Q2 2022 Jack Henry & Associates Inc Earnings Call

Speaker 1: Good morning ladies and gentlemen, thank you for standing by and welcome to Jack Henry and Social Security's second quarter fiscal year 2020 earnings conference call. At this time all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star then the one key on your touchphone to our phone.

Ladies and gentlemen, thank you for standing by and welcome to Jack Henry <unk> second quarter fiscal year 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press. The Star then one key on your Touchtone telephone.

Speaker 1: Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Sir Kevin Williams, Chief Financial Officer and Treasurer. Please go ahead.

Please be advised that today's conference is being recorded I would now like to turn the conference over to your speaker host today, Kevin Williams, Chief Financial Officer and Treasurer. Please go ahead, Sir thank.

Speaker 2: Thank you, Olivia. Good morning. Thank you for joining us for the Jack and Associates second quarter fiscal 2022 earnings call. I am Kevin Williams, CFO and treasurer and on the call with me today is David Foss, board chair and CEO .

Thank you Olivia good morning, Thank you for joining us for the Jack <unk> Associates second quarter fiscal 2022 earnings call.

Kevin Williams, CFO and treasurer and on the call with me today is David Foss Board Chair and CEO .

Speaker 2: The format for our call this morning will be just a little different than our normal format we've typically used in the past, but just as a warning, the opening comments will take a little longer than normal. In just a minute, I will turn the call over to Dave to provide some of his thoughts about the state of our business, financial and sales performance for the quarter, comments regarding industry in general, and some other key initiatives that we have in place.

The format for our call. This morning, and you just a little different than our nearest government. We've typically used in the past, but just as a warning the opening comments, we will take a little longer than normal in just a minute I will turn the call over to David to provide some of his thoughts about the state of our business financial and sales performance for the quarter comments regarding the industry in general and some other key initiatives that we have in play.

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Speaker 2: Then after Dave concludes his comments, I will provide some additional thoughts and comments regarding the press release we put out yesterday after Margaret closed and provide comments regarding our updated guidance for our fiscal year 2022 provided in the release.

Then after David concludes his comments I will provide some additional thoughts and comments regarding the press release, we put out yesterday after market closed and provide comments regarding our updated guidance for our fiscal year 2022 provided in the release.

Speaker 2: At that point, Dave has some additional comments and updates that he will make on the press release that we put out Monday morning.

At that point, Dave has some additional comments and updates that he will make on the press release that we put out Monday morning.

Speaker 2: Then at the conclusion of those comments, we will then open the lines up for a traditional Q&A.

At the conclusion of those comments, we will then open the lines up for our traditional Q&A.

Speaker 2: First, I need to remind you that this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends, or results. Like any statement about the future, these are subject to a number of factors that could cause actual results or events to differ materially from those which we anticipate due to a number of risk uncertainties.

First I need to remind you that this call includes certain forward looking statements, including remarks or responses to questions concerning future expectations events objectives strategies trends or results like any statement about the future. These are subject to a number of factors that could cause actual results prevents to differ materially from there.

Which we anticipate due to a number of risks and uncertainties. The company undertakes no obligation to update or revise these statements for a summary of these risk factors and additional information. Please refer to yesterday's press release and the sections in our 10-K entitled risk factors and forward looking statements.

Speaker 2: company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release in the sections in our 10k entitled risk factors and forward looking statement.

Speaker 2: On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliation for historical non-GAAP financial measures can be found in yesterday's press release. With that, I will now call the call over to the next speaker.

On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income.

Reconciliations for historical non-GAAP financial measures can be found in yesterday's press release.

With that I will now call the call over to Dave.

Speaker 3: Thank you Kevin, good morning everyone. Please report another strong quarter of revenue and operating income growth. As always, I'd like to begin today by thanking our folks for all the hard work and commitment to win into producing those results. First, second quarter, while also continuing to deal with the impacts of the ongoing pandemic.

Thank you Kevin Good morning, everyone. We're pleased to report another strong quarter of revenue and operating income growth as always I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for our second quarter. While also continuing to deal with the impacts of the ongoing pandemic.

Speaker 3: Kevin mentioned in his opening remarks, we're going to conduct today's call a little differently from the cadence of past calls. I'll start with comments regarding the performance of the business in the quarter, then Kevin will share detailed financial results. Instead of moving to Q&A after Kevin's comments, however, I'm going to come back and conduct a detailed review with you of an exciting new product technology modernization strategy for our company.

As Kevin mentioned in his opening remarks, we're going to conduct today's call a little differently from the cadence of past calls.

I'll start with comments regarding the performance of the business in the quarter, then Kevin will share detailed financial results instead of moving to Q&A. After kevins comments, however, I am going to come back and conduct a detailed review with you have an exciting new product technology modernization strategy for our company.

Speaker 3: This is an important update for you as we believe this strategy, which we've been working on for more than two years, will fundamentally define the evolution of our company and our industry. We'll address questions after that.

This is an important update for you as we believe this strategy, which we've been working on for more than two years will fundamentally defined the evolution of our company and our industry will address questions after that strategy review.

Speaker 3: With that, let's shift our focus to a look at our performance for the quarter we completed in December .

With that let's shift our focus to a look at our performance for the quarter, we completed in December .

Speaker 3: As of the end of the quarter, we continue to operate with well over 90% of our employees working full-time remote and continue to evaluate options regarding an appropriate return to office target date. At this time, we have no published date, but we have proven that our business can perform well in a remote posture so we don't feel any significant pressure to change

As of the end of the quarter, we continue to operate with well over 90% of our employees working full time remote and continue to evaluate options regarding an appropriate return to office target date. At this time, we have no published data, but we have proven that our business can perform well in a remote posture. So we don't feel any significant pressure to change that.

Speaker 3: We're cute to a fiscal 2022 total revenue increase 17% for the quarter and increased 11% on an on-gap basis.

For Q2 of fiscal 2022 total revenue increased 17% for the quarter and increased 11% on a non-GAAP basis.

Speaker 3: Consistent with our previous guidance, the conversion revenues, the conversion fees were up almost $25 million over the prior year quarter, which led to the extremely strong gap revenue performance. But you should note that even without the increased de-conversion revenue, this was a very strong quarter.

<unk> with our previous guidance Deconversion revenues deconversion fees were up almost $25 million over the prior year quarter, which led to the extremely strong GAAP revenue performance, but you should note that even without the increased deconversion revenue. This was a very strong quarter.

Speaker 3: Turning to the segments, we again had a solid quarter in the core segment of our business. Revenue increased by 15% for the quarter and by 7% on an on-gap base.

Turning to the segments, we again had a solid quarter in the core segment of our business revenue increased by 15% for the quarter increased by 7% on a non-GAAP basis.

Speaker 3: payments segment also performed very well, posting an 18% increase in revenue this quarter, and a 13% increase on a non-gap.

Our payment segment also performed very well posting an 18% increase in revenue this quarter and a 13% increase on a non-GAAP basis.

Speaker 3: We also had a strong quarter in our complimentary solutions businesses with a 17% increase in revenue this quarter and an 11% increase in a non-gap base.

We also had a strong quarter in our complementary solutions businesses with a 17% increase in revenue this quarter and an 11% increase on a non-GAAP basis.

Speaker 3: As I mentioned in the press release, our sales teams again had a very solid quarter as they booked the largest sales quarter in the history of the company.

As I mentioned in the press release, our sales teams again had a very solid quarter as they booked the largest sales quarter in the history of the company.

Speaker 3: Those of you who follow us closely will note that our last quarterly sales record was set only six months ago.

Those of you who follow US closely will note that our last quarterly sales record was set only six months ago.

Speaker 3: In the second quarter, we inked 15 competitive court takeaways and an additional 15 deals to move existing in-house clients to our private court.

In the second quarter, we inked 15 competitive core takeaways and an additional 15 deals to move existing in house clients to our private.

Speaker 3: As we've discussed on prior calls, our convert merge backlog is a good indicator for us of what to expect with coming mergers and acquisitions within our base of customers.

As we've discussed on prior calls our convert <unk> backlog is a good indicator for us of what to expect with coming mergers and acquisitions within our base of customers.

Speaker 3: contract volume in this area continues to grow to the point that we have now added one new conversion team on the banking side of our business.

Our contract volume in this area continues to grow to the point that we have now added one new conversion team on the banking side of our business.

Speaker 3: Additionally, we will be adding another team next quarter on the credit union side of the business and we're evaluating adding one or two more teams in the new future based on ongoing demand.

Additionally, we will be adding another team next quarter on the credit Union side of the business and we are evaluating adding one or two more teams in the near future based on the ongoing demand.

Speaker 3: We continue to see good success with our new card processing solution, finding 13 new debit processing clients this quarter, and six new credit clients.

We continue to see good success with our new card processing solution, signing 13, new debit processing clients this quarter and six new credit clients. We also continue to see great success, signing clients to our bandwidth digital suite with 44, new contracts in Q2.

Speaker 3: We also continue to see great success signing clients to our Bano Digital Suite with 44 new contracts in Q2.

Speaking of our digital suite, we are continuing to implement new financial institution clients on the <unk> platform at a similar pace to recent quarters at the end of Q2, we surpassed $6 6 million registered users on the platform and our <unk> platform continues to hold one of the highest consumer ratings in the App store.

Speaker 3: Speaking of our digital suite, we are continuing to implement new financial institution clients on the Banner platform at a similar pace to recent quarters.

Speaker 3: At the end of Q2, we surpass 6.6 million registered users on the platform. Our Bando platform continues to hold one of the highest consumer ratings in the app store.

Speaker 3: A couple of weeks ago, we announced a significant promotion for a key member of our leadership team. After more than 10 very successful years with our company, Greg Adelson has been promoted to president and chief operating officer.

A couple of weeks ago, we announced a significant promotion for a key member of our leadership team after more than 10 very successful years with our company. Greg Adelson has been promoted to president and Chief operating officer.

Speaker 3: As I noted in the press release, Greg will retain all of his prior responsibilities as COO, but will now be responsible for leading the recently formed digital and technology office headed by Ben Mast.

As I noted in the press release, Greg will retain all of his prior responsibilities as COO, but will now be responsible for leading the recently formed digital and technology office headed by Ben Mats.

