Jack Henry & Associates, Inc.

Good morning, everyone. Welcome to the Jack Henry fourth quarter and full year 2025 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 and then one on your telephone keypads. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Vance Sherrard, Vice President, Investor Relations. Please go ahead.

Thank you, Jamie. Good morning, and thank you for joining the Jack Henry fourth quarter and fiscal 2025 earnings call. Joining me today are Greg Adelson, President and CEO, and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will share his comments on our quarterly and full-year financial results, operational metrics, and the outlook for fiscal 2026. Mimi will then discuss the financial results and full-year fiscal 2026 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 Q&A sessions. Please note that this call includes forward-looking statements which involve risks and uncertainties that can 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 statement sections in our 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 included in yesterday's press release. Now, I will hand the call over to Greg.

Thank you, Vance. Good morning, everyone. I appreciate each of you joining today's call. I'd like to begin by thanking our associates for their hard work and dedication to our success. They consistently go above and beyond to take care of our clients. That, combined with our unwavering focus on culture, service, innovation, strategy, and execution continues to differentiate us in the market. I will share three main takeaways from the quarter and fiscal year, and then we'll provide additional detail about our overall business. First, our financial performance. Our fourth quarter and fiscal year 2025 results reflect solid overall performance. In Q4, our non-GAAP revenue increased 7.5%, and our non-GAAP operating margin was 23.2%. representing a strong 146 basis points of margin expansion over last year. For the fiscal year, we again produced record revenue and operating income. Our non-GAAP revenue was $2.3 billion, and our non-GAAP operating income was $541.1 million. As you saw in the press release, we shared guidance for fiscal year 26. We do anticipate some slight revenue headwinds from industry consolidation the impact of renewal pricing pressure, and macroeconomic uncertainty. However, we remain committed and bullish on continuing to realize solid margin expansion growth along with strong free cash flow metrics for the year. We are confident that our technology innovation and execution will continue to drive our sales engine and position us very well for the long term. Mimi will discuss more of the fiscal 26 specifics in her comments. In addition, I want to communicate openly regarding the large bank merger that was recently announced and includes a Jack Henry Core payment and complementary solution client. It has been speculated that Jack Henry's technology would not be selected for the combined financial institution. After conversations with both parties, there has been no indication of an intent to terminate any agreements. If contract changes were to take place, they would happen in fiscal 27 and not in fiscal 26. Second, continued industry-leading sales momentum. For Q4, our sales team had an impressive 23 core wins, topping the 22 wins we had in Q4 at fiscal 24. For the full fiscal 25, we signed 51 new core deals, 31 banks and 20 credit unions. Additionally, we signed 37 contracts to move existing in-house core clients to our private cloud, including 11 in Q4. We now host 77% of our core clients in Jack Henry's private cloud environment. Third, we continue to win larger new core deals. Over the past three years, the total assets of new core clients won has nearly tripled. We had 47 wins totaling $19 billion in assets in fiscal 23, 54 wins totaling $39 billion in fiscal 24, and 51 wins, totaling $53 billion in fiscal 25. Of the 51 core wins this fiscal year, 16 were institutions that have over $1 billion in assets. In fiscal 24 and 25 combined, we won 31 core deals in this segment, as compared to only 16 in fiscal 22 and 23 combined. Our strategy is also resonating with the 5 to 10 billion asset institutions as well. Of our 16 greater than 1 billion wins, we won four in the 5 to 10 billion segment after winning only one in fiscal year 24 and none in fiscal year 22 and 23. Now for more detail on our overall business, starting with some accolades for the team. We're proud to have recently received recognition in three prominent publications, US News and World Report's Best Companies to Work For, Time Magazine's Best Midsize Companies, and Newsweek's Greatest Workplaces. These awards are important because they reflect our people-first culture and deep commitment to doing the right thing for our employees and ensuring they are valued. I also want to recognize the tremendous effort of our team and our clients on the highly successful migration of Fedwire funds to ISO 20022 standard on July the 14th. This was a major industry-wide event for the United States payments infrastructure, aligning it with international standards and enhancing crucial capabilities such as fraud detection and data sharing. Related to the migration, we had five clients go live with a new wires component of our cloud-native Jack Henry platform, including one of our largest credit union clients. They did this at the same time as the migration, and it went extremely well. This is a strong validation of our component strategy for easing concerns about large-scale migrations and conversions. Next, I will provide a few updates on specific products and new solutions that are part of our technology modernization and SMB strategies. Within our payment segment, we now have 376 clients on the Zelle platform 414 clients using the Real-Time Payments Network and 401 clients using FedNow. In our complimentary segment, we added 18 new Financial Crimes Defender contracts in Q4 and 47 for the fiscal year. In addition, we signed 66 new contracts for the Financial Crimes Defender Faster Payment Fraud module in Q4 and 149 for the fiscal year. As a reminder, this module is a real-time solution designed to help mitigate fraud in Zelle, FedNow, and RTP transactions. As of June 30th, we have 136 financial crimes installations completed and another 71 in various stages of implementation. We also have 85 faster payment modules installed and 189 in various stages of implementation. Our BANO digital platform continues to experience high demand. For the quarter, we signed 26 new clients to our Banno retail platform, as well as 39 new Banno business deals. For the full fiscal year, we closed 70 new Banno retail contracts and 106 Banno business contracts. At the end of June, we had 1,023 clients on the Banno platform, including 344 live with Banno business. We finished Q4 with 14.3 million registered users on the BANL platform, and when compared to Q4 of fiscal 24, we experienced a strong 17% increase over the past 12 months. With last week's exciting announcement of the launch of Tap to Local, our merchant acquiring solution developed in collaboration with MOVE, we are leveraging the BANL platform as the primary source for delivering this innovative solution to the industry. Tap to Local is currently in closed beta testing with several financial institutions, It is on track to be rolled out to the 1,023 banks and credit unions on the Battle platform over the next several months. Unlike most other payment solutions for small businesses, Tap2Local is offered exclusively through financial institutions. The cloud-native solution delivers many distinguishing features for merchants, including easy enrollment, the ability to accept debit and credit card payments directly through Tap2Pay on both iOS and Android devices, thus eliminating the need for traditional point-of-sale hardware and continuous account reconciliation to the accounting platform of their choice. Another solution that we recently launched with Move is Jack Henry Rapid Transfers. This cloud-native solution enables both SMBs and consumers to quickly move funds between external accounts, eligible cards, and digital wallets to manage day-to-day transactions or personal finances. We are collaborating with both Visa and MasterCard to facilitate these transactions through their respective debit rails. Rapid Transfers is now available on the Bano digital platform, and we are in the process of enrolling more than 50 new clients. Now that we have closed key feature gaps with several competitors and have added advanced functionality that no other digital provider has totally as today, like Jack Henry Rapid Transfers and Tap to Local, We are winning larger competitive takeaways in the digital banking space than in previous quarters. Another indicator of our progress, Bano Business was recently named the leading small business digital banking platform for strength and capabilities by Dados Insights, a prominent research firm. The ranking highlighted Bano Business's ease of use, open architecture, and excellent support. We also continue to make excellent progress on our technology modernization strategy. We now have 20 components of the new cloud native Jack Henry platform live in various stages. While some of these are for internal use, eliminating duplicated development efforts across the company, several components are already benefiting our clients. These include the wire solution that I mentioned earlier, data hub, which provides a centralized hub for reporting and analysis, entitlements, which manages permissions and access rights for users and systems, and a new general ledger. All components are receiving very favorable reviews from our clients. We will promote all of our new technology at the Jack Henry Annual Conference, Jack Henry Connect, in September. This is a great opportunity every year for us to meet with our prospects, clients, and partners. Last year, 20 of our new core wins were with prospects who attended the Jack Henry Connect Conference. Before I wrap up, I want to share an update on our stablecoin strategy. While there is a lot of external hype around stablecoins, there are still significant industry hurdles to mainstream adoption, including regulations that must be developed over the next 6 to 12 months to implement the stablecoin legislation that passed in July, known as the Genius Act. Our plan is to take a strategic phased approach, supporting stablecoin solutions through our bank and credit union clients and not around them. This allows us to ensure we do the things the right way while regulations are being written. Unlike many of our competitors, we already have the public cloud native platform and infrastructure needed for successful stablecoin implementation. Today, our clients can securely integrate with a number of third-party stablecoin providers using our open APIs. We are currently working on enabling stablecoins as a payments rail via our JHA pay center, We are also in discussions with regulated stablecoin issuers, digital asset infrastructure providers, and key players to explore additional strategic partnerships. We will keep you informed as we have more updates. In closing, we are very well positioned for the future. Technology spending by financial institutions remains strong, and there's clear demand for our differentiated and innovative technology solutions. We have a robust sales pipeline and a proven ability to attract and win new clients, including larger financial institutions. Our unwavering focus on culture, service, innovation, strategy, and execution continues to set us apart. These pillars will enable us to drive continued industry-leading revenue growth with strong margin expansion, benefiting our associates, clients, and shareholders. With that, I will turn it over to Mimi for more specifics on our financials.

