Jack Henry & Associates Inc — Earnings Call Q3 2026

Operator: Good morning, and welcome to the Jack Henry first quarter fiscal 2027 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please limit yourself to one question. Please note this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President Investor Relations. Please go ahead. Vance Sherard: Thank you, Nick. Good morning, and thank you for joining the Jack Henry first quarter fiscal 2027 earnings call. Joining me on the call today are Greg Adelson, President and CEO, and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide a brief summary of our quarterly results, updates on operations, sales performance, and a few strategic products, as well as commentary on our recent annual client conference. Mimi will then discuss the quarterly financial results and updated fiscal 2027 guidance provided in yesterday's press release, which is available in the Investor Relations section of the Jack Henry website. Afterward, we will open the lines for a Q&A session. Please note that this call includes forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the risk factors and forward-looking statements sections in our Form 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are also included in yesterday's press release. Now, I will hand the call over to Greg. Greg Adelson: Thank you, Vance. Good morning, and thank you for joining today's call. I also want to express my gratitude for those of you who traveled to our September Investor Day. It was great to connect with many of you in person. Before I begin, I want to thank our associates for their dedication to our clients, our financial performance, and the key differentiators that elevate Jack Henry: culture, service, innovation, strategy, and execution. I will start by sharing three key takeaways from the quarter and then provide additional perspective on our overall business performance. First, our financial performance. We produced record first quarter financial results, generating non-GAAP revenue of $682 million, up 7% year-over-year. This growth significantly exceeds the outlook and expectations for the quarter from our August call comments. Additionally, our non-GAAP operating margin was 28%, representing a strong 102 basis points of expansion over last year's Q1. Second, our strong sales momentum. As a reminder, the first quarter is typically our lightest of the fiscal year. However, this quarter, we secured nine competitive core wins, which is more than double the four we had in Q1 last year, and better than the six wins we averaged in Q1 over the past five years. Additionally, our sales pipeline continues to be robust, reinforcing the momentum we are seeing across the entire business. We remain very confident in our early guidance of 58 to 65 new core wins for fiscal year 2027. We also continued our trend of winning higher value trifecta deals that include core, digital, and card solutions. In fact, 63% of our Q1 core wins, excluding one non-traditional bank that does not offer a core card business, were trifectas, compared to 50% in the prior year period. Looking at Banno specifically, all but one, or 89% of our new core deals in Q1 included Banno. That speaks to the increasing strength of our digital solution and the continued momentum we are seeing following our 83% Banno attach rate in fiscal 2026. Third, client engagement at our Jack Henry Connect conference. In October, we hosted nearly 3,100 clients and prospects in Kansas City, making it our largest event ever. Prospect attendance grew significantly. We welcomed 141 prospect attendees, representing 53 financial institutions, up from 91 attendees and 32 institutions last year. Though each institution represent different stages of our pipeline, that growth is particularly meaningful given that nearly 40% of our 58 competitive core wins last fiscal year came from prospects who attended the conference. We also set record attendance across key stakeholder groups: 64 consultants, 281 third-party fintechs in our technology exhibit hall, and a sold-out CEO forum with 234 financial institution executives, up 11% from last year, along with close to 30 members of Jack Henry's leadership team and board of directors. The conference showcased our continued innovation, including significant advancements in the Jack Henry Platform, Tap2Local, Rapid Transfers, Financial Crimes Defender, and AI since last year's event. We also demonstrated emerging technologies and capabilities such as stablecoin, tokenized deposits, and recently announced Moov Money. Finally, it was a memorable celebration of our 50th anniversary, highlighted by remotely ringing the Nasdaq opening bell alongside 50 longtime clients, our corporate leadership team, and special guests Brenda Henry and Pat Hall, the wives of our co-founders Jack Henry and Jerry Hall. I will now discuss a few specific sales and operational updates. I want to start with the strong demand for our Gladiator security and infrastructure solutions. As cyber threats become increasingly sophisticated, amplified by the rapid use of frontier AI models, financial institutions are prioritizing advanced protection. In Q1, we sold 367 Gladiator solutions, triple the volume from Q1 last year, and marking our fourth consecutive quarter of sales growth. On the AI front, we are actively executing on the strategy we outlined at Investor Day. We now have 30 AI-enabled products in the market, with plans for a large contingent over the next six months. Our focus remains on delivering practical AI solutions that improve operational efficiency, enhance decision-making, and help financial institutions better serve their account holders. As we expand our AI across our portfolio, responsible implementation is critical. Our strategy pairs the power of AI with robust human oversight, enabling financial institutions to boost productivity while continuing to differentiate through trust, relationships, and service. Beyond our product offerings, we are applying AI from the inside out, taking what has worked within Jack Henry and bringing those learnings directly to our clients. From strategy and governance to adoption and coaching, we are using our own experience to help financial institutions accelerate their AI journeys. Internally, our dedicated AI coaches have driven significant adoption across Jack Henry, with more than half of our associates now using at least one AI tool daily. This has unlocked substantial productivity gains, including up to 90% increase in development output for some of our key solutions. Building on this internal success, we are now launching AI consulting services for our clients. This offering will guide financial institutions in establishing AI governance, crafting implementation roadmaps, and driving rapid organizational adoption. Next, I want to highlight the strong momentum with our Tap2Local SMB merchant payment and Rapid Transfers account-to-account money movement offerings. Tap2Local is now available to all 1,000+ Banno clients, and adoption among both FIs and small businesses continues to accelerate. Tap2Local generated significant interest at Jack Henry Connect, where we highlighted recent enhancements, including AI-generated product catalogs, customer list generation, shopping cart functionality, and invoicing. In addition, we recently partnered with Visa to host a highly successful Tap2Local event in Kansas City for financial institutions and small businesses, and plan