Speaker 3: I would like to congratulate Greg on this well-deserved promotion and congratulate Ben on his move to his new position. Olet will play a major role in our six...

I would like to congratulate Greg on this well deserved promotion and congratulate them on his move to his new position.

We will play a major role in our success going forward.

Speaker 3: As some of you know, we've continued to make major advances with our environmental, social, and governance initiatives, and the board has established a quarterly cadence to discuss just the matters. Jack Henry's next sustainability report will be published on March 31st, and will highlight our major advances in this area during the past year. We'll be able to access this new report through our sustainability website, linked from our investor-relations site.

As some of you know we've continued to make major advances with our environmental social and governance initiatives and the board has established a quarterly cadence to discuss SD matters.

Jack Henry's next sustainability report will be published on March 31st and we'll highlight our major advances in this area during the past year.

We will be able to access this new report through our sustainability website linked from our Investor Relations site.

Speaker 3: In January , cornerstone advisors published results of their annual survey up bank and credit union executives. According to that study, 84% of financial institutions in our target market expect to increase their technology spending in 2022, with 24% of them indicating an increase of greater than 10% here over here. This correlates with the information we're receiving from other sources, which puts the average expected increase in tech spending for 2022 in our market, at greater than 5%. I think that pent-up demand is reflected in the continued influx of our fees we're receiving and the ongoing interest in Jack Henry Technology Solutions. As we begin the second half of our fiscal year, our sales pipeline is very robust and we continue to be optimistic about the strengths of our technology solutions, our ability to deliver outstanding service to our clients, our ability to expand our customer relationships, the spending environment, and our long-term prospects for success. With that, I'll turn it over to Kevin for some detail on the numbers. Thanks, Dave. During the quarter service, the support revenue increase 18% compared to the prior year quarter. As the state mentioned, the key conversion rate was up 24.7 million per quarter compared to last year. Likes and tariff were an invitation revenue combined. We actually have 10% compared to the current year. Our native processing and hosting fees that our private and public cloud offerings continue to show strong growth in the quarter compared to previous year, drawing about 11% in the quarter. On a non-gap basis, total support services grew 8% of the quarter compared to the prior year. Our processing revenue increased 15% in the second quarter fiscal 2022 compared to the same quarter last fiscal year on both a gap and non-gap basis. The increase was primarily driven by higher quality. Our current value from new customers installed last year, an increased debit and credit card usage from existing customers. Our GACHIN or Digital Revenue continues to show strong growth as demand for a pano digital platform continues to be very strong. Total revenue is up 17% of the quarter compared to last year and on a reported gap basis.

In January cornerstone advisors published results of their annual survey of bank and credit Union executives.

According to that study, 84% of the financial institutions in our target market is expected to increase their technology spending in 2022 with 24% of them, indicating an increase of greater than 10% year over year.

This correlates with information, we're receiving from other sources, which puts the average expected increase in <unk> spending for 2022 in our market at greater than 5%.

I think that pent up demand as reflected in the continued influx of Rfps, we're receiving and the ongoing interest in Jack Henry Technology solutions.

As we began the second half of our fiscal year. Our sales pipeline is very robust and we continue to be optimistic about the strength of our technology solutions, our ability to deliver outstanding service to our clients our ability to expand our customer relationships, the spending environment and our long term prospects for success.

With that I'll turn it over to Kevin for some detail.

On the numbers.

Thanks, Dave.

During the quarter service and support revenue increased 18%.

Compared to the prior year quarter.

Dave mentioned, the conversion was up $24 7 million for the quarter compared to last year.

License hardware and implementation revenue combined were actually up 10% compared to the prior year, our data processing and hosting fees in our private and public cloud offerings continued to show strong growth in the quarter compared to previous year growing by 11% for the quarter.

On a non-GAAP basis total support services grew 8% for the quarter compared to the prior year.

Our processing revenue increased 15% in the second quarter of fiscal 2022 compared to the same quarter last fiscal year on both a GAAP and non-GAAP basis the.

The increase was primarily driven by higher card volume from new customers installed last year and increased debit and credit card usage from existing customers.

Our Jack Henry Digital revenue continued to show strong growth as demand for nano digital platform continues to be very strong.

Total revenue was up 17% for the quarter compared to last year and on a reported GAAP basis.

I'm getting the fourth is really our new year.

Speaker 4: Becuase we're coming Name badgu details

Okay.

Feedback.

Yes.

Speaker 4: The balance of the. But livia, can you hear?

During the call.

Olivia can you hear us.

Speaker 5: Yes, so we can hear you, but there are some feedback on the background. Yeah, so I'm getting ours as possible to hear.

Yes, Sir we can hear you, but there are some feedback on the background.

Yes.

So I'm getting out of the hospital to here.

Yes.

Speaker 2: So Olivia, shall I call in on a different line?

Thank you.

So Olivia shall I call it on a different line.

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Speaker 5: Yes, you can try that or would you like me to download to you? That's fine, download me. Okay.

Yes, you can try it out or would you like me to dialogue.

That's fine.

Okay.

Okay.

Yes.

Speaker 6: No.

Okay.

Yeah.

Alright.

Speaker 5: All right, fingers you're not back in. So we're still getting feedback so must be here.

Okay.

Yes.

Okay.

Thank you.

Yeah.

So we're still getting feedback so it must be clear.

Sure.

Okay.

Okay.

Okay.

Yes.

Yes.

Okay.

Speaker 1: I am still hearing feedback from that line. Maybe try from a different line? No, it's you, Alyssa. We're on a different line.

I'm still hearing feedback from that line maybe drive.

Yes.

We are on a different.

Yes.

Speaker 4: ed

Bridget.

Absolutely.

Okay.

Okay.

Speaker 6: Bye-bye.

Okay.

Yeah.

Yeah.

Yes.

So Olivia can you hear it.

Speaker 5: Yes, your voice is clear, but when you speak, it does have a little sound background. But when you speak, it also has that farmer's bridge.

Yes, your point is clear, but when you speak it does have some.

Hum.

But when you speak it also has a sofa.

Bruce.

Okay.

Speaker 4: What are you doing to address this? What is the...

What are you doing to address them.

Yes.

Speaker 5: We can't, we can't do anything, Rhonda, because I don't have it on your end. Okay, they're checking in right now.

Yes.

We can't we can't do anything around Xyrem.

Milligan.

New York.

Yes.

Okay.

Yes.

Yes.

Okay.

So Olivia somebody in your team doing something to address this.

Yes, I am not here in the background on any more.

Yes.

Now.

Okay.

So I have no idea with backgrounds broad guidance.

Thank you to start over.

Okay.

Speaker 2: So service and support revenue increased 18% in the second quarter of fiscal 2022 compared to the same quarter year ago. As they've mentioned, the D-conversary revenue was up 25 million as we sort of guided for the quarter compared to the last year's quarter. License hardware and implementation revenue combined were actually up 10% compared to the prior year. Our data processing hosting revenue and our private and public cloud offerings continue to show strong growth in the quarter compared to the previous year growing by 11%.

So service and support revenue increased 18% in the second quarter of fiscal 2022 compared to the same quarter a year ago as Dave mentioned Deconversion revenue was up $25 million as we saw the guidance for the quarter compared to last year's quarter.

License hardware and implementation revenue combined were actually up 10% compared to the prior year, our data processing hosting revenue in our private private and public cloud offerings continued to show strong growth in the quarter compared to the previous year growing by 11%.

Speaker 2: On a non-gap basis, total support and service revenue grew 8% for the quarter compared to the prior year.

On a non-GAAP basis total support and service revenue grew 8% for the quarter compared to the prior year.

Speaker 2: Our processing revenue increased 15% in second quarter of fiscal 22 compared to the same period last year on both a gap and not gap basis because all the non gap items are up in support and services line.

<unk> processing revenue increased 15% in the second quarter of fiscal 'twenty, two compared to the same period last year on both a GAAP and non-GAAP basis gets all the non-GAAP items are up in support and services line.

Speaker 2: The increase was primarily driven by higher-cored volumes from the new customers installed last year, and increased debit and credit card uses from existing customers.

The increase was primarily driven by higher card volumes from new customers installed last year and increased debit and credit card usage from existing customers or Jack into digital revenue continues to show very strong growth as demand for our banner digital platform continues to be very strong total revenue was up 17% for the quarter compared to last year on a GAAP basis, an increase of 11.

Speaker 2: Our Jackie Nogin's original revenue continues to show very strong growth as demand for our Bano Digital Platform continues to be very strong. Total revenue was up 17% for the quarter compared to last year on the gap basis and increased 11% on a non-gap basis.

<unk> percent on a non-GAAP basis.

Speaker 2: Our cost of revenue was up 10% compared to last year's second quarter. The increase was primarily due to higher cost associated with customer maintenance and license costs, increased hardware costs, card and transaction processing increase in line with related revenue growth, and also higher personnel costs compared to a year ago. Reethers development expense increased 12% for the second quarter of fiscal 2022, compared to the same prior last year, was this increase was primarily due to personnel costs.

Our cost of revenue was up 10% compared to last year's second quarter. The increase was primarily due to higher costs associated with customer maintenance and license cross increased hardware cost card transaction processing increased in line with related revenue growth and also higher personnel costs compared to a year ago.

Research and development expense increased 12% in the second quarter of fiscal 2022 compared to the same prior last year.

This increase was primarily due to personnel costs, our SG&A expense increased 26% in second quarter of fiscal 2022 compared to same quarter. The increase was due primarily again to increased personnel costs and travel costs compared to last year and last year. We also had a gain on sale of assets, which made for a tougher comp.

Speaker 2: Our SG&A expense increased 26% in second quarter of fiscal 2022 compared to same quarter. The increases do primarily, again, the increase first no cost and travel cost compared to last year. And last year we also had a gain on cell of assets which made for a tougher cost.

Speaker 2: Our reported confolidated operating margins increase from 22.2% last year to 25.4% in the current year for a 320-bit increase. On a non-gap basis, our operating margins expanded from 23.3 last year to 21.7% this year for a 40-bit increase.

Our reported consolidated operating margins increased from 22, 2% last year to 25, 4% in the current year for 320 bps increase on a non-GAAP basis, our operating margins expanded from $23 three last year to 21, 7%. This year for 40 bps expansion.