Thank you, Greg, and good morning, everyone. The relentless dedication of our associates in serving our financial institution clients and delivering shareholder value led to another quarter of solid revenue and earnings growth. I will begin with fourth quarter and full year results, then conclude with our fiscal 26 guidance. Q4 gap revenue increased 10% and non-gap revenues increased 8%. a continuation of consistently solid performance. Full year growth was 7 percent on a GAAP basis and 6 percent on a non-GAAP basis. Fourth quarter deconversion revenue of approximately $20 million, which we previously announced, was up approximately $14 million, reflecting the increasing pace of M&A activity among financial institutions. Full year deconversion revenue of $34 million, 17 million more than the prior fiscal year exceeded guidance. Now let's look more closely at the details. GAP services and support revenue increased 11% for the quarter, while non-GAP increased 7%. For the year, the increase was a healthy 7% for GAP and 5% on a non-GAP basis. Services and support growth during the quarter was the result of volume increases in data processing and hosting revenue, consulting, work orders, and release revenue. The full year growth rate for services and support revenue was due to similar drivers partially offset by lower hardware and license revenue. Private and public cloud offerings continue to drive impressive growth. Cloud revenue increased 11% in both the quarter and the year. This reoccurring revenue contributor is 32% of our total revenue, and has a multi-year track record of double-digit growth, shifting to processing revenue, which is 43% of total revenue, and another strategic component of our long-term growth model. We saw healthy performance with 9% non-gas growth for the quarter and gas growth of 9% for the quarter and 8% for the full year. Consistent with recent trends, quarterly drivers included increased car costs, digital, and payment processing revenue. Completing commentary on revenue, I would highlight total reoccurring revenue exceeded 91%. Next, moving to expenses. Giving was prompt for revenue, which increased 5% on both the GAAP and non-GAAP basis for the quarter and full year. Drivers for the quarter and full year were consistent and included higher direct costs and higher personnel costs. Next, RMD expense increased 7% on both a GAAP and non-GAAP basis for the quarter, and 10% to the year for both GAAP and non-GAAP. The quarterly and full-year increase was primarily due to the higher net personnel costs, increased internal license and fees. Ending with SG&A expense for the quarter, non-GAAP, GAAP basis, it increased 8% and 9% on GAAP basis. For the year, the increase was 7% on a non-GAAP basis and 2% under GAAP. The quarterly increase was due to higher net personnel costs, increased professional services, and higher deconversion costs, partially offset by gain on assets versus previous loss on assets for the prior quarter, year four. The full year increase included all of the previous factors plus higher travel and contract labor costs. We remain committed to generating annual compounding margin expansion. Youth Board delivered 146 basis points, increased in non-GAAP margins 23%, resulting in a notable 70 basis points non-GAAP margin of 23% for this full year. Non-GAAP margins benefited from a continuing focus on cost management and leveraging existing workforce. For the year, headcount increased a net 72% to precision, or 1%. For the last five years, excluding the payrolls acquisition, we've added less than 1% annually, doing a continued commitment to efficiency. These strong quarterly results produced a fully diluted gas earnings per share of $1.75, up 26%. fiscal 25 fully diluted ETFs for $6.24, up 19%, benefiting from strong operational results and higher deconversion activity. Breaking down results into the three operating segments we're pleased to see positive performance across the board for both the quarter and the full year. Our core non-GAAP segment revenue increased 7% to the quarter, with operating margin increasing a robust 274 basis points. We continued to gain benefits from private cloud trends and disciplined cost management. Full-year non-GAAP core segment revenue growth was 6%, and the associated margin increased 113 basis points. Famous non-GAAP segment quarterly revenue increased 6%. This segment, again, has strong non-GAAP operating margin growth of 99 basis points. Full-year non-GAAP revenue growth was 6%, with non-GAAP margin expansion of 109 basis points. Revenue growth was due to the continued growth in our card-related services, EPS, and a large percent growth on bachelor payments, granted on a smaller dollar amount. Margin benefited from operational efficiency and disciplined cost management. Finally, complementary segment non-GAAP quarterly revenue increased an impressive 11% with 155 basis points of margin expansion. Fiscal year non-GAAP revenue and margins strongly increased 9% and 117 basis points respectively. Both quarterly and full-year revenue growth continue to reflect digital solution demand, beneficial product mix sales, sources from both core wins, and non-core financial institutions. Now, a review of cash flow and capital allocation. Fiscal 25 operating cash flow was a record $642 million, a $73 million increase over the prior fiscal year. Excluding proceeds from sale of assets in both fiscal years, Greek cash flow was $410 million, significantly more than the $336 million the last year. Full-year free cash flow was positively impacted by timing of certain contract payments and tax payments unrelated to recent tax legislative changes. Free cash flow conversion was an impressive 90%, and I will provide more details when discussing the full-year price. Our consistent dedication to value creation resulted in a trailing 12-month return on invested capital of 22%. Additionally, I would highlight other notable return of capital metrics for the year, including $35 million in share repurchases, more than offsetting annual dilution, $150 million in debt reduction, and $165 million in dividends. We're pleased to announce zero debt at fiscal year-end, providing us with maximum flexibility for future capital deployment. For modeling purposes, our amortization of acquisition-related intangibles was $6 million for the fiscal core. Heading into a new fiscal year, I will conclude with guidance. As you're aware, yesterday's press release included fiscal 2026 full-year gas guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal 24. Fiscal 26 Deconversion revenue guidance is $15 million. And as we confer more activity during the year, we will update the quarter output. For the full year, GAAP revenue growth guidance is 4.2 to 5.4%. This is understated due to the conservative deconversion revenue guidance. Non-GAAP revenue growth guidance is 5.8 to 7%. On the above revenue growth and our predominantly staff-like operations, we expect to again generate sustainable, accretive sources of margin. We are guiding for the third year in a row to annual non-GAAP margin expansion of 20 to 40 basis points. All of the above are indicative that our business operations remain healthy and consistent. The full-year GAAP tax rate estimate for fiscal 2016 is 23.75%. The above guidance metrics result in a full-year outlook for GAAP EPS of $6.32 to $6.44 per share, a growth of 1% to 3%. As a reminder, due to the conservative deconversion of the new guidance at the beginning of the year, GAAP EPS growth is understated as a result. Fiscal 26 is expected to have a strong free cash flow conversion to the recently passed legislation. Highlights of the tax legislation include full expensing of R&D costs in Section 174 and bonus tax depreciation will have a meaningfully positive impact. We will be making an election in the coming months on how we will implement the tax law changes resulting in one of the following two scenarios. We could see a more significant impact in fiscal 26 with limited non-recurring impact in fiscal 27, or we could elucidate the benefit spread across the fiscal years 26 and 27. Overall, this legislation will allow for free cash flow conversion of approximately 85 to 100% in future years. Our current view has a cadence of fiscal 26 non-GAAP revenue being stronger than Q1, lower in Q2, and increasing on a reported basis for quarters three and four. Our annual customer conference, Jeff and Rickonette, will be held in Q1 this year, partially driving higher revenues during that quarter and the lower performance in Q2. Absence the timing switch of this revenue growth in quarters one and two would result in the first three quarters showing similar growth and Q4 showing moderate sequential increase. Our JAS Henry Connect conference will revert back to Q2 in fiscal 27 and stay in that order for several years, ending this occasional timing mismatch. Consequently, Q1's estimation for non-GAAP revenue growth is approximately 7% to 7.5%. 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 a consistently strong fiscal year financial result. In conclusion, Q4 and full year results reflect solid performance and meeting or exceeding provided guidance. We enter fiscal 26 with positive momentum and high expectations to deliver on our full year guidance target. Demand for our solutions and the fiscal strengths of our clients remain strong which we expect to drive superior shareholder value. We appreciate the contributions of our dedicated associates that achieve these strong results and our investors for their ongoing competence. Jamie, please open the line for questions.