to do more of these in the future. We are also driving adoption of Rapid Transfers. The solution is now live at more than 170 banks and credit unions, with an additional 140 institutions in various stages of onboarding. Rapid Transfers also continue to receive positive feedback and interest at our client conference. Additionally, we are excited about the March 2027 rollout of Moov's P2P payment solution called Moov Money. As we shared at Investor Day, the Banno Digital Platform will be the first to integrate Moov Money, enabling consumers to send and receive funds through debit card rails via Visa and Mastercard. Unlike most existing P2P payment solutions, transactions do not require both parties to use the same application. Account holders simply need a debit card and a mobile phone. This gives financial institutions the ability to offer a modern, fast, and secure payment experience under their own brand. Moov Money complements our broader faster payment strategy alongside Zelle, RTP, and FedNow. As demand for real-time money movement continues to grow, we believe Moov Money's differentiated approach creates another opportunity for financial institutions to compete effectively, retain deposits, and strengthen primary account relationships. We continue to advance our stablecoin and tokenized deposit initiatives. While adoption among community and regional financial institutions is still in early stages, we believe it's important to provide clients with infrastructure that supports emerging payment rails as the market evolves. Our approach is centered on interoperability and client choice. We are currently beta testing USDC capabilities with clients, and last summer, we joined Open USD, an industry initiative focused on advancing open standards for digital assets. We also recently announced plans with Google Cloud to enable tokenized deposits through Google Cloud Universal Ledger, making Jack Henry the first core technology provider to integrate with GCUL. Regardless of how the regulatory environment evolves, we believe financial institutions will increasingly need access to modern payment infrastructure capable of supporting multiple rails, settlement models, and emerging forms of digital value transfer. Underpinning these innovations is the cloud-native architecture of Jack Henry Platform, which gives us the flexibility to respond as new technologies and payment rails emerge. The platform serves as an integrated bridge between our foundational cores and emerging capabilities that community banks and credit unions need to compete with fintechs and large institutions. We now have roughly 30 core components live on the platform, including wires, ledger, and exceptions. More than 100 clients have adopted at least one component, and we continue to see significant interest in the platform, along with positive feedbacks on its differentiation in the market. We are finalizing our approach to include the platform in every new core deal and will share more on our February call. This provides clients a flexible path to modernization, allowing them to adopt cloud-native capabilities at their own pace while simplifying operations and creating more modern experiences for their account holders. Moving on to our operational segments. In payments, I mentioned earlier that we continue to see strong demand for faster payments. Over the past year, our clients' adoption of Zelle grew by 25%, RTP by 28%, and FedNow by 30%. In the first quarter, payment transaction volume across these channels increased 42% year-over-year. We also saw healthy card processing sales activity in Q1, signing 13 debit and/or credit card deals, up from eight a year ago. In our complementary segment, we signed 32 new Financial Crimes Defender and faster payment module contracts in the first quarter. As of September 30th, we have completed 208 Financial Crimes Defender installations, and another 58 are in various stages of implementation. We have also installed 225 faster payment modules, with an additional 255 in progress. The Banno Digital Platform had another strong quarter, with 13 retail and 12 Banno Business signings. The 25 total signings represent an increase of nearly 40% from last year. The Banno platform now serves more than 16.3 million registered users, up 11% from a year ago. Treasury management continues to perform well, with growing traction among commercially focused clients. In Q1, we signed six new treasury clients with total assets of $16.3 billion. That is nearly 60% higher than the combined assets of the eight treasury clients signed in Q1 last year. Overall, tech spending in financial services remains very strong. In Bank Director's 2026 Technology Survey that came out in September, 81% of the respondents reported an increase in their bank technology budget for fiscal year 2026, up from 71% a year ago. The median increase in spending was 10% for the second consecutive year. That is more than double the 4% median increase in 2024. These results align with findings from our strategy benchmark published last spring. In that survey, 88% of our own clients said they plan to increase spending over the next two years, with their top priorities being AI, digital banking, and data analytics. Looking ahead, we will hold our annual shareholder meeting on November 19th in Monett, Missouri, which will be webcasted as well. In closing, we are very pleased with our first quarter performance and the continued momentum across our business. The demand for our solutions remains strong, as demonstrated by our quarterly results, robust pipeline, and record attendance at Jack Henry Connect. With continued execution across sales, innovation, and service, we are confident in our strategy and our ability to deliver consistent long-term results. With that, I will hand things over to Mimi to walk through the financial details. Mimi Carsley: Thank you, Greg, and good morning, everyone. I would like to begin by thanking our associates who continually deliver tangible value and industry-leading service to our clients. These efforts resulted in another excellent quarter, providing a strong launch into fiscal 2027. My comments will begin with the quarterly results, then conclude with a discussion of our updated fiscal 2027 guidance included in yesterday's press release. Q1 GAAP revenue increased 9%, while non-GAAP revenue increased 7% for the quarter, a continuation of our consistently strong performance. First quarter deconversion revenue of approximately $18 million, which we previously announced, was up approximately $9 million for the quarter, reflecting M&A activity among financial institutions. As a reminder, the dollar amount of deconversion revenue has little correlation with the number of transactions or the impact to Jack Henry's annual revenue, and the absolute amount of deconversion revenue can vary greatly quarter-to-quarter. We continue to see industry consolidation as largely neutral to slightly positive for our business. Now let's look more closely at the details. GAAP services and support revenue increased 7% for the quarter, while non-GAAP increased 5%. Services and support quarterly growth was the result of consistent strength in hosting revenue for cloud services. Cloud services offerings continue to drive robust growth, increasing 11% for the quarter. This recurring revenue contributor is 31% of our total revenue. Shifting to processing revenue, which is 42% of the total revenue and another strategic component of our long-term growth model. We delivered healthy performance with 11% GAAP and 10% non-GAAP growth for the quarter. Consistent with recent results, quarterly drivers included increased card, digital and transaction, and faster payment revenues. Completing commentary on revenue, I would highlight total quarterly recurring revenue was 93%. Next, moving to expenses. Beginning with the cost of revenue, which increased 8% on a GAAP and 7% on a non-GAAP basis for the quarter. Drivers for the quarter include higher personnel costs, direct costs growing consistent with lines of revenue, a planned increase in cloud consumption, higher internal license and fees, and increased amortization of intangibles, partly offset by higher labor cost deferral quarter-over-quarter. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense increased 17% for GAAP and 15% on a non-GAAP basis for the quarter. The quarterly increase was primarily due to net personnel costs driven by trailing 12-month headcount growth. Ending with SG&A expense. For the quarter on a GAAP basis, it was flat year-over-year, and on a non-GAAP basis, it decreased 6%. Results reflect lower expenses related to the timing of our Connect conference. We remain focused on generating annual compounding margin expansion. Q1 delivered non-GAAP margin at 28%. More importantly, Q1 non-GAAP margin improved 102 basis points. This starts another year that targets our fourth straight year of compounding non-GAAP margin expansion, as aligned with our commitment to investors. Non-GAAP margin reflects the inherent leverage in our business model and management's continued focus on creating AI efficiencies, strategic cost management, leveraging our existing workforce, and enterprise process improvement. These strong quarterly results produced a fully diluted GAAP earnings per share of $2.28, up 16%, with the largest contributor being operations. Reviewing the four operating segments for the quarter, we saw excellent performance across the board. Core segment non-GAAP revenue increased 5% for the quarter, with non-GAAP operating margin decrease of 31 basis points, primarily due to the increased hosting revenue. As we noted in yesterday's press release FAQ section, growth was negatively impacted by lesser non-reoccurring revenue from on-premise implementations and consulting services. Excluding these revenue items, quarterly core segment growth was 8.6%. This is consistent with the significant number of core wins, including upmarket wins over the recent past. Payment segment quarterly non-GAAP revenue increased 8%. The segment continues a strong run of fantastic non-GAAP operating margin growth, with quarterly results of 189 basis points. Card and processing revenues showed steady growth. The segment also benefited from continuing large percentage growth from faster payments. The complementary segment and quarterly non-GAAP revenue increased 8%, with quarterly non-GAAP margin growth of 209 basis points. Quarterly revenue growth benefited from cloud services and digital processing revenue. Additional positives include beneficial product mix and additional sales sourced from new core wins, existing core customers, and non-core financial institutions. For the quarter, corporate services non-GAAP revenue increased 5%. This is primarily the result of meaningful increases in the traditional segment revenue, increased on-premise support, partially offset by the decrease in user group revenue resulting from the timing of our Connect conference. Since this segment reflects expenses not allocated to the other segment, we will not be discussing non-GAAP operating margins, as it provides no meaningful insight. Now, a review of cash flow and capital allocation. Q1 operating cash flow was $161 million, a 34% increase over the prior fiscal year Q1. Quarterly free cash flow of $83 million delivered a 19% increase over the prior year fiscal Q1. This was primarily the result of increased net cash from operating activities, partially offset by larger aggregate capitalized expenditures. Our consistent dedication to driving value for our investors resulted in a trailing 12-month return on invested capital of 23%, compared to the 22% in the prior year. We're very proud of the durability of this metric and how it reflects our high-quality allocation of capital. Additionally, I would highlight the following significant quarterly capital decisions resulting from our strong free cash flow generation and cash on hand. We purchased 462,000 shares for $71 million and paid $43 million in dividends. The average purchase price of shares purchased was $153. We ended the quarter with debt of $85 million, consistent with normal course revolver usage. I will now discuss our updated guidance for fiscal 2027. Based on our impressive start to the fiscal 2027 and an improved outlook, we are pleased to increase full-year guidance. I will now review the updated metrics from yesterday's press release covering fiscal 2027 full-year GAAP and non-GAAP guidance. Full-year GAAP revenue growth guidance is a range of 6.0%-6.8%. This is due to the improving operational outlook and expected higher deconversion revenue from our outlook at the beginning of the year. Revenue on a non-GAAP basis is expected to be within a range of 6.6%-7.4%. This represents a significant raise of the bottom of the prior range and a slight adjustment to the top end of our previous range. Deconversion revenue guidance will continue to follow the conservative methodology introduced in fiscal 2024, with fiscal 2027 deconversion revenue guidance updated to $30 million. Full-year non-GAAP margin is reiterated at an expansion of 20 basis points-40 basis points, and we remain cautiously optimistic that we will increase that range as the year progresses. The cadence of the full-year has been adjusted. We now expect lower non-GAAP revenue growth in the second half. Previously disclosed non-GAAP margin headwinds remain intact for the first half. These are primarily timing-related adjustments, and we remain confident in our ability to achieve the updated and reiterated full-year guidance metrics. As mentioned during the Q4 call, expense comps during the first half of fiscal 2027 will reflect pressure from self-insured medical costs returning to historical levels. Additionally, planned increases in cyber and infrastructure investments related to frontier models, AI innovation, and our data center consolidation project, EC2030, will pressure margins in fiscal 2027. As a reminder, we see fluctuations in quarterly results relating to software usage license components, along with the timing of implementation. Therefore, the correct performance indicator of our business is the consistently excellent fiscal year financial results. Our business operations remain robust, with growth opportunities across all four operating segments. Full-year GAAP tax rate for fiscal 2027 is forecasted at 23.25%-24%. The updated guidance metrics produce a stronger full-year outlook for GAAP EPS of $7.47-$7.51 per share, growth of 7%-8%. As a reminder, conservative deconversion revenue guidance potentially understates GAAP EPS growth. Full-year free cash flow conversion outlook is reiterated for 85%-100% for fiscal 2027. In conclusion, our strong start to the fiscal 2027 positions us for another fantastic year. We are grateful for the contributions of our focused and dedicated associates that produce these superior results, and our investors for their ongoing confidence. Nick, please open the line for questions. Operator: Thank you. We will now begin the question-and-answer session and ask that you limit yourself to one question and return to the queue for any additional questions. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble the roster. The first question will come from Dan Perlin with RBC Capital Markets. Please go ahead. Dan Perlin: Thanks. Good morning, and congratulations on a great quarter. I just wanted to ask a question around cybersecurity. One of your competitors today is actually calling out they just get a lot of pressure from their clients to invest in cybersecurity. Greg, you called out Gladiator, 300 solutions, tripled that of last year. Mimi, you just kind of highlighted it as one of the areas of investment. I just want to make sure that you guys are kind of, I guess, in a position such that if that demand were to increase, there's not some sort of investment cycle that would catch you off guard. Thank you. Greg Adelson: Yeah, I'll start, and Mimi can add her commentary. Yes, a good question, and the answer is no. We had been planning for this as part of our annual budget planning. We had been planning, and I've been talking about what we thought was going to be an increase in some of our Gladiator services for the last quarter and a half, and Investor Day as well. We've been gearing up for this, both from an implementation standpoint, an investment standpoint. We've been working with our partners, both on the frontier model side with Anthropic and with Google and others, and continue to do that. The models are changing on a regular basis. Those are not the only two that are out there now with frontier models. We continue to work in that. And we're managing that cost as part of our ongoing endeavor as well, to ensure that we're doing the right things to protect our clients, as well as managing our resources. Mimi Carsley: Yeah. I would just echo Greg's point in terms of the protection of our clients' data is paramount to what we do and the foundation of the trust that they have in us, and therefore their end customers' trust in them. And so we take that very seriously. We've been investing for over, since my tenure here at Jack Henry, pretty strongly in this area to make sure that we've been making the step function changes to create kind of a zero-trust environment and a protected environment for our data and for our clients' data. I don't see that changing. If anything, to Greg's point, I see the opportunity side from the products and services we offer having more demand, and potentially even, and this is something we talked about in Investor Day, an acceleration of the shift from on-premise to private cloud. Dan Perlin: Excellent. Thank you. Operator: The next question will come from Andrew Schmidt with KeyBanc Capital Markets. Please go ahead. Andrew Schmidt: Hey, Greg. Hey, Mimi. Thanks for taking the question, and great start to the fiscal year here. Maybe just start off with an environmental question. I am just curious if you are seeing anything different in the environment. Obviously, a key competitor calling out higher retention. Just curious what you are seeing broadly in terms of your win rates. Then as we think about just the intermediate-term outlook, maybe just remind us what is embedded from a win perspective. I understand the implementation timeframes are lengthy, so this may be more of an FY 2028 question, but just curious what the assumptions are there. Thank you so much. Greg Adelson: Yeah, thank you. I will take that, and again, Mimi, you can add any comments if you want. From the perspective of the environment, yeah, I mean, I will say it this directly, I guess. Our pipeline continues to grow significantly, again, referenced by what I mentioned at the number of prospects that showed up at our client conference. A lot of them were with that particular provider you are talking about. Then a lot of our wins recently have been longtime clients of that particular provider. A couple of them were 28-year clients. So our pipeline continues to grow. It is a lot larger than it was, say, six months ago when we had a deeper conversation about this ourselves, Andrew, and with other investors and analysts. I think the thing that needs to be probably discussed is really just around percentages and what percentages mean versus what actual numbers are. From our standpoint, we see a really nice pathway to our 58%-65% that I continue to reiterate. Again, it is not just from one provider as well. Honestly, in our first quarter, we did not have as many as I would have expected from that one provider. They were coming from others. We continue to be equal opportunity offenders, I guess, is what I would say from that standpoint. Mimi Carsley: I think that long-term durable sales success is an indicator of the modernization journey we have been on, the fact that those products are now in the hands of clients. Greg also mentioned in his prepared remarks, the industry as a whole anticipating increasing spend in the category. Greg Adelson: Yeah, when I look at opportunities, as you mentioned, just kind of looking out, the opportunities are continuing to come not just from the core and the core modernization and all the capabilities that we outline in our Jack Henry Platform, but as I mentioned, like treasury management, as we have rebuilt that product, we are able to take that product more upmarket. So it is creating opportunities into larger institutions, because treasury is a key solution set for a lot of those commercially focused solutions, as well as what we are doing on the digital side and card side and other things. So, core itself is not just sold by as a core feature or functionality. A lot of times it is sold with the other complementary and payment products. Andrew Schmidt: Got it. Thank you. Noted on the diversified sources of wins and also the math on the percentages. I appreciate that. Thank you so much. Greg Adelson: Yeah, absolutely. Operator: The next question will come from Vasu Govil with KBW. Please go ahead. Yvonne Jeng: Hi, good morning. This is Yvonne Jeng on for Vasu. Thank you for taking my question. Your operating margins came in better than expectations this quarter, and there was some benefit from Connect expenses moving to the second quarter, but did you also see strength on an underlying basis? I know the guidance is unchanged, but just trying to get a sense for your ability to outperform. Thank you. Mimi Carsley: Yvonne, thanks for joining and taking Vasu's place this morning. We're glad you were able to participate. We know it's a busy day for earnings this season. Thank you for letting me get into this in a little bit more depth. I would say the predominant opportunity from a margin perspective is the fundamental underlying strength of the business. You saw cloud, you saw payment growth even exceeding our expectation for the quarter. That has really healthy margins that are associated with it. There is some timing shift, as you well point out, from Connect, and just for modeling purposes, giving people a little bit more clarity, roughly call that $9 million of revenue, roughly around $5 million-$6 million of expense in a given year. The good news is we've committed to the timing of those conferences for the next four years, so there will be less noise from grow-over for next year and beyond. But the main point being, aside from the timing thing, the reiteration of the