Speaker 2: The effective tax rates of the second quarter of fiscal 2022 increase to 23.6 compared to 23.1 in the same quarter of your go.

The effective tax rate for the second quarter of fiscal 2022 increased to 23, 6% compared to $23. One in the same quarter a year ago.

Speaker 2: Net income grew 33% to 95.7 million to the second fiscal quarter compared to 72 million last year. With earnings per share of $1.30 for the quarter compared to 94 cents last year for a 36 cent or 38 percent increase year over year.

Net income grew 33% to $95 7 million for the second fiscal quarter compared to $72 million last year with earnings per share of $1 30 for the quarter compared to 94 since last year for a 36 or 38% increase year over year.

Speaker 2: For cash flow, our total amortization increased 2% to the core, or if I'm sorry, year to date, compared the last year due to capitalized software projects being placed in the service, included in total amortization is the amortization of intangibles relating to acquisitions, which this decreased to 8.3 million year today compared to 8.9 million last year.

For cash flow, our total amortization increased 2% for the quarter.

I'm, sorry year to date compared to last year due to capitalized software projects being placed into service included in total amortization is amortization of intangibles relating to acquisitions, which this decreased to $8 $3 million year to date compared to $8 9 million last year.

Speaker 2: The free case expense actually decreased 3% compared to the first six months of the prior year.

Appreciation expense actually decreased 3% compared to the first six months of the prior year.

Speaker 2: Operating cash flow was 197.4 million, so the year to date, which was up to 194 million last year, which is primarily due to increased net income during the first half compared to the previous year, and the timing of change of various operating assets and liabilities considered in the calculation of operating cash flow.

Operating cash flow was $197 4 million for the year to date, which was after $194 million last year, which was primarily due to increased net income during the first half compared to the previous year and the timing of and change of various operating assets and liabilities considered in the calculation of operating cash flow we.

Speaker 2: We invest the 101.1 million back-end company through CAPX purchased and capitalized software. Our free cash flow, which is operating cash flow less CAPX and CAP software, and then adding back net proceeds from the SOSA VASS, was 96.3 million for the first six months of this career.

$101 1 million back into our company through Capex purchase and capitalized software our free cash flow, which is operating cash flow less capex and cap software and then adding back net proceeds from disposal of assets was $96 3 million for the first six months of the fiscal year during.

Speaker 2: During the first six months, we also spent $193.9 million to purchase 1.25 million shares of stock to the Treasury. And we paid dividends of $67.7 million in the first six months for a total return to shareholders of $261.6 million in the first half of fiscal 2022.

During the first six months, we also spent $193 9 million to purchase one 5 million shares of stock for the Treasury and we paid dividends of $67 7 million in the first six months for a total return to shareholders to $261 6 million in the first half of fiscal 2022.

Speaker 2: A couple comments on our balance sheet as June 30th. Our cash position of 29.1 million is compared to 147.8 million a year ago. Our revolver balance has bounced of 240 million compared to zero a year ago, which the changing cash and debt balance is primarily rated to the 4.1 million shares purchased in the last 18 months.

Couple of comments on our balance sheet is June 30, our cash position of $29 1 million as compared to $147 8 million a year ago. Our revolver balance has balance of 240 million compared to zero, a year ago, which the change in cash and debt balances primarily related to the $4 1 million shares purchased in the <unk>.

Last 18 months.

Speaker 2: Our return on average assets for the trolling 12 months is 15.2%. Our return on average equity for the trolling 12 months is 24.6%. And our return on invested capital for the trolling 12 months is 22.6%.

Our return on average assets for the trailing 12 months was 15, 2% our return on average equity for the trailing 12 months is 24, 6% and our return on invested capital for the trailing 12 months is 22, 6%.

Speaker 2: Also yesterday we provided GAP and non-GAP updated revenue guidance in the press release. We also provided a reconciliation of GAP to non-GAP revenue in the release following the segment information. However, just to be clear, this guidance continues to assume that the country continues to be open and the economy continues to improve. Obviously, things were to go differently and this guidance will be revised.

Also yesterday, we provided GAAP and non-GAAP updated revenue guidance in the press release. We also provided a reconciliation of GAAP to non-GAAP revenue in the release following the segment information. However, just to be clear. This guidance continues to assume that the country continues to be open and the economy continues to improve obviously.

Things were to go differently than this guidance will be revised.

Speaker 2: For Gap Revenue Growth for Fiscal 2022, based on the amounts of the release yesterday, our revenue guidance has been up to reflect a higher than a little 10% growth over Fiscal 21.

For GAAP revenue growth for fiscal 2022 based on the amounts of the released yesterday, our revenue guidance has been updated to reflect a higher a little over 10% growth over fiscal 'twenty one.

Speaker 2: which we now anticipate Deconversion Revenue to be approximately $49 to $50 million for a year. And right now it appears the Q3 Deconversion Revenue will be approximately half of the Deconversion Revenue we saw in Q2. If you remember on the last call, we said that a big percentage of the Deconversion fees we saw coming or in Q2 and Q3.

Which we now anticipate deconversion revenue to be approximately $49 million to $50 million.

A year.

And right now it appears the Q3 <unk> revenue will be approximately half of the <unk>. We saw in Q2, if you remember on the last call. We said that the big percentage of the deconversion fees, we saw coming or in Q2 and Q3 for.

Speaker 2: For non-GAP revenue growth, we have updated our guides to be just under 9% for the fiscal year. Obviously, these be updated during the year. We continue to anticipate GAAP and non-GAP operating margins to approve a little on FY22 compared to last year. But I continue to be somewhat cautious on guidance.

For non-GAAP revenue growth, we have updated our guide to be just under 9% for the fiscal year.

Obviously these be updated during the year.

We continue to anticipate GAAP and non-GAAP operating margins to approve a little in FY 'twenty two compared to last year.

But I continue to be somewhat cautious on guidance.

Speaker 2: guiding too much of a non-gap operating emergency function as we will continue to have headwinds on license and harbor revenue as we continue to move core customers from on-premise or private clouds. Also personnel costs and travel costs continue to increase significantly compared to last year.

They're guiding too much of a non-GAAP operating margin expansion as we will continue to have headwinds on license and hardware revenue as we continue to move core customers from on premise or a private cloud also personnel costs and travel costs continued to increase significantly.

Compared to last year.

Speaker 2: However, we are so comfortable that the full year non-gap operating margins will expand across the 50 bits or a little higher, but also a reminder that the highest margin quarter is now our Q1 quarter due to the soft-forced subscription revenue under ASC 606.

However, we are still comfortable that full year non-GAAP operating margins will expand approximately 50 bps or a little higher but also a reminder, that the highest margin quarter is now our Q1 quarter due to software subscription revenue under ASC 606 or.

Speaker 2: Our effective tax rate for FY22 continues to be projected to be slightly higher than 23% compared to the prior year rate. However, significant changes in the corporate tax structure could change this guy.

Our effective tax rate for FY 'twenty, two continues to be projected to be slightly higher than 23% compared to the prior year rate.

However, significant changes in the corporate tax structure could change this guidance.

Speaker 2: Our update at FY22 Gap EPS guide is a range of 4.75 to $4.82, which is an increase from the previous guidance of 464 to $4.73, which is a 15 to 17% increase over prior year actual EPS. I will now turn the call back over today for some detailed comments regarding the technology modernization press release that we put out on Monday morning of this week.

Our updated FY 'twenty to GAAP EPS guide is a range of $4 75 to $4 82.

Which is an increase from the previous guidance of $4 64 to $4 73.

Which is a 15% to 17% increase over prior year actual EPS.

I will now turn the call back over to Dave for some detailed comments regarding the technology modernization press release that we put our money morning of this week.

Speaker 3: Thank you, Kevin. And the third section of today's call, I'd like to provide all of you with an outline of our product technology modernization strategy. This is not a product announcement. It's a strategy discussion designed to set an expectation regarding the evolution of our company.

Thank you Kevin and this third section of today's call I'd like to provide all of you with an outline of our product technology modernization strategy.

This is not a product announcement is a strategy discussion designed to set an expectation regarding the evolution of our company I wont be sharing any specific sales revenue or profitability numbers with you today and I, probably won't be able to answer all of your questions I want to be clear about that upfront I'm sharing this with you today because it's important for you to understand how Jack Henry plans to innovate.

Speaker 3: I won't be sharing any specific sales, revenue, or profitability numbers with you today, and I probably won't be able to answer all of your questions. I want to be clear about that upfront. I'm sharing this with you today because it's important for you to understand how Jack Henry plans to innovate and remain a leader in our industry for many years to come.

And remain a leader in our industry for many years to come.

Speaker 3: Many of the recent innovations we've made and you'll continue to see are directly tied to this multi-year strategy. And we've got developers working behind the scenes on this new technology for more than two years.

Many of the recent innovations we've made and you'll continue to see are directly tied to this multi year strategy and we've got developers working behind the scenes on this new technology for more than two years. The strategy. We're sharing today further expands upon Jack Henry's highly successful open API digital banking platform.

Speaker 3: The strategy we're sharing today further expands upon Jack Henry's highly successful open API digital benching plan.

Speaker 3: Before we get into the details, let me first step some context for this strategy. You've heard me say many times that we are a well-rounded financial technology company focused on serving the technology needs of community and regional financial.

Before we get into the details let me first set some context for this strategy you heard me say many times that we are well rounded financial technology company focused on serving the technology needs of community and regional financial institutions that is our primary audience. We've been focused on that market for the last 45 years today, we serve close to 85 entrepreneur.

Speaker 3: That is our primary audience. We've been focused on that market for the last 45 years. Today we serve close to 8500 financial institutions through approximately 300 different solutions. And we have more than 850 Fintech providers currently connected into our ecosystem.

Institutions through approximately 300 different solutions and we have more than 850 fintech providers currently connected into our ecosystem, while other providers in our space have shifted direction over the last few years, we continue to be 100% focused on serving the Poland complete financial technology needs of community and <unk>.

Speaker 3: While other providers in our space have shifted direction in the last few years, we continue to be 100% focused on serving the full and complete financial technology needs of community and regional financial institutions.