Ladies and gentlemen, at this time, we'll begin that question and answer session. Once again, to ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then 1 to join the question queue. Our first question today comes from Dan Perlin from RBC. Please go ahead with your question.

Thanks. Good morning, everyone. I wanted to kind of circle back maybe on the aggregate demand environment, but coupled with kind of expectations around implementation cycles. So, Greg, clearly the demand, you know, you want 51 cores, so that's very much on track with, I think, the expected run rate you guys have been putting up for a number of years. And it sounds like you're talking about larger wins, obviously. I'm just wondering, you know, to try and reconcile that with maybe last quarter's commentary around some large capital purchase delays and maybe some implementation cycles for non-core projects. I'm wondering if those two are still kind of at odds with one another, or has that gap closed a little bit?

Yeah, Dan, thanks for the question. Yeah, so a couple things. So one, from the sales demand and our ability to continue to go up market, I think, you know, hopefully you were able to hear all my comments on that. So That's definitely happening and definitely something that is a huge focus of ours. From back to your question from last quarter, yes, some of that gap has significantly improved. I would say mostly on the consulting side and things along that line. Some implementation is still a little bit delayed, but nothing, I guess, to the same level they were last quarter. But if you remember, I also pointed out that there were some delays on some of our consulting engagements, especially around our financial crimes defender solution and things like that that have all now finally caught back up again. And as I indicated, that happens occasionally throughout the year, but because it was more pronounced and it would kind of be part of the end of our quarter, it ended up pushing it into this fiscal year. So that's also part of why I called it out.

