanks. And then, Greg, you talk a little bit about real time payment volumes, SantaJack Jack reach done a real good job of bringing the financial institutions live on the different platforms. But what are you seeing in terms of volumes? And then can you tell where those volumes are coming from? Are they primarily coming from ACH, same day ACH? Are you seeing maybe some migration from card volumes? You just talk about kind of the composition of payments and what's really working in in real time?

Yes. Thanks for the question. I think the biggest thing is that we're not seeing anything moving at this point really from card to real time. [indiscernible] partnership that will help facilitate the replacement of ACH and the ability to move funds to the SMBs in a real time fashion that's using the eight settlement window. So there's some components of that that will be utilized in our faster payments group, what we call Pay Center, We've seen very meaningful growth in that group over the last quarter. A lot of that's attributed to some of the work that we're doing with a few of our banks on some SEND transactions that we're now utilizing. So we did a pretty large number of spend transactions in the quarter. Which provide a little bit more meaningful revenue growth for us.

The use cases still are really the key and and the amount of fraud that people are still concerned about. So that's why we're excited to get our faster payments fraud module out from financial crimes because we're already seeing that the customers that are installing that are having less fraud on the faster payment networks. I think that will continue to evolve. But candidly, I really don't think there is anything in the near term that you'll see that's truly taken away from card volume. That's anything that's meaningful It's going to be really more about some of the edge use cases that we can use both with the small businesses and with some retail consumers as well.

And if I may add on to that, Greg, just in terms of I would highlight that in the release yesterday under process and one of the drivers we did call out and then kind of the first time noted that processing the payment processing area, which is falls under a ribbon for those just for clarity. Was one of the drivers of that strong processing being up 7%. [indiscernible] that is paid sector kind of related to some of these use cases we're starting to release volumes on. Related to faster payments.

Yes. And Pete, we're really focused with driving a lot of of these use cases. We work very regularly with the Fed and the clearinghouse and have conversations about things that we can be out the forefront and doing.

Okay, that's helpful. Thanks.

Thank you.

The next question comes from Jason Kupferberg with Bank of America, Good morning, guys. Good to speak with you again.

I wanted to ask about free cash flow conversion. Just visibility on the full year target. Mimi, any thoughts on how the back half may trend there and just the visibility on it? [indiscernible] It's been nice to have two solid quarters of free cash flow returning to more of a normalized type of range. We think there's further to go. In the out years, but for this year, we are in line with guidance full year guidance of I think the back half will continue to see some strength in the range that we've kind of been operating thus far this year. So I feel pretty confident in our ability to hit the Okay, understood. And then I wanted to ask about the trend of private cloud within core. I think you guys talked about a bunch of FIs moving from in house to private cloud. Curious to get an update on where do we stand now? How many core clients are on private cloud? And do you see that trend accelerating? Through the back half of this year? And just anything we should be thinking about in terms of whether or not that impacts the margin profile of your business at all?

Yes. Thanks, Jason. This is Greg.

Take that one. So we're at 75%, right, now at the private cloud number. So we continue to grow. We are on pace to hit the targets that we thought we'd hit We've been averaging between forty and forty five a year. We're on pace to do that this year. And expect to do that. So no changes in this fiscal year at all. And we continue to drive towards what we've talked about in other settings where when you look at the folks that at the very end, we may not get 100%, right? Do we get about 90%, 95% of folks that end up moving There's going to be some holdouts to wait to move directly to the public cloud. And as I mentioned earlier, we're on pace to deliver our Our retail deposit, commercial and consumer core in the first half of twenty twenty six. So we'll start to see some movement there. Of folks that want to just wait. So but we got several more years as we've said of room to go do what we need to do. In fact, I was with a very large customer this week who said they plan to move in 2026.

They've been a long term holdout. Of ours to move to private cloud. So we're still moving moving them at the pace that we have them.

And what we said previously is some of the catalysts of those decisions tend to be internal to the FI. Is around their ability to recruit talent that need for their hardware refresher So it's kind of an individual choice, but then kind of brings them over the line, if you will. But it's a multiyear trend that we've seen continue at a nice healthy pace.

Excellent. Thank you, guys.

The next question comes from James Mossett with Morgan Stanley. Please go ahead.