<unk> financial institutions. The reason, we and our clients have been successful for so long as we continue to evolve our business in a measured thoughtful way to help our clients meet the changing needs of their account holders.

Speaker 3: The reason we and our clients have been successful for so long is we've continued to evolve our business in a measured, thoughtful way to help our clients meet the changing needs of their account.

Speaker 3: In the early days of our company, when people visited branches for their financial leads, our focus was on automating everything that was being done on paper. We refer to that as the first generation of financial technology solutions.

In the early days of our company when people visited branches for their financial needs. Our focus was on automating everything that was being done on paper, we refer to that as the first generation of financial technology solutions.

Speaker 3: that the Internet came along and the cause disruption is people began to move away from visiting local branches due to a desire to conduct more business online. Whether we do them, we make more services available via the Internet to ensure a seamless experience between online, mobile, and branch banking. That was the genesis for the second generation of financial technology.

And the Internet came along that caused disruption as people begin to move away from visiting local branches due to a desire to conduct more business online what do we do them. We made more services available via the internet to ensure a seamless experience between online mobile and branch banking that was the Genesis for the second generation of financial technology today.

Speaker 3: Today, we are at a pivotal point, similar to when the internet was introduced. Things are changing to the point that our industry requires someone to innovate a next generation solution. Many non-traditional banks have entered the market, blurring the alliance between traditional and non-traditional providers. And people have learned how to manage their finances digitally. At the same time, a new hybrid monetary ecosystem has emerged as new currencies like crypto have become more mainstream and are actively traded with two platforms like Coinbase.

We are at a pivotal point similar to when the Internet was introduced things are changing to the point that our industry requires somewhat to innovate a next generation solution. Many non traditional banks have entered the market blurring the lines between traditional and non traditional providers and people have learned how to manage their finances digitally at the same time.

Our new hybrid monetary ecosystem has emerged as new currencies like crypto have become more mainstream and are actively traded two platforms like coinbase. It is also becoming more clear that central bank digital currencies or CBD fees are likely on the near term horizon and our clients will need to strategy and technology solutions.

Speaker 3: It is also becoming more clear that central bank digital currencies or CBDCs are likely on the near term horizon and our clients will need a strategy and technology solution to address customer demand for these apps.

To address customer demand for these options.

Speaker 3: So why does all this matter? The simple answer is these dynamics are fundamentally changing how people want and expect to bank. This is especially true with the younger generation. A recent Javlin report shows that non-banks now provide 65% of financial relationships for gen wires and 69% for gen veers. Fewer are going into branches or calling customer service. They expect to do everything digitally.

That is all this matter. The simple answer is these dynamics are fundamentally changing how people want and expect to bank. This is especially true with the younger generation are recent javelin report shows that non banks now provide 65% of financial relationships for Gen wires and 69% <unk>.

Fewer are going into branches are calling customer service they expect to do everything digitally.

Speaker 3: The emergence of new financial apps has created an unprecedented level of financial fragmentation. It's not uncommon for someone to use between 30 and 40 different financial applications and services to address their financial needs. This may be great for some people, but this fragmentation also impacts the ability of people to make a formed financial decisions, and that can lead to poor management of their financial.

The emergence of new financial apps has created an unprecedented level of financial presentation.

Not uncommon for someone to use between 30 and 40 different financial applications and services to address their financial needs. This may be great for some people, but this fragmentation also impacts the ability of people to make informed financial decisions and that can lead to poor management of their finances for.

Speaker 3: For community and regional financial institutions, this digital transformation presents both upside opportunity and downside risk.

Our community and regional financial institutions. This digital transformation presents both upside opportunity and downside risk to capture the opportunity our clients need a clear growth strategy focused on the customers and customer niches. They will serve they need a product and service strategy that enables them to provide the best solutions to their customers.

Speaker 3: to capture the opportunity, our clients need a clear growth strategy focused on the customers and customer niches they will serve. They need a product and services strategy that enables them to provide the best solutions to their customers while delivering service in a customer's moments of need and relevance. And they need a technology modernization strategy that makes all of this possible, even as additional changes occur in the future.

While delivering service and our customers moments of need and relevant and they need the technology modernization strategy that makes all of this possible even as additional changes occur in the future.

Speaker 3: That's where we come in. Let's talk about what Jack can be doing to help our clients capitalize on this opportunity through our product technology modernization status.

That's where we come in let's talk about what Jack Henry is doing to help our clients capitalize on this opportunity through our product technology modernization strategy.

Speaker 3: Let me start with our end goal here and then I'll talk about how we're going to get

Let me start with our angle here and then I'll talk about how we're going to get there.

Speaker 3: At the highest level, we are focused on developing a single modern open banking platform that enables easy access to a broad ecosystem of jack Henry solutions and high grade third-party pin tech off.

At the highest level, we are focused on developing a single modern open banking platform that enables easy access to a broad ecosystem of Jack Henry solutions and high grade third party Fintech offerings.

Speaker 3: What do we mean by next generation technology? Essentially, it is technology that is component-based, so services are isolated and able to run independently, giving community and regional financial institutions the ability to customize and build platforms that work best for them and their account.

Or do we mean by next generation technology essentially it is technology that is component based services are isolated enabled to run independently given community and regional financial institutions, the ability to customize and build platforms that work best for them and their account holders with technology that is cloud native.

Speaker 3: The technology that is cloud native, which means it's built on the cloud and not just hosted on the cloud. This is a really important distinction from other public cloud offerings because it enables greater flexibility, faster upgrades, and efficient scale. It's technology that is open to allow our clients to have the best of both worlds. They have access to our best of read capabilities and they can invent fintechs of their choice into the Jack Henry ecosystem.

It means which means it's built on the cloud and not just hosted on the cloud. This is a really important distinction from other public cloud offerings, because it enables greater flexibility faster upgrades and efficient scale.

Technology that is open to allow our clients to have the best of both worlds. They have access to our best of breed capabilities and they can embed fintech of their choice into the Jack Henry ecosystem. It's technology that is not tightly coupled to any legacy products databases or other technologies and it's technology that is digitally.

Speaker 3: It's technology that is not tightly coupled to any legacy products, databases, or other technologies. And it's technology that is digitally centric, which puts the financial institution of the center of their customers financialized.

Trick, which puts the financial institution at the center of their customers' financial lives.

Speaker 3: Over time, we will be applying this same next generation technology approach to virtually all of our services across the Jack Henry plaque.

Over time, we will be applying the same next generation technology approach to virtually all of our services across the Jack Henry platform.

Speaker 3: There are four parts of our technology modernization strategy. These parts are related, but they are not linear. First, we are redefining the core processing system. Second, we're providing multiple integration options supported by our open philosophy and technology. Third, we're delivering industry-leading capabilities across a single next generation platform. And fourth, we will operate as more than a core processor by providing a full banking ecosystem. Third, we're providing multiple integration options supported by our open philosophy and technology.

Therefore parts of our technology modernization strategy. These parts are related but they are not linear.

First we are redefining the core processing system second we're providing multiple integration options supported by our open philosophy and technology third we're delivering industry leading capabilities across a single next generation platform and fourth we will operate as more than a core processor by providing a full banking.

Equally ecosystem.

Speaker 3: Let's talk about each of these four areas of focus.

Let's talk about each of these four.

Areas of focus.

Speaker 3: The first is to redefine core processing system and what a core processing system is. Essentially, we are unbundling services that traditionally would be in a core processing system and making them discrete services that can be customized and re-bundled. Examples of services that we would unbundle in place in the public cloud are new account opening, where processing deposit processing and account service.

First is to redefine core processing system, what our core processing system is.

Essentially we are unbundling services that traditionally would be in a core processing system, and making them discrete services that can be customized and re bundle.

Examples of services that we would unbundled in place of the public cloud, our new account opening wire processing deposit processing and account servicing.

Speaker 3: Since these services will be housed in a safe, secure cloud environment, we can easily make updates so that they can stay current independent of the other services used by our clients.

Since these services will be housed in a safe secure cloud environment, we can easily make updates so that they can stay current independent of the other services used by our client this.

Speaker 3: This benefits our clients in that they will have greater flexibility, options to choose which services make the most sense for them and speed to mark.

This benefits our clients and that they will have greater flexibility options to choose which services make the most sense for them and speed to market.

Speaker 3: We already have several clients running in a beta testing environment with the first of these unbundled service.

We already have several clients running in a beta testing environment with the first of these unbundled services.

Speaker 3: I want to be clear that Rebundling Core Services in the public cloud is a longer term strategy. We plan for this to happen in stages over the next few years, and we expect no immediate impact on our existing core processing system.

I want to be clear that re bundling core services in the public cloud is a longer term strategy. We plan for this to happen in stages over the next few years and we expect no immediate impact on our existing core processing systems overtime, Jack Henry clients will be able to choose if they want to use cloud native services and they will not be faced with what.

Speaker 3: Over time, Jack and Reclonions will be able to choose if they want to use cloud native services. And they will not be faced with what we use today as a full core conversion.

We use today is a full core conversion.

Speaker 3: Meanwhile, we will continue to invest in and service our existing cores at the same rate as in the past.

Meanwhile, we will continue to invest in and service our existing cores at the same rate as in the past.

Speaker 3: The second part of our strategy is to provide multiple integration options supported by our open philosophy and technology. You've heard me say before that Jack Henry has always operated with an open philosophy and we are continuing to expand on.

The second part of our strategy is to provide multiple integration options supported by our open philosophy in technology, you've heard me say before that Jack Henry has always operated with an open philosophy and we are continuing to expand on this a key part of this is integrations in the flow of data between them.

Speaker 3: The key part of this is integrations and the flow of data between them. We have several data integration options, some of which we've offered for a long time. The newest one is real-time data streaming, which is constant data streaming to all systems on the platform at the same time. Those systems are updated in real time. There is no waiting for information to flow through overnight or for someone to respond to a request. This is essential to support the real-time nature of services like payments and fraud.

We have several data integration options some of which we've offered for a long time. The newest one is real time data streaming which is constant data streaming to all systems on the platform at the same time those systems are updated in real time, there is no waiting for information to flow through overnight or somewhat to respond to our request.

This is essential to support the real time nature of services like payments and fraud detection.