Got it. Okay. That's great to hear. And then, Mimi, this is maybe nuanced a little bit, but the revenue guidance range is a little bit wider. I think it's 120 basis points relative to 100 for the past several years. And so I'm just wondering what kind of drove that decision. I don't think it's a function of the deconversion revenue, but I just wanted to make sure I understood what was driving the wider range. Thank you.

Thanks for the question, Dan. Yeah, I think overall as we set our budgeting process and we look at the macroeconomic variables that are beyond our control, and as we get to just larger total revenue size, having a 1% historical spread in the guidance, we felt was a little bit constricting. We wanted to make sure we're very much committed to hitting the guidance and executing on that. So just giving us a little bit more flexibility You know, as we collaborate with sales and operations, just to think about the risks and opportunities before us. So, not much, I wouldn't call into anything structurally different, just providing more operational flexibility.

Yep, completely prudent. Okay, thank you so much. Our next question comes from Nick Cremo from UVS.

Please go ahead with your question.

Good morning, and thanks for taking my questions. First, I just wanted to circle back to the fiscal 2026 revenue outlook. How should we think about growth between the various segments on a relative basis? I know that the payment segment was called out to have some headwinds, and it looks like the number of new BANO wins in fiscal 25 versus fiscal 24 was a little bit lower, so maybe a little slower in the complementary segment relative to the core segment.

Thank you.

Yeah, so as we think about 26, I think some of it is going to be trends that are continuing recently. We expect that certainly core will remain solid again. Payments related to the long-term growth algorithm, probably slightly below or towards the bottom end of that range of the near-term target. And complementary, we actually expect solid growth for 26, closer to the higher end of that growth algorithm range.

Great, thank you. Our next question comes from Vasu Govel from KBW.

Please go ahead with your question.

Hi, thanks for taking my questions. I guess this is the first one. You guys called out short-term revenue headwinds from Bank M&A. Any way to quantify how much that's weighing on the 2026 outlook? And then, Greg, I know you called out the large bank merger. You alluded to it in your comments, not baked into this year's outlooks. So are you saying that that's going to be ahead in the following year, if not this year? And then more broadly, if Bank M&A continues at an accelerated pace, are we potentially looking at multiple years of maybe slightly softer top line growth than the 7% to 8% we're used to seeing from you guys?

Yeah, so let me answer the middle question first. So what I am stating emphatically is that we have not, received any guidance of what will happen. In fact, we've had really good conversations with both parties. And so there hasn't been any indication that Jack Henry will not have an opportunity to either win the overall deal or continue to have additional products in the solution set, even if it is in our core. So all those conversations are under you know, really actually happening now. So short answer is yes. So I don't expect anything in fiscal year 26, but I don't know what will happen yet and so what the impact will be. And again, as we've reiterated several times, we don't have any client that is a substantial amount of our revenue. So this client is actually an in-house client. So from a revenue perspective, it actually will probably have less impact than some of our outsourced clients if they were to leave. So it isn't as substantial as maybe some maybe project. Number two is that from a headwind standpoint and an M&A, it really is about the fact that we have, if you look at the balance of what's happened so far, it's basically equal almost in exact numbers of how many have been Jack Henry to Jack Henry and how many have been Jack Henry to to have been acquired by a competing court. But what ends up happening is, as you can imagine, a lot of the deconversion revenue is mostly predicated on how much time is left on the agreement. And so not every deal is actually equal. You could have a deal that has less than a year. You've got a deal that's got five or six years, and that's a more substantial impact. So even some of our Jack Henry to Jack Henry deals, because of the way the pricing was set up or the size of the actual acquisition, it didn't hit the next level of the trigger for us to get an immediate impact on revenue growth. So it may stunt the growth for a short period of time, but it isn't a long-term thing. So I guess, you know, most people are viewing the 7A market, you have to put all of those factors into play, meaning that not every every loss or every win is created equal, depending on term. So again, so some of that based on what has happened is creating some short-term revenue. And I think still, as we have stated last time, and as I will continue to state, that I think it's a balance. If you look at over the last several years of the number, even, you know, when M&A was more prevalent a few years ago, you know, we continue to grow at pretty nice numbers. And If you look at what we're guiding to right now, it's still significantly higher than the competition is, and I continue to believe that that will only be advanced as we get through some of these short-term headwinds.

If I could just add on to that relative to the third part of your question, we see no structural change in the long-term opportunities for the companies. The company is solid and extremely healthy. We expect, if we think about the three-year tiger versus the algorithm targets, they're still very much valid and intact, and as Greg talked about, we have a lot of exciting new opportunities before us that we think we'll leverage to future growth.

Yeah, and Vasu, if you don't mind me just adding one other point just in case it doesn't come up. I think it's really important that we also talk about some renewals and some of the pricing piece. Just to put this in perspective, we did, from a renewal standpoint, we did 12% increase in overall renewals for the year. Some of those are actually predicated a little bit earlier than we would originally expect because it is a Jack Henry to Jack Henry conversion or migration, and the particular acquiring entity wants to renew ahead of the game. And so there's some things that become a little bit more unplanned. But what I really wanted to emphasize was that in fiscal year 24, of all the renewals we did, it totaled $94 billion in assets. But for fiscal year 25, it totaled $223 billion in assets. So they were a lot of our larger clients. And so we were able to renew them. Obviously, there's some short-term price compression. We sell them new products, so it takes a couple of years for those to get implemented and things along that line. But that's part of the reason. And I would say that that's probably a little more prevalent than even the deconversion component.

I appreciate all the color and all the detail. That was very, very helpful. I guess as my quick follow-up, one of the other things you guys mentioned in the release is just the slower account growth. And That is something we've heard from some of your peers as well. So hoping you can give a little bit more color on what kind of change you've seen in the trend line and any dimensionalization of what the magnitude of that change is and expectations going forward.