full-year guide reflects the strength of the overall business. Yvonne Jeng: Thank you. Operator: The next question will come from Jason Kupferberg with Wells Fargo. Please go ahead. Charlie: Hey, good morning, Greg and Mimi. This is Charlie on for Jason. Thanks for taking our questions. It was great to see core wins continuing to come in strong in the quarter, but if I am just looking at growth trends within core, we've seen, I think, a few quarters now of decelerating growth. Can you maybe just take a minute to discuss the trends you are seeing in the core segment? Where is that potential near-term disconnect between the number of wins and the path towards accelerating growth? Is there a constraint there in implementation capacity, or is there some customer readiness or pricing or anything there that is causing that disconnect? And just how should we think about growth as we move through the year? That would be super helpful. Thank you. Mimi Carsley: Welcome to the call, Charlie. As we pointed out in the script and in also the FAQ, there is fundamental strength within the core segment, and that's based on the sustainable record sales we've had the last number of quarters. There's also some one-times, and those one-times create some noise. We talked about that related to some work orders, some on-premise implementations, other things that we consider non-key revenue. But if you look at the key revenue within core, that strength of 8.6% growth really shows you the sustained engine of that segment. Operator: The next question will come from Cris Kennedy with William Blair. Please go ahead. Cris Kennedy: Good morning. Thanks for taking the question. I think one of the questions following the Analyst Day was the level of conservatism regarding the prospects for accelerating growth in the out years. Can you just clarify the visibility and potential levers of upside? Mimi Carsley: Yeah, I can, Cris. We are really optimistic about not just 2027, but the two years beyond that we started to talk about. But as we know, in this kind of AI pace of the world, two years from now, which is really two years plus nine months from now, is a long time to forecast. There's a number of new efforts coming online that we think will start to build the momentum to be meaningful contributors. You have the expectation of continued strength in payments. Greg highlighted the continued faster payments growth. You have a lot of use case scenarios, the small business initiative, the platform itself, and then the coming online of those wins at a higher win rate and a higher asset size on top of the trifecta. So those are the things that we kind of have visibility to. There are some others that we talked about in the slide I shared at Investor Day of others that could come online, that just too early to see. Like the trends we talked about, if you have a meaningful shift in on-premise to private cloud, that's 2x revenue for us. If that accelerates, if the spending in fraud prevention continues to accelerate, there are some meaningful parts of our business that could layer on top added growth to what is already hitting the 8% range of growth. Greg Adelson: Yeah, I'd like to add a couple things, Cris. So, one of the things that we did talk heavily about is the continued efforts in our SMB strategy around Tap2Local, Rapid Transfers, and now adding a component of Moov Money, which really doesn't have anything baked into our immediate plans. But just to put this in perspective, the number of transactions that we did in the month of October was more than we did all of last year in Tap2Local. So, we're starting to see some of the growth that we've talked about. If that continues at the pace that we expect, that's all baked into that higher performance as we've been talking about. The other one is around the in-to-out stuff. Just to go ahead and put it out there, since somebody will ask, I'm sure, to go ahead and help with that question. We're targeting 30-35 again this year as part of the overall. And to Mimi's point, we're starting to see some larger institutions continue to really want to look at this as an alternative, especially as frontier models and other concerns out in the marketplace with cybersecurity become stronger. So, whether we get to 30-35, still early. We were a little slow out of the gate, but not concerned about that at all. But the reality is, we're seeing more interest because there's more concern in the marketplace, and I think that's going to help us with the kind of movement. We're at 80% right now with private cloud, so we're up a little bit from our last conversation about that. So, that continues to grow. Cris Kennedy: Great. Thank you, guys. Greg Adelson: Sure. Operator: The next question will come from Bill Carcache with Piper Sandler. Please go ahead. Bill Carcache: Good morning. Thanks for taking my question. Greg and Mimi, you continue to benefit from your decision to stick to your knitting and invest in your core expertise at a time where some of your competitors who pursued other strategies are having to catch up by ramping investments in areas you've been deploying capital into all along. I wanted to follow up, Greg, on your platform comments. Can you give a bit more perspective on how you're turning your platform capabilities into commercial adoption? It would be really helpful if you could just walk through, for a Jack Henry client that starts with one platform component, what ultimately leads to greater adoption and incremental recurring revenue. Thanks. Greg Adelson: Yeah. Thank you, Bill. I think there's a couple things. I just wanted to make sure that everybody understands what platform is, and I don't want to take up a lot of time, but I'll make it very simple. The platform itself sits on top and is fully integrated into our existing core. All four of our cores integrate the platform. Platform allows us to build the level of innovation and all the things that we've been talking about. Whether it's the 30 components that have been built on there, they're not all just, quote, "core components," like general ledger, exception item processing, authorization management, a whole host of things that fall into the core. But they're also a lot of the level of the innovation that we built. Whether that be stablecoin, tokenized deposits, our SMB strategy with Moov, all of those sit on top of the platform itself. The incremental move of our customers allows them to use domestic wires, or wires itself is the easiest to explain, but it happens the same way with any of them. If there is a core solution, like wires, that sits inside one of our cores, if they want to go to an upgraded public cloud API-native solution, we basically literally just turn off the functionality inside of the existing core, let's just call it SilverLake to make it simple, and we turn it on in the new platform. It flows through all of the other work that goes in on the back end of the SilverLake solution set remains, but just the front end and the processing and the UI and everything that goes is now in this new the new platform. That is enabled for everybody. To your question, we have a lot of people. We have over 100 contracts now with customers that have at least one, and as they buy one, they see the advantages of what public cloud and the things that we built from a feature functionality allow them to enhance. With that, they are able to take on the interest in taking on additional platform items. The incremental