Good morning. Thanks guys. I wanted to follow-up on the cloud discussion and Greg, I guess maybe this question for you, but some of the investor concern that we've heard Regarding technology modernization, especially as we take the next step to public cloud is that maybe your development initiatives with the origin strategy are ahead of where regulators are like likely to be in the next few years or at least that's been the thought. With the change in administration, do you think that within the timeframe regulators will be more comfortable with broad based financial PII in the cloud such that the investment such that the investments you're making in your Origin platform better lines up with likely regulatory time frames. Just wondering if you think that we could bring those forward and see that move to public cloud start to accelerate?

Yes. Hey, James. Good to hear from you. I think the short answer is, I would believe it's way more of a possibility than it would have been two months ago. And so I don't know what I don't know. But I would say based on our conversations with regulators, which I think we've said on this call and other meetings that we literally meet with the FDA on a monthly basis here just because of the number of products. So we have a chance to have a lot of conversations on what we're doing with not only the public cloud core, but also what we've done with other public cloud products. And so so we've been able to educate them just as a reminder, Bano was the very first digital platform to be public cloud native. So we've been educating them for six years on what we've done around here. So I think we have as good a chance as anybody to get them comfortable just because we have so much experience doing it But the rest of it, I can't answer definitively. Other than I think you're right that we're going to with Trump in office and other changes that are being made, I think we have a better chance of making that happen.

Great. And then wanted to you touched on VANO there. Just get a sense from you given your strategic and how the strategy may be evolving, how we should be thinking about the mix between Banno retail and Banno business? And and how that's likely to evolve over the next few years?

Thanks.

Okay. Yes, I think obviously right now we're about 20% penetrated As I mentioned earlier, we have roughly 1,000 Bana retail clients and two twelve Banno business clients. And we continue to see just based on the install queue which is about 115 in the install queue right now, I mentioned I think it was Dave's last call he and I talked about this and kind of joked. I still think there'll be 65% to 70% penetration potentially higher, but that's kind of what we think they'll be from Van O business into the retail platform. But one thing that could really drive those numbers up is what we're doing with move and the SMB because of how we're rolling that out And we're kind of pushing that offering out to all of our Avano clients at one time. So if they have they don't have to have Banno business to actually have this application, which is something to note. But as we continue to build out feature parity and though nobody brought that up yet, I'm going to go ahead and bring it up because it was something I talked about at the Investor Day we are on track to do what I said we were going to do back in September.

To have feature parity with with our largest digital competitors by this summer. And we're actually ahead already on some things that I've seen especially as it goes to open banking, fintech integration native apps, our back office applications, of course now what we're doing in the SMB space. So all of those are going to continue to be huge drivers for us with Bano and applications like Bano business.

That's great. Thanks guys. Yes. Thanks James.

The next question comes from Dominic Gabriel with Compass Please go ahead.

Hey, good morning, everybody. Thanks for taking the questions. Just first, what are some of the underlying factors at your partners that could accelerate the demand for your products And is there a shift in clients are putting incremental dollars to work expanding their solutions that you provide. [indiscernible] So Dominic, just to make sure I'm clear on the question, when you said partners, do you mean third party partners? I'm sorry, the banks and credit unions. So what could accelerate the demand for your products among the banks and credit Yes. I mean, I think the demand is is there. I mean, some of it is, as you can imagine, some of it's resources to implement on their side because there's a lot of reeducation and there's timing of things, there's contract timing, of actually like I said, I mentioned two customers I was with last week. One of them doesn't have our digital product and we had a really long conversation about that. And I think they're more interested than they've ever been. But it's a timing thing, right, because they're already in a contract and they got to get out of it. But some of it is our ability to show the level of innovation and the level of execution and some of it is just timing on contracts and resources on their end and things like that.

But there isn't anything inhibiting us from being successful other than Tom. And so but the things we are doing and the [indiscernible] from our clients and consultants candidly continues to be very, very positive. So we're just putting the pedal to the metal continuing to work on our level of execution, and continuing to have that as a big differentiator.

And I would say, while there's opportunities for additional kind of demand, we've seen stabilization over the last three years from our survey results what are the priorities of our eyes and that continues to be getting deposit, loans, efficiencies, So all of our solutions certainly meet the sweet spot of those needs, but as we learn more about the administration where they're focused, could we see even an increased need for digital and payment center the administration continues to kind of push in those directions.