Speaker 3: The third part is delivering industry leading capabilities for us a single next generation platform.

The third part is delivering industry, leading capability across a single next generation platform. We have made significant innovation capabilities and many carriers are key areas of focus for our clients. You've heard me talk about our success with several of these in the past, including digital banking, our pace center payments hub, our lending suite and our new finance.

Speaker 3: We've made significant innovations to our capabilities and many care key areas of focus for our clients.

Speaker 3: You've heard me talk about our success with several of these in the past, including digital banking, our Pay Center payments hub, our lending suite, and our new financial crime solution.

Crime solution.

Speaker 3: This third part of our strategy brings all of our best of read capabilities into a single technology platform that has the same look and feel and the same underlying technology infrastructure. This is a big deal. None of the single point solution technology providers can capitalize on the use of this next generation technology like we do.

This third part of our strategy brings all of our best of breed capabilities into a single technology platform that has the same look and feel and the same underlying technology infrastructure. This is a big deal none of the single point solution technology providers can capitalize on the use of this next generation technology like we can.

Speaker 3: The Ford's part of our strategy is operating as more than a core processor by providing a full banking ecosystem.

The fourth part of our strategy is operating as more than a core processor by providing a full banking ecosystem. This is what pulls it all together, we just talked about creating a single technology platform that contains our best of breed solutions. This ecosystem goes beyond that by also providing access to leading fintech and third parties such as zelle.

Speaker 3: This is what pulls it all together. We just talked about creating a single technology platform that contains our best of breed solutions. This ecosystem goes beyond that by also providing access to leading fintechs and third parties, such as Dell, Finicity, AutoBooks, and Alloy. All through a single...

<unk> auto books and alloys.

All through a single platform.

Speaker 3: We have a significant head start on building this ecosystem because we have 800 over 850 integrations completed and are adding more each day. Additionally, we're the only platform provider to have relationships with all four major financial data aggregators, Fennicity, Platt, Yodley, and Acoi.

We have a significant head start on building this ecosystem because we have 800 over 850 integrations completed and are adding more each day. Additionally, we are the only platform provider to have relationships with all four major financial data Aggregators municipally clat Yodlee and accordingly.

Speaker 3: These companies enable financial institutions to provide their account over a complete financial picture in a safe, secure way that eliminates screen scrape.

These companies enable financial institutions to provide their account holders a complete financial picture and a safe secure way that eliminates screen scraping.

Speaker 3: Additionally, we currently have relationships with all of the major public cloud providers and our running workloads with all of them today. We will be offering a broad range of selection and or optionality with each provider, as well as private cloud options, bringing the best technology to bear for our clients.

Additionally, we currently have relationships with all of the major public cloud providers and are running workloads with all of them today, we will be offering a broad range of selection and or optionality with each provider as well as private cloud options, bringing the best technology to bear for our clients.

Speaker 7: I know this is a lot of new information, so let's use an analogy to tie all the video.

I know this is a lot of new information so let's use that analogy to tie all of this is Scott.

Speaker 7: Think of any traditional core solution as a sport utility vehicle, an SUV. Regardless of who you're buying your SUV from, it's still an SUV. It's not a pickup, it's not a luxury car. You can hook a trailer to the back, you can put a luggage carrier on top, you can tint the windows and repaint the exterior, and you have a very nice, very functional SUV, but it's an SUV.

Think of any traditional core solution as a sport utility vehicles and SUV rigor.

Regardless of who you are by your SUV from it's still an SUV, it's not a pickup it's not a luxury car you can hook a trailer to the back you can put a luggage carrier on top you can tend to windows and repaint. The exterior and you have a very nice very functional SUV, but it's an SUV.

Speaker 7: All of the core providers in the industry have been in the business for years of selling really nice SUV.

All of the core providers in the industry have been in the business for years of selling really nice Suvs.

Speaker 7: And Jack Henry, for clients who choose to adopt our next generation technology strategy, this new approach will enable them to choose how they want to customize their vehicle.

Yes, Jack Henry for clients, who choose to adopt our next generation technology strategy. This new approach will enable them to choose how they want to customize their vehicles.

Speaker 7: will sell them the frame with a pre-established wheelbase. But the buyer can choose whether they want a V8, a V6, or a plug-in hybrid engine. Ross, that might mean AWS, Azure, or private cloud. Additionally, they can decide if they want an SUV, a pickup, or a luxury sedan, built on that same frame.

We will sell them the frame with a pre established wheel base, but the buyer can choose whether they want a V eight.

<unk> are a plug in hybrid engine for us that might mean, AWS azure or private cloud. Additionally.

Additionally, they can decide if they want an SUV or pickup or a luxury sedan built on that same frame.

Speaker 7: They can buy the components if they're built correctly. Or buy the components from Jack Henry, or from another supplier, because the components if they're built correctly will fit in our vehicle without any modification.

Can buy the components, if theyre built correctly.

By the components from Jack Henry or from another supplier because the components if theyre built correctly will fit in our vehicle without any modification.

Speaker 7: In this scenario, Fintech solutions are aftermarket add-ons. They can be built right into our ecosystem, leveraging reusable components to give the Jack and Require a tightly integrated purpose-built and efficient solution, even as some of the components aren't purchased from Jack.

In this scenario Fintech solutions, our aftermarket add ons, they can be built right into our ecosystem leveraging reusable components to give the Jack Henry client a tightly integrated purpose built an efficient solution. Even if some of the components are purchased from Jack Henry.

Speaker 7: This, of course, is an extension of the Open Flots VJAC Henry supported for most of our guests.

This of course is an extension of the open philosophy, Jack Henry It supported for most of our history.

Speaker 7: Although we will offer the flexibility for our clients to configure their operating in any number of ways, we believe that because we offer that flexibility and many best-of-breed solutions, most clients who are charting their strategies for the future will want to buy most of the components in a bundle from Jack Henry.

Although we will offer the flexibility for our clients to configure their operating in any number of ways. We believe that because we offer that flexibility and many best of breed solutions. Most clients who are charging their strategies for the future will want to buy most of the components in a bundle from Jack Henry.

Speaker 7: If the client wishes to purchase a bottle of it, just like what we refer to as a course solution today, we will certainly offer them that.

If the client wishes to purchase a bundled up just like what we refer to as a core solution today, we will certainly offer them that option.

Speaker 7: This strategy puts the community and regional financial institution at the center of their customers' financial lives. And it helps address the financial fragmentation I talk about earlier.

This strategy puts the community and regional financial institutions at the center of their customers' financial lives and it helps address the financial fragmentation I talked about earlier.

Speaker 7: In the end, our clients will benefit from all of this because they will be able to build, customize, and evolve digital experiences and products. They can offer access to leading edge services and capabilities, whether through Jack Henry or a third party, through a single platform to create unique value that their competitors simply canculate.

And the and our clients will benefit from all of this because they will be able to build customized and evolve digital experiences and products. They can offer access to leading edge services and capabilities, whether to Jack Henry or a third party to a single platform to create a unique value that their competitors simply can't deliver.

Speaker 7: and they'll offer personal service in moments of need and moments of relevance. So they can sustain their competitive advantage of service and trust.

And they will offer personal service in moments of need and moments of relevance. So they can sustain that competitive advantage advantage of service and trust.

Speaker 7: I know your first questions will be how much will this cost and what additional revenue will it generate. So let me address those on the cost question. We continue to invest about 14% of our revenue in research and development and technology. That will not change. In fact, I mentioned that we've been investing in this strategy for more than two and a half years. And we continue to invest in existing systems while maintaining our 14% spend. We've been able to do that because that 14% commitment is based on a rising revenue.

I know your first questions will be how much will this cost at what additional revenue will it generate so let me address those on the cost question. We continue to invest about 14% of our revenue in research and development and technology that will not change in fact, I mentioned that we've been investing in this strategy for more than two and a half years and we continue to.

To invest in existing systems, while maintaining our 14% spend we've been able to do that because that 14% commitment is based on a rising revenue number.

Speaker 7: This is important for our existing loyal base of clients, because it means we can continue to support all of our current core and complementary solutions at the same rate as before, even as we invest in this new strategy.

It is important for our existing loyal base of clients because it means we can continue to support to support all of our current core and complementary solution at the same rate as before even as we invest in this new strategy.

Speaker 7: as to additional revenue. It's really too early to say. As I said, this is a long-term strategy for us, and it will not happen.

As to additional revenue, it's really too early to say as I said. This is a long term strategy for us and it will not happen overnight that said there are certain things that we're doing now such as building out our own capabilities and rolling out New services based on this strategy.

Speaker 7: That said, there are certain things that we are doing now such as building out our own capabilities and rolling out new services based on this strategy.

Speaker 7: And I can tell you that we have already won some new core deals because of this strategy. And we expect that to continue. Why? Because most financial institutions, CEOs know they need modern technology and they want it from a company like ours that has a 45 year track record of delivering and supporting up broad set of capabilities and solutions in a manner that is responsive to their evolving need to offer banking as a service options to America.

And I can tell you that we have already won some new core deals because of this strategy and we expect that to continue.

Why.

Most financial institutions Ceos know they need modern technology and they want it from a company like ours that has a 45 year track record of delivering and supporting a broad set of capabilities and solutions in a manner that is responsive to their evolving need to offer banking as a service options to their customers.

Speaker 7: Community and regional financial institutions are the light blood of mainstream America. As we've discussed, however, many of them are at a cross.

The entity and regional financial institutions are the lifeblood of main Street America as we've discussed however, many of them are at a crossroads personal service and experience. They are none core is being disrupted by technology as non traditional financial service providers to enter the market.

Speaker 7: The personal service and experience they are known for as being disrupted by technology as non-traditional financial service providers to enter the market.

Speaker 7: The way people bank has fundamentally changed, especially for the younger generation. This has created fragmentation as consumers and businesses try to manage their finances across multiple providers.

The way people bank has fundamentally changed especially for the younger generation. This has created fragmentation as consumers and businesses try to manage their finances across multiple providers as a well rounded financial technology companies. Jack Henry is in a unique position to provide modern technology and services to help community and regional financial institutions.

Speaker 7: As a well-rounded financial technology company, Jack Henry is in a unique position to provide modern technology and services to help community and regional financial institutions capitalize on this opportunity and strengthen connections with their account.