approach to this is very simple for them to add. The one thing that we want to do to make it even easier is what I referenced in my prepared remarks, which is we are going to start including the platform in every new core deal, and we will go to our existing clients about adding it as well, because we want them to have the benefit of having the platform. Of course, there is a cost to this, but the reality is there is an opportunity for them to have that, be utilizing it in whatever environments they want, and take that incremental approach when they are ready. We are not forcing people to utilize it, but there is a big benefit for them to do so, not just from a feature functionality, but also from an audit compliance, other components around that as well. That is about as simplistic as I can make it in this type of call, but we would be glad to answer other questions on it during our circuit here. Bill Carcache: That is really helpful. Thank you. Greg Adelson: Yep. Operator: The next question will come from Kartik Mehta with Northcoast Research. Please go ahead. Kartik Mehta: Hey, good morning, Greg. Greg, one of the things you've talked about is the new pricing discipline, making sure that the product is priced at the value it's given. I'm wondering, as you look at the current environment and people getting, maybe your competitors getting more aggressive because what's happening, how has that pricing discipline, have you been able to maintain that pricing discipline, and what is the pricing environment? Is that part of the reason you have confidence in the margins? Greg Adelson: Yeah. Thanks, Kartik. Short answer is yes. I mean, we've continued to be able to sell on value, and the amount of innovation and differentiation that we have created allows us to do that. If you're just selling the same thing that you've had before, it's hard to sell additional value if there hasn't been any real innovation built on top of that. As you know, and others have noted already on this call, we've spent a lot of time and money over the last four or five years building out that level of innovation. We're able to—Again, I mean, every deal has its own variances of merit, and honestly, in some cases, it's how badly somebody really wants to get off of their existing product or platform. In some cases, they're begging to get off, and others, it's a true negotiation. The point is that we have really tried, and this goes way before me taking the seat, we've never been the lowest cost provider, and there's no reason for us to have changed that approach when all we've done is continue to add better service and better level of innovation. Mimi Carsley: Greg, if I could add on, as it relates to renewals, the changes that we've implemented now almost two years ago, we continue to see the benefits from. That is both on the administrative, from a process perspective, the way we're approaching renewals, the timeframe we approach them, and then the rigor of which we ensure the price stability of those have all helped from a growth perspective. Kartik Mehta: Thank you. Operator: The next question will come from Matthew O'Neill with Bank of America. Please go ahead. Alexa Chan: Hi, this is Alexa Chan on for Matt. Thank you so much for taking the question. I was wondering if you could talk about the puts and takes behind the deconversion guidance a bit further. What line of sight do you have into it, and what's driving the improvement in retention? Thank you. Mimi Carsley: Sure, Alexa. As reflected in the changes we made a number of years ago to the way we start the year and then kind of build the year from a deconversion perspective, it reflects what we reasonably know and have visibility to at the time. That includes signed deconversions that we know of, as well as some of the ones that we anticipate kind of with a high degree of certainty about to be signed from a deconversion perspective. What we do not know in the M&A perspective, and the bulk, as you know, of the M&A recently has been Jack Henry institutions kind of getting acquired away, we have very little insight into that until the deal is kind of announced. That can create volatility quarter-to-quarter, that can create year-to-year volatility. But based on the pace of M&A that we have seen thus far this year, we increased the guidance. We still think that there is potential for conservatism in that for the back half of the year, but we have to kind of wait and see how the M&A landscape continues to shape up. Alexa Chan: Okay. Thank you. Mimi Carsley: Welcome. Operator: Again, if you have a question, please press star then one. The next question is from Madison Suhr with Raymond James. Please go ahead. Madison Suhr: Hey, good morning. Thanks for taking the question here. Mimi, maybe one for you here. I wanted to ask on a metric that probably doesn't get as much attention as it should, and that's ROIC. It's improved meaningfully over the last few years, but as you think about the opportunity for accelerating revenue growth, improving margins over the next few years, how are you thinking about ROIC from these 23% levels or so, and do you feel like there's still room for that metric to move higher? Thanks, guys. Mimi Carsley: Madison, I'm so happy you brought up that metric because I could talk about ROIC all day. We are so proud of the disciplined allocation of capital that we approach things with here at Jack Henry. The buybacks we did last year obviously have a very positive impact on full-year ROIC. You're starting to continue to see that impact. Absent M&A, we will continue to be allocating to our longstanding dividend policy. If we don't see other M&A, we have never pulled back on R&D or investment because of capital. Therefore, any excess of free cash flow would likely go to more share repurchases. So that will continue to help ROIC. But as you know, it's always a battle to make sure you're continuing to generate value add relative to the growth of net income. Operator: The next question will come from Brett Huff with Stephens. Please go ahead. Brett Huff: Good morning, Greg, Mimi, and Vance. It's good to be back on the call. Appreciate the time. Greg, you mentioned a little bit about how banks were making decisions, maybe more cyber-focused, things like that. Wondering how the conversations are evolving, and specifically, is the urgency of digital transformation growing meaningfully more, and/or is the pressure to address AI or defend against AI or take advantage of AI, are those things combining to drive technology decisions maybe sooner and bigger than banks have in the past? Or are things sort of just Steady Eddie? Greg Adelson: Well, first of all, Brett, good to have you on the call again and have you back. Great question, and it does really, I mean, hits right in the sweet spot of all the things that we have been focused on. The short answer is, it is absolutely driving decisions, and in some case, driving decisions for folks to make faster than normal decisions, especially to move core, which can be a lengthy process depending on timing. What we are seeing is that the folks that are actually spending time and attention on this are the ones that truly want to look at growing the institution, whether that be bank or credit union. The ones that are being a little lax in their timing and thought processes or even truly thinking about this in a more enterprise way, honestly, they are the ones that you typically see being bought. We can see that