Yeah, it's really started over the last several years in the credit union part of our market. And I think there's a lot of reports that have actually shown that. And I think, yes, One or two of our competitors pointed it out as well on the banking side. I think some of it's predicated on what's happening with the neobanks and, you know, some lost accounts that are going there. Some of it also is predicated just on how pricing occurs. You know, some of the institutions, as they change their deposit growth strategies and things along that line, sometimes they end up purging accounts that aren't really growing or would be more what I would call dormant accounts. And so a lot of them change their strategies because they don't want to pay for those. So there's some of that from an organic growth, some of it going to neobanks. And that's why we've been so focused on our SMB strategy to bring those deposits back into our financial institutions to allow that, you know, what's going out to the stripes and the squares and into the chimes and others to be able to stay within our financial institutions. So, again, that's a big part of our overall strategy.

Thank you very much.

Our next question comes from Karthik Mehta from North Coast Research.

Please go ahead with your question.

Hey, good morning, Greg and Mimi. Greg, I know just in the previous question you talked a little bit about pricing pressure related to renewals, and I'm wondering if Is the pricing pressure you're seeing just related to factory renewing and that's just the way business is done? Or are you seeing any incremental pricing pressure on new ore renewals?

Good question, Carter. Yeah, I mean, it's happening in both. I mean, there's – but I won't say that it's really that much – you know, it's new. Pricing pressure on renewals is always. I mean, there's only a handful, as we've talked about before, roughly 100 opportunities a year where people really are making decisions. So those get to be pretty competitive out in the market as people start to talk through it. And again, candidly, we're as transparent as anybody in the industry by sharing the number of core wins. I mean, you don't really hear our competitors do that. And I think we do it because we've been very successful and and continue to do that, and again, continue to go upmarket. But the pricing pressure itself, it's always going to occur. Everybody wants something for less. But we've done a really good job. Honestly, one of the things that we were really focused on this year that I think will help us in the future is to really get more granular on how we look at renewals. So both the pricing approach, the timing of how we handle compression, even how we compensate our sales team. We've changed all that in the back half of this last fiscal year, and we saw some of the improvements in the fourth quarter. And that'll continue, and I think that's going to help us with kind of our process and approach going forward But there will always be pricing pressure because, again, everybody's trying to go after the same 100 opportunities.

And just one follow-up, Greg. You know, your partnership with MOVE, I think it started, obviously, last fiscal year. And I'm wondering how it's progressing in line kind of as opposed to your expectations. Is it going in line with your expectations, or is it any different than you expected?

Yeah, I appreciate the question because actually it has exceeded my expectations. You know, we were told a year ago when we actually announced this at Investor Day that it would take both Visa and MasterCard and Apple and others. They told us it usually takes 18 to 24 months to get fully certified through all of the various things, and we did it in 10 months. Both Visa and MasterCard told us they've never seen that before. They both have seen the transactions, and they've seen the live demos, and they've been blown away by what we're able to do. So there is significant interest and excitement, and we will be blowing it out at Jack Henry Connect by really doing some really cool things on stage with our clients. We're purposely holding off rolling this out until after Connect, but we planned, as I mentioned, to roll it out over the next two to three months to all 1,000 Vano clients and we're already, like I said, the people that are already having it have been very excited, and we've seen some nice numbers. Now, it'll take a few months for us to get some real traction and to have kind of a guide on what we're seeing, but both our development teams have candidly exceeded my expectations.

Thank you very much. Appreciate it.

Sure. Our next question comes from James Fawcett from Morgan Stanley. Please go ahead with your question. Hey, good morning, guys.

Appreciate the time. I want to just ask quickly on margin expansion for 26 key. Walk us through kind of what the key levers are. I know you guys always highlight, Mimi, including today, how you've been able to drive improved efficiencies through hiring, et cetera, but Just wondering if we can get a little more detail on kind of what you think the key components are, et cetera.

Thanks, James, for the question. It's one of the metrics Greg and I monitor quite closely and, you know, hold in very high regard. We know that that's a key part of the investor story is that the nature of the business itself and currently lends itself to margin expansion. I would say it's a couple of things. One is the continued culture around process improvement, efficiency. Greg will probably talk a little bit more about what we're doing in AI, but trying to, as I call down in some of my commentaries, we've really managed to headcount growth through that, both zero-based budgeting, but looking for opportunities to drive efficiency throughout the organization, not just in shared services, but in product and development as well. So that's a large part of it. One of our largest expense lines is just headcount. And so by keeping some of that headcount much tighter in the way we open new positions, the way we manage positions, we've been able to, over the last several years, deliver margin expansion. But then there's other structural trends that we see continuing. Greg mentioned the number of wins we have from a migration perspective. So continuing to move to private cloud helps us. We're further in the journey of our public cloud migration. So from an infrastructure cost, we're starting to see kind of the plateau of some of, for a while we had some dual costs as we were migrating some of those products into the public cloud space. So those are some of the drivers as a whole. to margin expansion.

Yeah, James, I'll just add, just as Mimi mentioned around AI, but, you know, we've had a significant focus on process improvement for years around here. You know, roughly 35% of our staff are green belts and trained in CADA in the classroom. So, we started that many years ago, and that continues today. We also take a very unique approach, I think, to how we handle both process improvement and AI initiatives by given a mantra of doing more with the same instead of doing more with less. And that really enables our associates to have more of a focus, not thinking that they're immediately going to lose their job because they came up with a great idea or better utilization of a tool. So that's why we've been able to minimize the amount of headcount that we've had over the last several years with that focus, and that'll continue. But we have a lot of things that we have going on, not only in development, but also in Things like HR and how we hire, our legal approach, finance. I mean, really all of our groups have really embraced the AI component. And then lastly, I think I mentioned this in my script, but around the work that we're doing in our tech modernization platform has allowed us to lessen the amount of people we need in certain areas because we're not duplicating efforts anymore in building out the same things. So I mentioned authorization or entitlements. Those used to be built in all the products individually. Now they're built once and utilized across the organization.

Great. And then I wanted to just touch quickly on Bano and just dig in a little bit there. I'm wondering how has early transaction trended with Bano business and Can you update us on the go-to-market motion, particularly given some of the implications on the competition front with some of the competing core platforms?