Capitalize on this opportunity and strengthen connections with their account holders I.

Speaker 7: I believe the 2022 is the most significant year for our company since the early 2000 when we executed our profit-starred strategy. And that strategy turned into a game changer for us.

I believe the 2022 is the most significant year for our company since the early two thousands when we executed our profit start strategy and that strategy turned into a game changer for us.

Speaker 7: I sincerely believe that the strategy is right and the long-term opportunity will be significant for our company and our clients.

And certainly believe that the strategy is right in the long term opportunity will be significant for our company and our clients you should expect to hear a lot more about our work around the strategy as we move forward.

Speaker 7: You should expect to hear a lot more about our work around this strategy as we move forward.

Speaker 2: With that, I'll turn it back to Kevin to introduce Q&A. Thanks Dave. What a great update on our strategy and we are so excited about this. And as Dave mentioned, I'm sure after all that information, you've probably got more questions we have answers. But again, as Dave said, this is not a short term thing. This is a long term strategy for Jack Henry.

With that I'll turn it back to Kevin to introduce Q&A. Thanks, Dave what a great update on our strategy and we are so excited about this and as Dave mentioned I'm sure. After all that information you probably got more questions. We have answers, but again as Dave said. This is this is not a short term thing. This is a long term strategy for Jack Henry.

Speaker 2: So with that, this now concludes our opening comments. We are now ready to take questions regarding the quarter or our strategy of day to day provided. Olivia, will you please open the call lines up for questions?

With that this now concludes our opening comments, we are now ready to take questions regarding the quarter or our strategy update the day provided Olivia will you. Please open the call lines up for questions.

Speaker 1: Ladies and gentlemen, as a question, you will need to press the star then the one key on your touch on cell phone to address question repressed the pound key. Our first question coming from the line up, right now come on with the UBS, your line is open.

And Sir ladies and gentlemen to ask a question you will need to press. The Star then the one key on your Touchtone telephone quest.

Question, you May press the pound key first question coming from the line of Reena Kumar with UBS. Your line is open.

Speaker 8: Good morning, David and Kevin. Thanks for all the details on your technology modernization program. Just a few questions on that. Was there any change in your competitive environment that has prompted you to alter your strategy? And second, if you can talk about your pricing strategy tied to the technology modernization, that would be very helpful.

Good morning, Dave and Kevin.

Thanks for all the details on the technology modernization program just a few questions on that.

Is there any change in your competitive environment that has prompted you to alter your strategy and second if you can talk about your pricing strategy.

Two the technology modernization and probably be very helpful.

Speaker 7: Sure, yep, thank you, Anna. I wouldn't say that this was driven by something we saw as far as competitors were concerned. Again, we've been working on this for years. We first started developing the strategy four years ago. We started, coders started programming about two and a half years ago, as I mentioned earlier.

Sure. Thank you Randy.

I wouldn't say that this was driven by.

Something we saw as far as competitors are concerned again, we've been working on this for years. We first started developing the strategy four years ago. We started coders started programming about two and half years ago as I mentioned earlier. So this wasn't as much driven by <unk>.

Speaker 7: But this wasn't as much driven by anything that we saw competitors doing specifically. It was driven by the things that outlined there, the disruption that's happening among financial services and the concern that we had for our...

Thing that we saw competitors doing specifically it was driven by the things that I outlined there.

Disruption that's happening among financial services and the concern that we had for our.

Speaker 7: our customers being positioned to compete effectively in the future. And so the question for us is how do we ensure that those customers are enabled with great technology so that they can compete compete.

Our customers being positioned to compete effectively in the future and so the question for US is how do we ensure that those customers are enabled with great technology. So that they can compete.

Pete going forward.

Speaker 7: As your second question, I started my comments by saying, I know there will be questions that you will ask that I won't be positioned to answer today. This is a long-term strategy, but you know us well enough to know that we deliver solutions today in a cloud environment.

As to your second question you know I started my comments by saying I know there will be questions that you will ask that I won't be positioned to answer today. This is a long term strategy, but you know us well enough to know that.

We deliver our solutions today in a cloud environment, we know how to price those solutions effectively in a cloud environment. This is us moving onto the public cloud as opposed to private cloud with this strategy.

Speaker 7: This is us moving on to the public cloud as opposed to private cloud with this strategy. But we will price our solutions in a similar manner to what we've done in the past. It's just that the solutions will be unbundled as compared to selling a big bank core solution. It will be an unbundled offering to our customers. But the long-term strategy as far as pricing will be similar to what you've seen up to.

But we will we will price our solutions in a similar manner to what we've done in the past.

The solutions will be unbundled as compared to selling a big bank core solution that will be an unbundled offering to our customers, but the.

The long term strategy as far as pricing will be similar to what you've seen up to in the past.

Speaker 8: That's very helpful. And a question on the quarter. So your adjusted payment segment revenue, that was up 13% in the quarter very strong. Could you break down some of the drivers of that growth and how we should be thinking about the payments revenue growth in the back-catch of this year or the back-catch of your fiscal year?

That's very helpful and a question on the quarter. So your adjusted payment segment revenue that was up 14% in the quarter very strong can you breakdown some of the drivers of that growth and how we should be thinking about the payments revenue growth from the back half of this year.

Back half of fiscal year 2000.

Speaker 7: So I'll take it first and then I'll let Kevin chime in here. So the drivers really

So I'll take it first and then I'll, let Kevin chime in here so the drivers really.

Speaker 7: Things that we've highlighted in the past, the payment segment is made up of three different components. It's our bill-pay business, our card business, and our, the business we refer to is enterprise payment solutions, which is what plus gaps are in the CHRugination.

Things that we've highlighted in the past.

Payment segment is made up of three different components, it's our bill pay business, our card business and our business, we refer to as enterprise payment solutions, which is what plus capture in Acs origination.

Speaker 7: As we piloted many times the bill pay business, although it was a very successful business It's not there's not a ton of growth in bill pay at the slow-grower But really the cards business and the enterprise payments business both of them have continued to post realized I growth in those two areas the payments business. So it's those two that are driving the continued growth We're adding new customers in both areas

As we piloted many times the bill pay business, although it's a very successful business. It's not there's not a ton of growth in bill pay it's a slow grower, but really the cards business and the enterprise payments business. Both of them have continued to post really nice growth in those two areas the payments business. So it's those two that are driving the continued growth we're adding.

New customers in both areas.

Speaker 3: And so these new customer additions, plus organic growth, same-store sales goals from the customers that we already have. As far as I look forward, I'll ask Kevin to comment on that. Yeah, so I agree. I mean, our enterprise famous solution continues to be the fastest growing of the three and continues to become a larger percentage, which...

And so new customer.

Additionally, plus organic growth same store sales quotes from the customers that we already have and as far as I look forward I will ask Kevin to comment on that yes. So I agree I mean, our enterprise payment solutions continues to be the fastest growing of the three in and continues to become a larger percentage, which.

Speaker 2: Both actually all three of those components have a very nice margin to them. And we think we'll continue to see nice margin expansion in our payments as we continue to add new debit and credit and EPS customers. So I think those are gonna continue to be the drivers for any, and I think that growth is sustainable for the foreseeable future.

Both actually all three of those components have a very nice margin.

To them and we think we'll continue to see nice margin expansion in our payments as we continue to add new debit and credit and EPS customers. So I think those are going to continue to be the drivers are in and I think that growth is sustainable for the foreseeable future.

Thank you.

Yep.

Speaker 1: Our next question coming from the line of the Sug over with KBW, you learn so...

Our next question coming from the line of Vasu <unk> with <unk>. Your line is open.

Speaker 9: Hi, thanks for taking my question. They're the first one for you on the new technology initiative. A lot of good info. And I know you've sort of characterized it as a long-term strategy, but what time frame are you looking at for you to realize this and the vision of having a customizable core? And what will be the strategy around converting existing clients to this new core? And then just to follow up on that, I know it's too early to comment on revenue contribution, but help us think about

Hi, Thanks for taking my question.

The first one for you on that new technology initiative.

And I know you said.

It is a long term strategy, but what timeframe might be looking at where you have to realize this and the wisdom of having a customizable core and what would be the strategy around converting existing clients new core and then just to follow up on that I know, it's too early to comment on revenue contribution, but help us think about how much of this initiative is to draw.

Speaker 9: How much of this initiative is to drive incremental revenue opportunity versus upgrading existing customers to preserve?

<unk> incremental revenue opportunity versus upgrading existing customers to pause our share in the market.

Speaker 7: Yeah, so there's a lot of, I was wrapped up in there. So one of the comments that I made as I was walking through the strategy is the fact that we have customers today in beta with some of the components that you would think of as core traditionally, they're in beta today. So we will have customers live later this calendar year with different components. But as far as, you know, if you think about a core system, there are a whole bunch of different functions within a core. And so all those,

Yes, so there is a lot.

Wrapped up in there so one of the comments that I made as I was walking through the strategy is the fact that we have customers today in beta with some of the components that you would think of as core traditionally they are in beta today. So we will have customers live later this calendar year.

Different components, but as far as when you think about a core system. There are a whole bunch of different functions within the core and so all of those.

Speaker 7: functions are in the process of being unbundled and rewritten to function on this new platform.

<unk> are in the process of being unbundled and rewritten to function on the on this new platform and so it'll be it'll be over the course of years, but that will happen, but youll see in the in the relatively near term youll see customers, who will do deploy what people's industry refer to as a sidecar, where theyre doing digital only core that will dip.

Speaker 7: And so it'll be over the course of years, but that will happen. But you'll see in the relatively near term, you'll see customers who will do deploy what people in the industry refer to as a side court, where they're doing that digital all day.

Speaker 7: core that will, that is the deposit gathering machine probably with a different brand. You'll see us doing that in the relatively near-toom with termless customers and that all the rest of the functionality will come over time.

Positive gathering machine, probably with digital brand Youll see us doing that in the relatively near.

With customers and then all the rest of the functionality will come come over time, the really good news in all of this.

Speaker 7: The really good news in all of this, I mean, they're thrilled about the strategy overall, but the really good news is the platform is there already. We've created the platform, we've created the all these connections. So I referenced the 850 fintechs that we're connected to already. You might ask, well, how did that happen? How did you do that so fast?

