Jack Henry & Associates, Inc.

Please note that today's event is being recorded. At this time, I would like to turn the conference over to Vance Sherrard, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Chris. Good morning, and thank you for joining the Jack Henry Second Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO, and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide an overview of our quarterly results and key performance metrics, along with updates on our strategic initiatives. Mimi will then discuss the financial results and updated 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 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 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, and I appreciate each of you joining today's call. As always, I'd like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes and doing the right thing for each other and our clients. Our focus on people-first culture, service excellence, technology innovation, and well-defined strategy supported by consistent execution continues to set us apart in the market and is reflected throughout my remarks. I will share three key takeaways from the quarter, then provide additional detail about our overall business. First, our financial performance. We produced record second quarter results with non-GAAP revenue of $611 million, of 6.7% over last year's second quarter. Our non-GAAP operating margin was 25.1%, representing a robust 355 basis points of margin expansion over last year's Q2. Second, our sales performance. Our core sales team delivered an outstanding quarter with 22 competitive core wins. Of the 22 wins, four were financial institutions with over $1 billion in assets, And 15 included core digital banking and card solutions. We have continued to see an increase in trifecta wins over the past 12 months. 68% of new core wins this quarter included digital and card processing as compared to 45% in Q2 fiscal year 25. The recent announcement of core consolidation by one of our competitors has positively impacted our core payment and complementary solution sales pipelines. We expect our historical success rates within this base of clients to continue and most likely accelerate based on what we know today. It's worth noting that given the timing of their core consolidation announcement, our sales success in Q2 was minimally impacted by the news. It had much more to do with our ability to continue demonstrating innovation and service differentiation in the market, not just relative to that competitor, but across the competitive landscape. Third, we continue to win in a consolidating market. We have outpaced our competitors for many years in core market share growth, even as the overall number of financial institutions has declined. Over the past eight years, our core market share among banks has increased by 17%, while our credit union market share has expanded by 40%. And among institutions with more than $1 billion in assets, our market share has risen by 32% for banks and 12% for credit unions over that same time period. This growth occurred despite an average overall market contraction of 3% for both banks and credit unions over the past eight years. Our market share and asset size growth can be attributed in part to our bank and credit union clients' continued growth through M&A, acquiring both Jack Henry and non-Jack Henry institutions. as well as our success the past few years in Winner Mergers, winning the core merger business when a Jack Henry institution is acquired. Additionally, we have relationships with more than 80% of the financial institutions in the U.S. across our core, complimentary, and payment segments. So in most consolidation events, we are already doing business with the acquiring institution, giving us a strong advantage in increasing the likelihood that the combined entity remains on some or most Jack Henry technology. Now for more detail on the overall business, starting with some recognition for the team. We are very proud, I'm sorry, we placed that Jack Henry was recently named one of America's most loved workplaces, ranking 12th out of 100 companies. We also earned spots on the Forbes list of best companies in America, Computer World's ranking of best places to work in IT, and Newsweek's list of most responsible companies. These honors reaffirm our unwavering people-first commitment to our associates. Turning to the significant progress we are making on key innovative solutions, we are extremely pleased with the strong reaction to our new cloud-native tap-to-local merchant acquiring solutions. Tap to Local is offered exclusively through banks and credit unions, giving the FI a powerful way to win back deposits from small and medium-sized businesses that have shifted their card acceptance activities to other providers. Built in partnership with Move, Tap to Local delivers differentiated capabilities for SMBs, including easy enrollment, tap to pay on both iOS and Android devices without additional hardware, and continuous account reconciliation to the accounting platform of their choice. We are currently rolling the solution out in waves to all of our Bano clients. We took 300 clients live in November and December and just rolled out another 100 clients last week. We will continue to add 100 to 150 per month and expect to have some nice data points to share on the May earnings call. We're also seeing strong early success with Jack Henry rapid transfers, which allows both SMBs and consumers to quickly move funds between external accounts, eligible cards, and digital wallets to manage day-to-day transactions and personal finances. We are the first provider to bring this unique capability