Yeah, I mean, so Bano Business, as I mentioned, just won a really nice award from Dados Insights. We're starting to get a lot of the, as I mentioned, I guess it was last year at Investor Day, but also throughout our meetings, that we were kind of in a catch-up mode with some of the key features with some of our key competitors, we're almost there. And as a byproduct of that, we are starting to win some of those deals from them where we weren't previously because we were behind on the business front. So from a revenue standpoint, it's obviously contributing to the growth of the BANO platform in general and in our digital. But there's other things that we've built as well that are helping to contribute as part of what we call add-ons, and Bano Business would be considered one of those. But I'll be really, really frank with you, James, is that I think the things that we're adding within Tap-to-Local and Jack Henry Rapid Transfers tied with the Bano Business application is going to allow us to really differentiate in the market because nobody has the Tap-to-Local and Jack Henry Rapid Transfers at this point in time.

Thank you. Sure.

Our next question comes from Dave Koenig from Baird. Please go ahead with your question.

Yeah. Hey, guys. Thanks so much. And I guess, first of all, the change in contract with the third-party provider, that $16 million headwind, that's pretty big in context of I don't think many of your clients are over 1%. So that's close to 1% revenue headwind. Maybe describe a little more. I assume it's a reseller partner with revenue shares maybe going down a little, but maybe describe that. And then are we right about $12 million in Q1 and then $16 million headwinds starting in Q2?

Yeah, I can answer that a little bit more, Dave. So in this instance, it was a contract. We're new. We're actually the reseller of the products. It's a bundle of products. So essentially, the way I would think about it is the economic, the net economic impact is unchanged. So it's just the revenues received is a royalty bundle under the contract. And you're accurate in stating the $16 million in totality. $12 million of that will occur in Q1. And just for a little extra color, that's within the core segment.

Okay. Okay. Thank you. That's great. And then I guess secondly, the gain that you're getting during 26, which quarter is that in just so we get the EPS cadence correct?

It's mostly in Q1, but it's a little bit across the year. We'll get more color as the year goes on. It's around some larger asset sales.

Gotcha. Great. Thank you. Very welcome. Our next question is from Will Nance from Goldman Sachs.

Please go ahead with your question.

Hey, guys. Good morning. I wanted to come back to the free cash flow topic. You've had several years where free cash flow was negatively impacted. As you look out the next couple of years with a better cash flow outlook, looking for your updated thoughts on capital allocation and if there's anything that's top of mind for you you know, as you kind of come into this new degree of flexibility on the free cash flow side.

Thanks for the question, Will. It's certainly been a journey. Looking back three years when we were, you know, 55% free cash flow conversion and first hit with the legislative change, you know, it's quite the journey back to 90% that we are at and then died in that 85% to 100% in the future. So... I think there's no reason that that 85 to 100 is not going to be where we consistently land year to year. So we're just excited to get this new legislative change kind of both from a certainty perspective that it's not just short term, but just a clarity now to move forward and have strong cash flow. As to the second part of your question from a capital allocation, as I said, my comment You know, having a much stronger free cash flow position and zero debt, which is a pretty remarkable balance sheet from a fortitude perspective, does allow more flexibility. We think that our intention is to be able to increase the size of our share repurchases. We've had to constrain them over the last couple of years as we focus more on accretively paying down the debt. That now, as we have zero debt, If I had to say, we probably likely have the ability to ramp up shared purchases of at least $100 million, hopefully more, and still remain open to M&A opportunities and, again, always looking to have strong growth in our internal development efforts as well.

Got it. That's helpful. Greg, I wanted to ask, you know, I recall when you took over the CEO role, you know, a big part of sort of your priorities centered around, you know, looking at some of the assets that you have from either a divestiture perspective or an efficiency perspective and, you know, trying to, you know, I'll just say maybe clean house a little bit. And I'm just wondering if you could give an update or your kind of latest thinking on, you know, any opportunities internally to increase efficiencies and Any asset sales that you have contemplated or any thoughts on kind of cost savings and margin structure outlook as you're coming up on a couple years on the job?

Thanks. Yeah, thanks for asking the question. And, yeah, so that has absolutely still remained a priority. We had a couple assets that we are strongly considering that potentially could be part of a sale. At this point, we're still evaluating a couple of opportunities there. We have announced the end of life of nine different small, very small products. But one of those that isn't as small is our NetTeller product. So we have announced that to our clients. We have all but one of our very small cores, and there's some specifics to why that particular core hasn't been sunset yet. But our two bigger banking cores and our credit union core have been announced. So that's another big one. And that will continue. So we're looking at opportunities. We, you know, again, started the communications. But, you know, we give our customers, you know, roughly 24 months as part of our end-of-life process. And so, you know, we'll transfer some of our assets over to newer products or we'll just shut down some functionality that we were actually, you know, paying and investing in. that we no longer do. That was also a big part of our budget process this year, where we approached all of our teams with the same light of, hey, we're not going to be investing in some of these products that we're at a point where we don't think they're going to be long-term players for us. So, appreciate the question, and that will continue, and we can continue to update you on that.

That's great. Appreciate that, Greg. Thanks for taking the questions. Our next question comes from Ken

from Autonomous Research. Please go ahead with your question.

Hey, good morning. Thanks for taking the question. Can we just revisit the quarterly cadence on non-graph revenue growth? And maybe we could touch on the cadence in the back half of fiscal year 26, because I think there were some comments that fiscal 1Q would be in that 7% to 7.5% range. I think fiscal 2Q a little softer and then increasing on a reported basis. for 3Q and 4Q. So I just wanted to confirm that's on a non-GAAP basis, because I think the press release said fiscal 3Q is slightly weaker. So we're just trying to figure out if that's relative to the full year or fiscal 2Q. Thank you.

Thank you for the questions and the opportunity to clarify. It is on a non-GAAP basis. That's the way we manage the business. And you're accurate in your... Summary of it, Q1 being the strongest, then Q2 a little weaker, and then increasing from three to four for the remainder of the year.