Im thrilled about the strategy overall, but the really good news is the platform is there already we've created the platform. We've created the all these connections. So I referenced the 850 <unk> that were connected to already.

Ask well how did that happen how did you do that so fast while we already had many of these connected to our.

Speaker 7: Well, we already had many of these connected to our...

Speaker 7: our various technologies as far as the tools that we used to connect Fintech into our legacy solutions. Well, we were able to port those over. We rewrote the jacket, what we referred to as the Jack Henry Gateway, rewrote it to run this new platform, but didn't break those connections with all those people that we've worked with in the past. So now they can take advantage of the new platform without them having to do any work on their side if they're already connected into us through the Jack Henry Gateway. They don't have to do any additional work.

Our various <unk>.

Technologies as far as the the tools that we use to connect fintech into our legacy solutions, while we were able to port those over we rewrote the Jack what we refer to as the Jack Henry Gateway rewrote it to run to this new platform, but didn't break those connections with all those people that we've worked with in the past. So now they can take advantage of the new platform without them having to do any work.

On their side, if they're already connected into us through the Jack Henry Gateway. They don't have to do any additional work, but they are gaining this ability now to connect into the Jack Henry systems for all these fintech that we've been working with over overtime and so so that's another advantage with this with this strategy as far as migrating customers across whether they are ramping.

Speaker 7: But they've gained this ability now to connect into these check-in systems for all these fintechs that we've been working with over time. And so that's another advantage with this strategy. As far as migrating customers across, whether they're running it.

At Jack Henry core or not over time, what Youll see happen is they will start to consume the services be available to customers whether they are on a Jack Henry core or not they'll be able to consume those services that will be able to access the platform and then what that means is they can go through a conversion.

Speaker 7: For time what you'll see happen is they will start to consume these services that will be available to customers whether they're on a jack and record or not. They'll be able to consume those services, they'll be able to access the platform. And then what that means is they can go through a conversion.

Speaker 7: without a big bank conversion. So, you know, we won't talk in the future about doing a core conversion anymore. People will start to consume services and move over to the new platform at their pace. If they want to do a big bank conversion, they can do that. If they want to consume services so that it's not as disruptive to their employees and their customers, they can do that and kind of manage it, manage it over time.

Without a big bank conversion, so we won't talk in the future about doing a core conversion anymore people will start to consume services and move over to the new platform at their pace. If they wanted to do a big Bang conversion. They can do that if they want to consume services. So that it's not as disruptive to their employees and their customers. They can do that and kind of managing managed over time and so.

Speaker 7: And so depending on the model that our customer chooses to employ with Jack Henry, that will depend on when new revenue comes flowing in and how that flows in.

Depending on the model that our customer choose to employ with Jack Henry that will depend on when new revenue comes flowing in and how that how that flows in as far as the last part of your question about is this simply a strategy to retain existing customers absolutely not I mean, we think we think our customers are.

Speaker 7: As far as the last part of your question about, is this simply a strategy to retain existing customers? Absolutely not. I mean, we think our customers are, we've shared this with some customers under the,

We've shared this with some customers.

Under the covers already.

Speaker 7: making sure they know where we're going. The response has been overwhelming, positive, and we certainly believe that our existing customers like the fact that we're protecting their future for them, protecting their investment in Jack Henry solutions for them. As I mentioned in my comment.

So they know where we're going the response has been overwhelmingly positive. So we certainly believe that our existing customers like the fact that we are protecting their future for them protecting their investment in Jack Henry solutions for them, but as I mentioned in my comments, we know some of the customers that have signed new core deals with us and I mentioned, we just signed 15 in the quarter last quarter.

Speaker 7: We know some of the customers that assign new cord deals with us and I mentioned we've assigned 15 in the quarter, last quarter.

Speaker 7: We know some of them are signing because they've been exposed to the trends we will in the future. They be part of the technology.

We know some of them are signing because they've been exposed to the strategy that will future.

Should they be partnered with a technology provider that is helping to position them for the future and make sure that they have easy connectivity into all these different different fintech. So.

Speaker 7: helping to position them for the future and make sure that they have eGi connectivity into all these different fintech. So.

Speaker 7: You know, it's been great response so far to the people that know what we're doing, existing customers and not, and we're excited about this.

It's been great response, so far and the people that know what were doing existing customers or not and we're excited about this opportunity.

Speaker 9: Thank you, that's a lot of great color. And just two quick ones for Kevin. First on just a margin guide of flight expands in your tenure. Just wondering if, you know, we've seen sort of solid trends in the first half of this year. And the guide would then imply that there's some margin contraction that might happen in the back half. And just.

Thank you that's a lot of great color and just a quick one for Kevin first on just the margin guide a slight expansion year on year.

Just wondering if.

<unk> seen solid trends in the first half of CCR and the guide with denim imply that there is some margin contraction that might happen in the back half.

Speaker 9: curious that there are any incremental items that will be on margins in the back half horses what you had previously expected. And the follow up I have is on just free gas flow. I know it's there's typically some seasonality in the second quarter, but even on a trading 12 month basis, it seems like it's lagging what it historically has been. So maybe if you could talk about what's driving that trend and what you expect for free gas flow conversion for the season going forward.

If there are any incremental items that will weigh on margins in the back half versus what you had previously expected.

A follow up I have is on just free cash flow I know it typically some seasonality in the second quarter, but even on a trailing 12 month basis.

It seems like it's lagging what it historically has been so maybe if you could talk about what's driving that trend and what you expect for free cash flow conversion.

Alright.

Speaker 2: Yeah. That's so on margins, we're probably a little concerned you on the back half that remember, I mean, Q1 and revenue records under ASC626, the margin Q1 are so strong that it's hard to keep up that when you're recognizing so much revenue without the related expense in Q1.

Yes.

So on margins.

We're probably a little conservative on the back half, but remember I mean Q1 under the new revenue Rec rules under ASC 606.

In Q1 are so strong that it's hard to keep up that when you are recognizing so much revenue without the related expense in Q1.

Speaker 2: So I think our margin space for the year 50 best and also, you know, as I said, no comment. I mean, our travel costs and personnel costs continue to go up. I mean, it's just there's some challenges out there to retain talent and we're focused on that. So...

So I think our margin expansion for the year of 50 bps and also.

As I said in opening comments I mean, our our travel costs and personnel costs continue to go up.

I mean, it's just there are some challenges out there to retain talent.

We're focused on that so we're probably a little conservative, but I'm still very bullish that we can maintain a 50 plus.

Speaker 2: We're probably a little conservative, but I'm still very bullish that we can maintain a 50 plus best margin expansion.

<unk> margin expansion this.

Speaker 2: this year, the thing where it goes from there, as far as can't pre-cannon.

This year, let's see where it goes from there.

As far as free cash.

Speaker 2: As far as free cash flow, obviously our strength orders of free cash flow is Q1 and Q4.

As far as free cash flow.

Yeah.

Obviously, I mean, our strict orders of free cash flow as Q1 and Q4.

Speaker 2: because of the billing of our annual maintenance in John June 1st.

Because of the billing of our annual maintenance.

John June 1st.

Speaker 2: And our annual maintenance billings is roughly $240 to $245 million. That's what it should be this year. And we collect, you know, all of that in Q1 and Q2, which that drives a lot of the free cash flow. So we're a little behind where we go last year. Will we catch up to our last year? Probably. I really doubt it. I don't know if we're going to get back to 100% conversion of net income to free cash flow this year. But we will make up a lot of ground in Q4.

Our annual maintenance billings is roughly $240 million to $245 million, that's what it should be this year and we collect all of that in Q1, and Q2, which that drives a lot of the free cash flow. So we're a little behind where we were last year.

We catch up where we were last year, probably I really don't know for you going back to 100% conversion of net income to free cash flow. This year, but we will make up a lot of ground in Q4.

Great. Thank you very much.

Yes.

Speaker 10: And the next question comes from Cartic Method with North Coast Research, your line is open.

And our next question comes from Kartik Mehta with Northcoast Research. Your line is open.

Speaker 11: Good morning. Dave, just on your course, new strategy, do you think that will mean that you will have more partnerships? So maybe more partnerships that a customer.

Hey, good morning, Dave.

Steve just on your course track New strategy do you think that will mean that you will have more partnerships.

So maybe more partnerships at a customer.

Speaker 7: Yeah, I hesitate to use the word partnership because I think there's a lot of implied in that that people assume there's rev share and our sales reps are reselling somebody else's technology. So I usually shy away from the word partnership. Will there be more third parties involved in our customers?

Yes.

<unk> partnership because I think theres a lot implied in that but people assume theres Rev share and our sales reps are reselling somebody else's technology.

Usually shy away from the word partnership will there be more third parties involved in our customers, maybe maybe not the thing that Jack Henry is already known for is for being the most open provider out there in the core side as far as our willingness and ability to easily connect into our system and so it will depend on the financial institution deciding what is there what's the strategy for that.

Speaker 7: Maybe, maybe not. You know, the thing that Jack Henry is already known for is for being the most open provider out there in the core side, as far as our willingness and ability to easily path into our systems.

Speaker 7: And so I'd depend on the connect location, deciding what is the strategy for them, what's the right strategy, and what do they need to connect to our infrastructure to enable that strategy.

What's the right strategy and what do they need to connect into our infrastructure to enable that strategy. So I don't know that I would say that just on its surface because.

Speaker 7: So I don't know that I would say that just on a surface because

Speaker 7: Because again, a lot of people, a lot of our customers, I think already take advantage of the open solutions that we've been providing for years.

Because again a lot of people a lot of our customers I think already take advantage of the open solutions that we've been providing for years okay.

Speaker 11: I guess I was trying to get to do think that if there are more third parties involved that changes the revenue dynamics for Jack Henry.

Okay.

I was trying to get to do think that if there are more third parties involve that changes the revenue dynamics for Jack Henry.

Speaker 7: I don't think there's any negative in that for Jack Henry. I think there is a tremendous amount of positive in that because of all the technology solutions that will be living in the same environment, living in the same platform that will be offered by Jack Henry. Certainly no negative in that as far as I'm.