to community banks and credit unions. This offering will help our clients grow deposits and attract younger, digital native generations like Gen Z. Rapid Transfers is now live with 75 clients with another 180 in various stages of onboarding. We will also share more data on rapid transfers on the May earnings call. We are very excited about the development and execution of our stablecoin strategy. As I mentioned on our last earnings call, we leveraged the Jack Henry platform to complete our proof of concept in two weeks. We are now in beta testing with multiple financial institutions to send and receive USDC. In addition, we are evaluating over 20 stablecoin infrastructure compliance and payment fintechs to ensure we have best-of-breed partners for this critical initiative. Another important strategy I want to highlight is our focus on embedded payments and banking-as-a-service capabilities. Our integration of Victor Technologies, which we acquired on September 30, is progressing extremely well. As a reminder, Victor's modern, innovative platform with direct-to-core connectivity enables financial institutions to embed payment capabilities into third-party non-bank brands such as fintechs and commercial customers. Victor was already integrated with our Silver Lake Core banking system and Jack Henry Pay Center prior to the acquisition. We are now extending its capabilities to serve our Scimitar credit union clients and integrate directly with the Jack Henry platform. We also plan to leverage Victor's modern APIs to complement our treasury management offerings. Many corporations are seeking no-touch processing and virtual accounts to streamline accounting and reconciliation. This creates an opportunity for financial institutions to deliver in-embedded payments to their corporate customers, giving them more options for seamlessly integrating payments into their business processes. We already had a sales team in place focused on selling embedded payments to financial institutions. To build upon that momentum, we have added a team that will work directly with fintechs to bring new opportunities to our clients. This expansion supports our broader strategy to help financial institutions compete and grow revenue. All of these innovative solutions are made possible by our technology modernization strategy and public cloud native API first Jack Henry platform. We have developed 22 components on the platform and we'll have multiple clients testing our new cloud native deposit only core functionality in the second quarter of this calendar year. I will now provide a few updates on specific products. In our core segment, I talked earlier about our 22 competitive wins in Q2. We also secured 10 on-premise to private cloud contracts, and five of those were with institutions that had more than one billion in assets. In the first six months of this fiscal year, seven of our private cloud contracts were with clients holding over one billion in assets compared with just two at this time last year. This is important because we earn an average of approximately two times more revenue from clients in the private cloud than those operating on-premise. Today, 78% of our core clients are operating in the private cloud. In our payment segment, we continue to experience outstanding growth in our faster payment solutions. Over the past year, the number of financial institutions using Zelle has grown by 22% the Clearinghouse's RTP network by 26% and FedNow by 32%. In Q2, payment transaction volume through these channels increased by 49% over the prior year same quarter. In our complimentary segment, we signed a total of 48 new financial crimes defender and faster payment module contracts in the quarter. As of December 31, we had 164 financial crimes installations completed and another 64 in various stages of implementation. We also have 141 faster payment modules installed and 227 in various stages of implementation. We had a very strong sales quarter with our Bano digital platform. For the quarter, we signed 84 clients to our Bano platform with several large competitive takeaways. We currently have 1,037 Bano retail clients and 435 live with Bano business. We now serve 15.2 million registered users on the Bano platform, up 15% from a year ago. A couple of additional items before I wrap up. Some of you may have seen Cornerstone's annual survey of bank and credit union executives published last week. According to the study, 84% of banks and 83% of credit unions expect to increase their technology spending in 2026. That's up from 73% of banks and 79% of credit unions a year ago. We are currently conducting our annual Jack Henry Strategy Benchmark Study with our clients and will share those results on our May earnings call. We were honored to celebrate the 40th anniversary of our IPO by ringing the NASDAQ opening bell on November 21st. To put that milestone into perspective, Jack Henry is one of approximately 200 companies out of the 3,400 on NASDAQ that has remained public for four decades. This longstanding stability is the perfect lead-in to another major milestone this year as we celebrate the 50th anniversary of Jack Henry's founding with associates, clients, and investors. In closing, we are extremely pleased with our first-half performance and remain very optimistic about the rest of our fiscal year based on the strong demand environment, our robust sales pipeline, and our exceptional competitive win rate. We will continue to focus on our key differentiators of success, culture, service, innovation, strategy, and execution. All of these position us extremely well for the future. With that, I'll turn it over to Mimi for more detail on our financials.