Okay. That's helpful. And then maybe just a higher level one on – I know it was asked about earlier, but just on the pricing dynamics in the industry. I think you've talked about one of your competitors – becoming increasingly aggressive on pricing. Can you just talk about where they are pricing more aggressively, whether that's on the core itself or is it the surrounding solutions? And I'm curious, in your opinion, what changed in the industry that led to this? I know Jack Henry has typically commanded premium pricing versus peers. It's a concentrated industry. So I'm just curious how you're thinking about that. Thank you.

Yes. Yeah, Ken, thanks for the question. So a couple of things. One, I would say that both of our primary competitors have had that approach, maybe one longer while the other one was a little bit distracted. That distraction is now more gone. But most of the competitive pricing that we see is candidly in them keeping their own customers as we're going after new core wins. You know, we see some of that competitive pricing, obviously, in our home renewals, as I mentioned. But, you know, because we have a lot more leverage and the ability to showcase what we've done for those particular clients over whatever term of agreement they've been with us, you know, we still demand or command the highest pricing in the industry. We hear that from consultants all the time that we still, you know, so there's But when you look at the overall pricing, even of the 51 core wins that we mentioned, I can guarantee we were never the lowest price in any of those 51. So that is just part of it. But, you know, it ends up being a decision based on price sensitivity or technology innovation. And, you know, I tell CEOs of institutions all the time, you've got to decide what's more important. And, you know, do you want the long-term growth? and, you know, ability for us to take you into the future with what we're doing with tech modernization and a lot of our innovative products like Tap to Local and others? Or do you want the short-term win, you know, while others are trying to figure it out? So, you know, obviously, you know, you get a mixed bag, but as you know, we want our fair share and continue to win up market. But I would say the dynamic isn't that much different, and it's mostly on them protecting what they do have today.

Great. Thanks, Craig. Thanks, Manny.

Sure. Our next question comes from Dominic Gabriel from Oppenheimer. Please go ahead with your question.

Hey, thanks. Compass Point. I really appreciate the question. So I just wanted to go back to the account growth question. at your partners, and you mentioned some neobanks there. Are there any other factors besides just maybe takeaways from, you know, what some may say traditional finance companies to neobanks? Are there any other dynamics that play into why account growth could be slowing, say, 1% to 2% versus 23%?

Yeah, I think a lot of it is, it's not just the neobanks, but as I mentioned before, it's also some of the SMBs, you know, taking their products to other providers that are offering solution sets. I think I referenced this early on, or maybe it was even at Investor Day a year ago, that only about 16% of folks that have retail accounts at the community and regional banks actually have their business account there. So, you know, another reason why we're continuing to really push our SMB strategy to keep those deposits and and accounts at those institutions. But between neobanks, between digital wallets, between opportunities for folks to keep money in other places, dormant accounts, as I mentioned, where if those accounts, you know, if they're paying for that particular account for a period of time but there really isn't any activity there, then they want to cancel that account. So that slows the actual growth of what maybe we had experienced in years prior. I assume that's very similar to what our competition is experiencing as well. But those are some of the high-level things.

If I could add on to it as well, this is not a Jack Henry specific, but things you'll see across the industry. But, you know, until recently, you're not seeing a ton of new car sales, which will lead to new loans and autos. You know, with the housing market kind of being frozen and not seeing a lot of transactions in real estate, And that's been a national issue. Again, less mortgages, less account openings. So we're seeing some of that tied to lending volumes as well.

It's certainly not a Jack Henry only issue. Sorry, go ahead.

Yeah. No, I'm sorry to interrupt you. I just was going to say, you know, we also have a mixed bag of clients that have asset-based pricing and some that have per account pricing. So, you know, it really depends. But, you know, as the customers get larger and really dependent on whether they're more business focus or retail focus, that has a stronger indicator of what type of pricing that, you know, we would have in place with them.

All right. No, thank you so much. Maybe just lastly, maybe the complementary business, really some pretty stunning growth this quarter. Maybe just talk about, you know, I know you said that it should, you know, you're going to see a near high end of the range in for that business. Could you just remind us what that range is and then how you think about the fourth quarter grow over since this quarter was just so good? Thanks. On the revenue.

Yeah. So, Don, it's a great question. As you recall, the complementary segment is a whole portfolio of products. You have some anchor tenants like digital that continue to have impressive growth. Then you have other things like financial crimes defender, which is really leading to some strong momentum. And some of the fraud-related solutions as it relates to faster payments are also another driver of growth. So those trends we think are going to continue, and that's why we expect to see that continuation for next year. And if you think about that range, about 8% to 9%, just as a reminder from the growth algorithm perspective.

Perfect. Thanks so much.

Of course.

Our next question comes from Chris Kennedy from William Blair. Please go ahead with your question.

Good morning. Thanks for taking the question. Greg, just wanted to follow up. I mean, it's clear you're excited about Bantle for Business and Tap to Local. Can you just kind of give an update on the SMB strategy, kind of where you are relative to your initial expectations?

Yeah, thanks for asking, Chris. Yeah, like I said, I'm extremely excited, and I would say we're ahead of where I expected us to be just because as we really got into building everything out and we're told it would be an 18- to 24-month process, but our team was able to complete it with move in 10 months. So that is significantly ahead of where we thought we were going to be. And as I mentioned, we're going to start rolling this out in a heavy, heavy way post our client conference in early September. So early indications from the car associations and from the clients that have been in our closed beta have been tremendous. So excited is an understatement. The entire SMB strategy, we actually have a roadmap that we've created that will cover over the next 18 to 24 months of a variety of different activities that we will be adding to the overall solution set. Some are actually kind of point-to-point solutions that we have today at Jack Henry that haven't been positioned as well as maybe we should have in the past to put them in this SMB strategy. Others are things that we're working, again, independently and with MOVE that we'll be rolling out But, you know, candidly, my big message to our team is that, you know, nobody's going to care about the next solution until the first one is successful. So we are highly focused on making sure that that is the case.

Great. Thanks for taking the question. Sure. And our next question is for John and James. Please go ahead with your question.