Yes, perfect. And then just lastly, just talk about the pace of innovation in the space you and your peers, and then what products are seeing the most investment dollars to stay ahead of Yes. Thank you for the question. I can't really speak for the competition. So I mean, just they'll have to speak to whatever innovation that they're focused on. What we continue to see is that the things that we have spent our time and money on we talked earlier about the public cloud and the work that we're doing with But the real part that we've seen big differentiators in a level of innovation is in our digital platform is in our account opening platform in our pay center or our payments, our faster payments module what we're doing in lending and our loan vantage solution and one other note of that, we are actually launching the first phase of our enterprise account origination solution this month. Something that we've been working on for the last two point five years. So So that's where a lot of this innovation is happening, fraud, obviously in financial crimes, But when you think about digital lending fraud payments, that really are the big drivers of things that everybody is looking to do.

And usually it starts with payments, because payments and we've actually been educating our customers a lot on payment strategy and allowing them to see what payments can really do for for them especially non interest fee income type opportunities. So that's really where the focus has been for Jack Henry. And we'll continue to be driving things through those solutions much like the move application And Greg, if I may add on, one of the areas I think around its innovation and differentiation for Jack Henry, it's not something one would traditionally think about around innovation, but the continued work around the Jack Henry, the experience driving a better experience for our RFI and our partners, Just this seamlessness and the efficiency that we're getting as an organization that will enhance service quality is a real differentiation from an experience relative to our to our competitors. And we're seeing even more and more the focus on that as one of the key determinants of vendor selection.

Yes, that's a great point. We had a recent meeting with both the ICBA and the ABA and they both commented that service is being much more valued than in years past because there's a little bit more of a level playing field. They view in APIs and things like that. So it's a really good point. And our Jack Henry initiative has really changed the dynamic of that. I would also throw in AI just while we're on the subject. And the things that we're doing internally with AI hand in some of our products. Thank you, both. The next question comes from Andrew Schmidt with Citi.

Please go ahead.

Hi, Greg. Hi, Mimi. Good morning. Thank you for taking my questions. I wanted to just dig into M and A for a second. I guess first, and end market M and A. I guess first, is there any convert merge revenue in the back half outlook? And then I think when we think about just ongoing revenues, maybe you could talk about what you're seeing just from your customer base.

How convert merge balances, deconversion? I know there's a lot of questions around the benefits, the pros and cons of of end market consolidation, if you'd speak to those things, that'd be helpful.

Good morning, Andrew. We do have a modest amount of convert merge we've seen a little bit of merge and consulting this year and helping some of our clients ready around their strategy and prepare for what we believe will be an increased pace of consolidation within our industry. I think more you'll see the impact in FY '26 and FY 2025. Just based on the timing of our fiscal year and when we think things will really start to get ramped. It'll be interesting to see over the next quarter the pace of approvals from the administration regulatory bodies. And I think that will be more of a telling sign of the pace to come.

Yes. And again, I referenced meeting with some customers, but one of the customers I met with was a winter merger that we had that is now a $20,000,000,000 institution after the merger. And they told me point blank that they plan to do three more acquisitions in the next two years And so those are opportunities that as we win the winter merger, we're in the catbird seat obviously to continue to add on to that. So we think they'll continue to be a fairly significant amount of M and A in the the banking and credit union space for the next couple of years. Again, as we always do, we're gearing up for that. And have conversations with our customers. And we actually get lot of notifications before those happen not necessarily who the institution is that are acquiring, but the kind of the profile of that institution.

Got it. Super helpful. Thank you for that. And then maybe I could go back to your just your wins, the move up market. I know we've talked about this in the past, but if you talk about just the conversations with those large banks and credit unions that you're winning, What's driving those wins? Have the conversations evolved a more recently? I know obviously business banking and treasury is when you move market is bigger component, but are there larger factors in terms of what's driving this conversation?

Yes. Thank you. I think you're right on the product mix. But it really is back to what we've been talking about And I keep saying it, but I want to make sure that you understand it. There is a level of of the fact that we are winning these deals based on culture service innovation strategy and execution. Those five factors it just isn't happening in the industry right now. And And so people when they see what we are building and what we've been able [indiscernible] which is close to 90% now on our roadmap execution. There just isn't anybody in the industry that's doing what they say they're going to do. And then so there's others that are that are getting there or trying to get there with strategies, but we're executing on those strategies very well. I think the other big thing is when you look at the level of of innovation in the complementary and payment products Core isn't always the driver of a core win. It's usually the things that go around the core that ultimately become the driver. And so that's why I think we've been very successful over the last several years as those products have have developed and really started to get ahead of our competition.