through our pipeline. We can see that through conversations that we have with institutions and kind of where they are. Do they look at maybe keeping status quo and taking some cut in price from somebody, or are they looking to truly take advantage of the innovation and the utilization of things that we have created for them? The good news for us, it has been the latter, especially lately and especially coming out of Jack Henry Connect, where the amount of feedback and positive feedback that we had on the things that you referenced, so whether that be cybersecurity, AI, tech innovation with a lot of our products and platform, there was a significant interest and excitement coming out of Jack Henry Connect after seeing all that as compared to what they have seen with the rest of the environment. Brett Huff: Great. I appreciate that. Thank you. Greg Adelson: Sure. Operator: The next question will come from Dave Koning with Baird. Please go ahead. Dave Koning: Yeah. Hey, guys. Thanks so much. Good job. I guess just a couple segment questions. Payments accelerated best growth in several years on a tough comp. I guess in that segment, are you already getting some of the benefits you talked to a little earlier about some of the newer payments? Are they adding 1%, or is there any metrics around that? Core growth was about the slowest in a few years. Just maybe parsing out why one seems to be doing a little better than normal core and then core just a little bit worse. Mimi Carsley: Yeah. I can hit that, Dave. From a Let's start with payments. I think it's a blend of a couple of things. One, you saw very strong growth in card and the ancillary services that surround card. I think that exceeded some of our expectations regarding the continued health and resilience of consumer spending. The other things that we talked a little bit less about are the other things within the payment segment. You had Remit, and you've had a resurgence since the Payrailz acquisition in bill pay. Those really help because they are less of a drag. They are not the growthiest growth parts of the payment segment, but they are resurging. That has also been fantastic for us. On core, I would really dive in deeper within core to key core, what is a reoccurring business, and that is kind of the implementations related to the new sales wins, the continued account growth of existing business, because there was a little bit of noise this quarter on the core segment as it relates to the grow-over from last year's implementations related kind of consulting and work orders. If I think about what is the fundamental engine within core, it remains very robust. Dave Koning: Great. Thanks, guys. Operator: The next question will come from James Faucette with Morgan Stanley. Please go ahead. James Faucette: Thank you very much. Thanks for all the time this morning, guys. Wanted to just quickly see if you can provide any incremental color on implementations in the quarter, particularly because from our reading, it looks like cloud, Banno, card revenue, as you already mentioned, Mimi, all inflected lockstep. I am just wondering if that was at all tied to implementation, and how should we think about implementation cadence through the balance of the year? Mimi Carsley: Yeah. Hi, James. It is good to talk to you. I would say there is less I mean, as you know, there is always quarter-to-quarter noise about what is coming out of the backlog, but I would look more to the increase in the full-year guide as a reflection of the strength of both the backlog, what is being implemented, and the existing customer growth, rather than an in particular quarter. Then I think Greg had some comments as well. Greg Adelson: Yeah. No, I think you nailed it from the implementation standpoint. I think our biggest thing for you and everybody to recognize is that, I mean, we are well-staffed to do what we need to do in each of these groups. There is very small backlogs as far as the timing of what our typical timeframe is to implement, including some of the things that we are selling outside of core, right? It allows us to implement those much more quickly. So, I think the queues at each of our groups are working in unison. That is the other thing about One Jack Henry. We are able to work together to ensure that we can get some of these implementations done more quickly when it is not conditioned on core itself. James Faucette: Got it. I want to go back to this topic of how banks are maybe reacting to changing tech environment, et cetera. One of the things that seems interesting to me is the potential to accelerate even the acceptance from a regulatory perspective of implementations on public cloud because of perceptions around improved security, et cetera. Can you talk a little bit about where you feel like your portfolio stands to be able to service that kind of customer, maybe what that landscape of competitive products looks like, et cetera? Because it feels like there could be a changing opportunity set here relative to what we have seen in the past, but just like to get an update how you are feeling about the product portfolio. Thanks. Greg Adelson: Yeah, James, that is an insightful question and very accurate. I think really we have done a good job at Jack Henry over the years, mainly especially with public cloud, because Banno has been in the public cloud since 2018. We have been operating, we have 16 million+ users operating in that today. There is a comfort level that we have with the regulators and they have with us. In fact, I just had a call with the FDIC last week where I actually went through this exact same scenario. The part that we are working on is getting our institutions and the institutions' regulators, of which we cannot speak to on their behalf, to get comfortable, and that is starting to happen. As we started to roll out, as I mentioned, the 100+ customers that are using some of the modules today, each one of those has public cloud implications and opportunities. They are getting more and more comfortable with that as we roll it out and the institutions get a chance to use it. As a byproduct of that, I think we are all going to benefit because they see the value of why being in the public cloud is such an important aspect. Operator: The next question will come from Dominick Gabriele with Loop Capital. Please go ahead. Dominick Gabriele: Hey, good morning, everybody. Good start to the year. I guess if you think about the leverage that you've been seeing on cost of revenue in particular, when we look at the segments, how much of the margin expansion that you have for 2027's expectations is driven from cost of revenue leverage? Just in general, when you think of your algorithm, Mimi, how much of it is reliant on cost of revenue leverage versus kind of the other expenses like research and SG&A? Thanks so much. Mimi Carsley: Hi, Dom. As I think about margin, we've talked a little bit, some of the over-performance, let's say, this tremendously strong performance we had last year, was due to some of the windfall related to health claims being a little lower than typical, as well as some of just the variability in commissions. We talked about had it not been for some of that, we wouldn't have exceeded by 92 basis points from an expansion perspective. Similarly, this year, that headwind from the return of that normalization within healthcare, we've also talked about the investments we've been making in both AI and infrastructure, tempering