Hey, good morning, guys. Greg, I just want to take a big step back here. If we think about the 26 revenue outlook, it's about 100 basis points at the midpoint below what I think normalized growth. You said you haven't really seen, you don't consider any real structural changes in the Jack Henry growth rate. You're winning larger banks, which I think would accelerate growth. You call out the industry headwinds. Is there any change in guidance philosophy, understanding how First year, a little bit below revenue. Just trying to think about the puts and takes. Are these industry headwinds more than 100 basis points, and that's offsetting some of the larger bank wins? Is there added conservatism? Just trying to think through the puts and takes of the guide in 26 versus how you think about normalized growth of Jack Henry.

Yeah, it's a great question. And so, no, there isn't anything, as we said, that's structurally different. There isn't anything that makes up 100 basis point of concern. What it is is some, you know, level of us being, you know, there's macro things that we're still not sure about that we're still, you know, kind of, quote, hedging on because we're not really sure. But the bigger part is what we talked about with the renewals and the M&A activity. So though we tend to win more than we lose, as I mentioned, it doesn't really matter from that perspective. It's really about the timing of the the activity the M&A activity and what you know was what is left on that particular contract or if the Jack Henry the Jack Henry deals happen you know are they actually going to be accretive for us because some of them haven't hit their next you know tier level of pricing through that acquisition so all of those are parts of running the business and doing the day-to-day activity that we do but there isn't anything in that and to your point about us winning larger deals you know, a lot of those will start to come on in the back half of the year, you know, the ones that we won last year. As I mentioned before, us winning these larger deals has really only happened over the last two fiscal years. So, you know, we're starting, we'll start to see the, you know, it takes anywhere from typically 15 to 24 months before core activity actually comes on board. Obviously, you get drag along with other payment and complementary products with that as well. But So that'll really start to happen from two fiscal years ago, or I guess fiscal year, just to be specific, from fiscal year 24 happening at the back half of this year in fiscal year 25, and then ongoing. So that's why we remain bullish on where we're going, what we're doing, the activities that we have related to SMB and other tangential things like even stable coin stuff that I mentioned before. So Hopefully I answered your question, but I wanted to make sure I covered a couple of parts of that.

Yeah, the only thing I want to follow up on a little bit is given a little bit more uncertainty this year, given the MA environment, given some of the industry slowdowns, also you gave a wider range after missing kind of the initial guide last year, is maybe there's a little bit more conservatism, given a little bit more uncertainty coming

into this year just any change in guidance philosophy in in year two um since you've taken over no no no real i mean not in philosophy at all i mean obviously we did um you know extend by you know a little bit from a 20 basis points perspective but i mean you know we've been talking about that you know when you look at our company one percent is 23 million You know, half a percent is, you know, $11.5 million. There's not a lot of, you know, flexibility in that range. So that was something that we looked at. We'll continue to look at to be candid in future years. But we thought we'd start off there and kind of go with that approach. But other than that, as Mimi, you know, articulated, and I've been trying to articulate here too, nothing else fundamentally has changed.

Okay. And then just one last quick one, if I can, on complimentary. So You know, now that Bano is product parity plus tap to local, rapid transfers, where are we in kind of selling that outside the base? You know, and then also maybe just quickly, you know, complimentary outside of Bano, you know, what are the puts and takes there? What's going well? What's maybe, I know your son's taking some products there. Just trying to think about kind of the ex-Bano growth and also kind of where we are selling Bano outside the base. Thanks, guys.

Yeah. I'm glad you asked that. I was prepared and was hoping somebody would ask me. If not, I was going to bring it up myself. Yeah, we're very excited and very focused on continuing to work. As I mentioned before, we've taken a couple of different paths for outside the base. I won't get into all the specifics. There are opportunities, like today, we can actually sell and we will sell tap to local and rapid transfers outside of the Jack Henry base, but we can do that today. We actually are also going to increase the TAM over the next couple of years by providing some opportunities for even our key digital competitors to sell that and for us to be part of the equation there. But by the end of this calendar year, our teams will start selling opportunities outside of the Jack Henry core base and with the belief that we can start implementing the latter part our fiscal year so in the May June timeframe we would hope to have a couple of beta clients that would be live but that is the approach we're actually taking two different approaches and kind of doing them both using some of the technology that we've built on the platform as well as technology that we're we're building through core integrations with some outside providers but all of that is in play specifically for Banno, but other products will follow suit as well over time. But Banno will be the first one of the ones that are not outside the base today.

Great. Thanks, Seth. Sure.

Once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. Our next question comes from Raina Kumar from Oppenheimer. Please go ahead with your question.

Hi, everyone. This is Abigail on for Raina. I just wanted to talk about hardware revenue, which faced some persistent headwinds in FY25. What does this outlook look like as we enter FY26? And what's the impact on guidance, do you think? And then can you help us also look at the size and the decline in hardware revenue from delayed sales and implementations versus just the clients that are migrating to the cloud?

Sure. So, Abigail, I would say as it pertains to the upcoming fiscal year 26, because we've had such headwinds in 25 growth due to lower hardware sales, it'll be less of an impact in 26. So, we don't expect a massive rebound by any means in hardware, but we don't expect it to be as much of a material headwind because we're going from a lower base of FY25. So that's from, and that is all built into the guidance. As to the latter half of your question, as we continue to see clients migrating from on-premise to private cloud, there's less hardware purchase needs in the future. That said, most of the wins we get today are in the cloud. Very few new client wins are ever on-premise. So we are not, from a hardware demand perspective, I think those trends will continue because of it correlated to now being 77% private cloud. Perfect. Super helpful. Thank you. You're welcome.

Ladies and gentlemen, with that, we'll conclude.

We turn it over to Vance Sherrard for any closing remarks.

Thank you, Jamie. In the remainder of our first quarter, we will host approximately 3,000 clients at our upcoming Jack Henry Connect Conference, and management will be participating in investor meetings across various U.S. cities and internationally at the end of the month. We would like to thank all Jack Henry associates for their efforts and commitment, which contributed to another successful fiscal year. Thank you for joining us today. Jamie, please provide the replay number.

The replay number for today's call is 877-344-7529, and the access code is 3201054. The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your line.