Absolutely. I know that product roadmap means a lot. So thank you very much. Appreciate the comments.

Sure. Thank you.

The next question comes from Ken Zuchowski with Autonomous Research. Please go ahead.

Hey, good morning, Greg, and thanks for taking the question. I just wanted to circle back on the back half revenue growth guidance. I think the implied growth is somewhere around 9%, which I think is the strongest sort of fiscal second half growth rate that we've seen over the last handful of years.

So is there anything different that stands out this year versus prior years that drives that stronger growth in the second half? And then I guess from a modeling perspective, any sense of which segments are going to see the most acceleration?

Sure, Ken. So as we said, there's a couple of things that are just relative to comps. So if we think about cloud, for example, Jack half or we're growing over the way the year is playing out, I wouldn't read too much into changing the color and pattern of the years going forward. This year, we just continue to back half acceleration We think things like card, we've seen volumes Jack up. We think the pace of and health of The U. S. Consumer will continue to be healthy, not in numerate, but healthy. And that will lead to increased payment volumes And then just some of it is around the installation. Timing of some of our newer products. You have things like Financial Crimes Defender, the consulting and installation that go on around that. The continued success around digital that Greg talked about the number of wins and the pipeline that's kind of in progress for I think all of that together makes us feel very comfortable about affirming the guidance. I know on paper, it looks like a very large number kind of in the back half, but but we feel comfortable.

Okay, great. That's really helpful. Maybe and then maybe just a question on the payments business because we're getting few questions on it. When you look at the network volumes in some of the large banks, they showed a 100 basis points of accelerating volume growth in The U. S. In calendar 4Q versus calendar 3Q.

Just looking at the Payment segment, I think it accelerated about 30 basis points on a non GAAP revenue growth basis over that same period. So I guess should we think about that line maybe being less correlated with overall market and network volume growth maybe that kicks higher in the back half of the year. Any detail on that would be super helpful. Thank you.

Sure. Ken, I would just remind everyone on the call that card is just one of three components of payments. And so while it is almost 60%, it's It's still only one of three. So the volumes we're seeing in card are certainly consistent with U. S. Debit trends. We've also seen strong related solutions that complement the card transaction itself. So we continue to expect that in the back half of the year. PayCenter that we've already talked about a little bit on this call, the payment processing, through the acceleration of the new rails and innovation networks we're continuing to see strong progress. Now is it it's a meaningful but on a smaller number. Basis. And then you have things like bill pay, that are doing fine at 15% of the [indiscernible] are not kind of a huge grower kind of from a mature business perspective. So I would just remind people from a it's not just all card transaction value. [indiscernible] Our next question comes from Dave Koning with Baird.

Please go ahead.

Yes. Hey, guys. Thank you. And I guess my question, I guess it's along some of the same lines.

When I look at payments, historically Q3 has been flat to down. I think in the COVID year, it was up, but almost every quarter in Q3, it's flat to down sequentially.

And then Q4 is up a decent amount, maybe 3%, 4%, whatever. It seems like this year you're talking about a little more acceleration than normal. Is there something different about this year's sequential normally Q3 would be flat to down just because retail, debit's just down a little bit in calendar Q1. But is there something different about the products being added or different things that are kind of differently affecting the sequential this year? Year? Yes, Dave, this is Greg. So good observation. And I think the the part that I would emphasize is really where Mimi was leading on the last question. It's card is going to there's nothing substantial about card being different in Q3. It's probably fairly on pace to what we typically see It really is the other products that are driving a lot of that opportunity. And so so PayCenter is getting to the point to be very meaningful for us As I mentioned before about what we're doing not only with the rollout of clients but also what we're doing on the Send side of transactions. And we have a couple of very large clients that were doing a large number of send transactions now.

So I would just really more look at the balance of what's happening or maybe the shift of the balance of what's happening in our payment segment.

Got you. All right. Now, thank you. That's helpful.

Okay. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Vance Sherard for any closing remarks.

Thank you, Michael. In the upcoming weeks, management will attend six investor events including availability at those events for in person meetings. We would like to thank all Jack Henry associates for their efforts and dedication, which contributed to our solid results. Thank you for joining us today. Michael, please provide the replay number The replay number for today's call is (877) 344-7529 and the access code is 4886307. The conference has now concluded. Thank you for attending today's presentation.