the amount of margin expansion we could see for this year. I think if you normalize both of those years, we'd continue to show the strong leverage that's inherent in the business model, and the leverage we think will continue to expand margin expansion in the future, particularly as we move to public cloud, as we move past the EC2030 project, as we move to a lot of this new sales and really healthy new product mix coming online. Overall, I would close it out by saying a very strong outlook for margin expansion, particularly as we get outside of FY 2027. Operator: The next question will come from Darrin Peller with Wolfe Research. Please go ahead. Darrin Peller: Hey. Good morning, guys. Thanks. There's been a competitor calling out this morning, obviously, an incremental shift they're seeing generally from license to more SaaS, which I think is really a strategy you've intentionally pursued, in any case, over the past few years with your customer base. Maybe just touch on if you're seeing anything change incrementally from your customers demanding that more so now. Just if you could add onto that, I'll just put both questions in one, but complementary, again, continues to be sound. I'm curious if there is, from a discretionary spend standpoint, anything that's stepped up or changed. Again, there's been some chatter in the industry just over, and this came up a little bit earlier in the calls, focus on spending on cyber, focus on AI, and anything you're seeing that might have changed the path or the trajectory of complementary from what you've seen or expected a few quarters ago? Thanks, guys. Greg Adelson: Yeah. Thanks, Darrin. So a couple things. On the first question related to license versus SaaS, yeah, I mean, we started to make that shift more than 15 years ago. We're not seeing anything to that degree. There might be, based on some of their larger institutions they have, maybe they're still that type of model. I don't know what they're referencing, but that is not a change for us. We're continuing to do what we've been doing for many, many years on the SaaS side of this. The second part of your question around complementary and really any of the other products that have some potential tailwinds with what's going on in the market, yeah, we do. I mean, I referenced some things around AI. So not only with what we're doing with AI in our products, where in some cases, we're monetizing that effort. Some cases, we're actually just expecting to have higher and better penetration because of the AI components. But we're also seeing things with, we're doing AI consulting now. Those are all some things that will fall into that fold. Anything related to fraud continues to drive, not only with what we're doing with Financial Crimes Defender, but in other things that we're doing around the digital aspects in Banno. We've created some solution sets that help us with account takeovers, and really helping kind of fight that as compared to what some of our competitors, digital-only competitors, are doing in that space. That has been a big opportunity in the complementary and continues to really differentiate Banno in the market, and why I think we continue to see some additional wins with some of our core clients that had competitors' digital offerings before. I think when you look at the stuff I mentioned with Gladiator Services and the significant increase in what we're seeing in there, that all lives in the complementary segment as well. I think we'll continue to see those as well as some other aspects of businesses like Synergy and Synapsys and other things that we have that live in complementary that continue to do really well, especially as an attach rate to core deals. Mimi Carsley: Greg, if I may, I just want to stress, and Darrin, you didn't state this, but there was, I think, some confusion in the marketplace during the height of the SaaS apocalypse kind of world. I just want to be clear, there's nothing we sell that is tied to licenses, tied to the number of employees at a financial institution. Operator: The next question will come from Jeff Cantwell with Seaport Research. Please go ahead. Jeff Cantwell: Hey. Thanks, guys, for including me in these calls. I wanted to circle back, apologies if I missed this earlier, and ask you what's driving the CapEx step-up? Is that data center? Is that hardware? Is that cloud build-out? Is that front-loaded? Do you still see the $410 million-$520 million in FY 2027 free cash flow as the right target, and where are you in that range? Thanks. Mimi Carsley: Jeff, I can take that one. We called out as part of the data center move that is moving from Jack Henry-owned data centers to co-locations and public cloud. We have called out the temporary over increased spend as it related to some of that infrastructure build-out and cloud compute. We also called out some of the work we are doing to protect our clients from frontier model vulnerabilities. I would not say any direction within the year cadence. It is probably a little bit, we talked about that being a first-half margin, one of the margin stories of the first half, but that is something, pressure you are going to continue to see throughout FY 2027. But nothing particular from an elevated CapEx that I would call out. Operator: The next question will come from Timothy Chiodo with UBS. Please go ahead. Timothy Chiodo: Great. Thanks a lot for taking the question. I think one of the highlights of the Investor Day was around some of the expense management capabilities that you unveiled during the presentation. I was hoping you could just talk a little bit more about those, and then more specifically in terms of the means of monetization, whether there are user fees, SaaS fees, if it is an interchange revenue share, maybe some fees on some non-carded payments, maybe a mixture of all of the above. Would just appreciate more context on that product. Thanks. Greg Adelson: Yeah. Thanks, Tim. The product actually had some really rave reviews at our client conference, both in our booth and in Moov's booth, where we are building that product with them. So it is a combination of all things that you just said. So it is very similarly set up to what you would see with a Ramp or Mercury or other competitive-type solutions where there can be a flat fee per month, some opportunities for per-transaction fees. Obviously, the card side of it from a card issuing component creates opportunities as well. So all of those things are kind of bundled in, to your question, where there is a whole host of different fees that can be associated with that particular product set. It will start to roll out in the first part of Q1 calendar 2027, along with what we are doing with the P2P. But we are really excited about that product, and again, so were the people at our client conference. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for any closing remarks. Vance Sherard: Thank you, Nick. Management will be participating in multiple investor events and hosting investor calls through mid-December, and we look forward to those conversations. In conclusion, we extend our appreciation to all Jack Henry associates for their continuous exceptional efforts, which resulted in a compelling start to fiscal 2027. Thank you for joining us today. Nick, please provide the replay information. Operator: The replay number for today's call is 855-669-9658, and the access code is 9836250. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.