I don't think I don't think theres any negative in that for Jack Henry I think there is there is a tremendous amount of positive in that because of all the technology solutions that will be living in the same environment living in the same platform that will be offered by Jack Henry.

Certainly no negative than that as far as I'm concerned.

Speaker 2: Yeah, car. You said we're tied into 850 fintech. So I mean, that's that's a very large number already in there. So will that number go up? Maybe

As Dave said.

Tied into 850 Fintech so.

Thanks.

Very large number already in there so will that number go up maybe.

Speaker 7: A per of customer basis rightit, independing on the customers.

But on a per customer basis right.

It will depend on our customers' needs.

Speaker 11: And then just on the contracts that you have, obviously inflation having a big impact, are you able to get increases annual increases because of the contracts you have, or is there any limitations to what you can do with your cuts?

And then just on the contracts that you have obviously inflation, having a big impact are you able to get increases annual increases because of the contracts you have or is there any limitations to which you can.

Do with your customers.

Speaker 7: There are CPI accelerators built into virtually every contract. Obviously every contract, but in virtually every contract there are CPI accelerators that are built into those. So we're doing the same evaluation. I think that talks about our last call. You know, that evaluation we're going through on a private basis and overall as a company to determine where are those right opportunities to engage or leverage those CPI opportunities.

Yes, there are CPI accelerators built into virtually every contract.

Every contract.

Virtually every contract that are CPI accelerators that are.

Built into those so we're doing the same evaluation I think I've talked about on last call.

<unk>, we're going through.

Private basis, and overall as a company too.

Determined where are those right opportunities.

Engage or leverage those CPI opportunities.

Speaker 11: And then just one last question. Dave, I think you talked about adding a conversion team to your banking platform and then eventually one to your credit union platform and wondering, is that because of what's happening with COVID and there's an increased demand for banks wanting to outsource, or is there another reason that's making you add this conversion team?

And then just one last question, Dave I think you talked about adding a convergent team to your banking platform and then eventually one to your credit Union platform and I'm wondering is that because of what's happening with Covid and there is the increased demand for banks wanting to outsource or is there another reason.

So.

Making you add this conversion teams.

Speaker 7: The biggest thing when we refer, and I refer to specifically as Convert Merge Revenue, the biggest driver of that is Jack Henry, Financial Institutions, Acquiring Other Financial Institutions, and coming to us and saying, hey, we just acquired this bank, we need you guys to help us convert them onto the Jack Henry.

The biggest thing when we refer and I refer to specifically is convert merge revenue. The biggest driver of that is Jack Henry financial institutions institutions, acquiring other financial institutions and coming to us and saying Hey, We just acquired this bank we need you guys to help us convert them onto the Jack Henry.

Speaker 7: that's the driver and you know we have we have conversion teams that do new of course we're winning all these these new logos to Jack Henry has new

That's the driver.

We have we have conversion teams that do new of course, we're winning all these.

These new logos to Jack Henry is new banks and credit unions, but those conversion teams. They run pretty steady we're doing 12 15, new customers a quarter and I report on that very regularly that runs pretty steady so pretty much everything I was referring to there is being driven by Jack Henry customers, who are acquiring other customers and meeting help.

Speaker 7: banks and credit unions, but those conversion teams, you know, they run pretty steady, you know, we're doing 12, 15 new customers a quarter, and I report on that very regularly. That runs pretty steady, but pretty much everything I was referring to there is being driven by jack Henry customers who are acquiring other customers and needing help converting them over to our systems. And as I mentioned, we did a banking team already, the credit union, the next credit union team, additional team, goes into

Converting them over to our systems and as I mentioned, we did a banking team already the credit Union that <unk> team additional team goes into.

Speaker 3: Effect here this I guess the quarter we're sitting in right now and then we're evaluating possibly adding two more teams because there is so much demand among Jack Henry customers looking to add Customers on to our platforms and just a reminder cardick the to convert a new customer or new logo Take an enormous amount more time than it convert merged as they said to convert a bank is being acquired onto existing core customer because they've already got basically the system in place.

In fact here I guess the quarter, we're sitting in right now and then we're evaluating possibly adding two more teams because there is so much demand among Jack Henry customers looking to add customer.

Customers onto our platforms and just a reminder, kartik.

<unk>, you convert a new customer or a new logo.

An enormous amount more time, then it convert mercy as Dave said to convert a bank that is being acquired onto existing core customer because they've already got basically the assistant in places they need.

Speaker 11: Thank you both very much. Appreciate it.

Got it thank.

Thank you both very much appreciate it yes.

Yes, Sir.

Speaker 1: Next question calls from Einstein's grandma with squads? Sil cine

Our next question comes from <unk> Rama with Cowen Your line is open.

Okay.

We're not hearing anything Olivia.

Please check your mute button.

Would you like me to go to the next person yes.

Yeah.

Speaker 1: Our next person in view coming from Glana of Dominic Gabriel with Alpanheimer, Golanis Open.

Our next question in queue coming from the line of Dominick Gabriele with Oppenheimer. Your line is open.

Speaker 12: Hey great, thanks so much for all the detail on the new strategy.

Okay, great. Thanks, so much for all the detail on the on the new strategy.

Speaker 12: Are you, I just want to make sure I understand, perhaps correctly, are you creating a banking product marketplace where perhaps even an executive, let's say, can sit in

Are you I just want to make sure I understand perhaps correctly are you, creating a banking product market place, where perhaps even an executive let's say Ken.

And in front of the computer.

Speaker 12: you know, open up the Jack Henry software and say download, quickly, self-onboard, whatever product they decide. And I guess is that part of like the enticement here for...

Open up the Jack Henry software and say download.

Quickly self onboard whatever products Adas side.

And I guess is that is that part of like the enticement here for us for them is that they could.

Speaker 12: rapid onboarding they can have for almost any jack Henry or third party product

The rapid kind of onboarding. They can have for almost any Jack Henry or third party product.

Speaker 7: Yes, I get where you're going down like that is not what we're announcing. We're announcing this is a much bigger platform than what you just alluded to. So this is essentially all banking functions.

That is yes.

Yes.

I get where you're going down that is not what we're announcing we're announcing it this is a much bigger.

The platform than than what you've just alluded to so this is essentially all banking functions.

Speaker 7: that the people think of today as being in the core system and in the associated complimentary systems, all of those systems being available over the long term. Again, this isn't a product announcement, it's not available tomorrow. This is a strategy, but all services that you think of in the core system and the related complimentary solutions, all living on a single platform on the public cloud.

We the people think of today as being in the core system and in the associated complementary systems all of those systems being available over the long term again this isn't a product milestone its not available tomorrow. This is a strategy, but all services that you think are in a core system and the related complementary solutions all living on a single platform.

Form on the public cloud.

Speaker 7: Available through Jack Henry, whether those technology solutions come directly from Jack Henry or if it's a fintech solution that the

Available to Jack Henry whether those technology solutions come directly from Jack Henry or if it's a fintech solution that the the.

Speaker 7: the bank recruiting you decide to work with. Now we implied in all of

A bank or credit Union decides to work with now implied in all of that in the end will there be an option for a marketplace absolutely.

Speaker 7: In the end, will there be an option for a marketplace? Absolutely. That will be implied in the end, but that is not what we're talking about here at the starting point. And this is all about building this platform and all of this ability to support something like that. And then, you know, then the marketplace is implied once you get to that point. Great, great. And then I...

That will be implied but that is not what we're talking about here at the starting point because this is all about building this platform and all of this ability to support support something like that and then then the marketplaces implied once you get to that point.

Great Great and then.

And then I guess when you just think about.

Speaker 12: the functionality of the end user and what this provides them that's perhaps even better than the strong functionality you provide today. Is it, what are the keys that they're gonna see once this is complete on their end?

The functionality of the end user and what this provides them.

That's perhaps even better than the strong functionality you provide today is it what are the keys that theyre going to see once this is complete on there and is it speed is it optionality of products is it ease of use of <unk>.

Speaker 12: Speed is an optionality of products as an ease of use among their end users or cost saves competitive edge any any color there of what they tangibly see once they put all this stuff.

Among their their end users or cost saves some competitive edge any any color there.

What they tangibly see once they put all of this stuff everything to use thanks, yes, but and I think all of.

Speaker 7: Yes, but and I think I'll discuss this with two different audiences in mind. So one is our customer, which is the banker crazy. And the other is their customer, which is the consumer or small business. So let me first start with our customer.

To discuss this with two different audiences is mind. So one is our customer which is the bank or credit Union. The other is their customer which is the consumer small business. So let me first start with our customer and one of the key advantages in our strategy like this is around the topic of security. So I highlighted the financial data exchanges in the past. The fact that we have relationships today with the poor.

Speaker 7: One of the key advantages in a strategy like this is around the topic of security. So I highlighted the financial data exchanges and the fact that we have relationships today.

Primary data financial data exchanges, what that does for the bank or credit Union is it eliminates the need for screen scraping highly insecure brittle process. That's been around for many years I've been in this industry for 36 years and I think people were screen scraping when I first started in the industry. So that's been in the industry for a long time most players in the <unk>.

Speaker 7: insecure, you know, brittle process that's been around for many years. I've been in this industry for 36 years and I think people were screen scraping when I first started the industry. So that's been a news for a long time. Most players in the industry, new screen scraping, we are, we are dead set on eliminating screen scraping for all of our customers. So security and secure exchange of data between financial institutions and Fintechs. Now that is one of the keys here. Fintech, our financial institution, our customer, Ben.

<unk> new screen scraping. We are we are dead set on eliminating screen scraping for all of our customers. So security and secure exchange of data between financial institutions and Fintech that is one of the keys here, so the fintech or the or financial institution, our customer benefits by added security speed scalability.

Speaker 7: between financial institutions and Fintechs. Now that is one of the keys here. So the Fintech or our financial institution, our customer benefits by added security.

Speaker 7: speed, scalability, all the things that you think about when you think about running solutions on the public cloud, all of those things certainly are part of this advantage for the Jack Henry customer. But maybe one of the biggest advantages is for the Jack Henry clients, the banker credit union, is the idea that they can now customize more directly what it is that they're offering to their customers. They can define market niches that they want to go after.

All of the things that you think about when you think about running solutions on the public cloud all of those things certainly are part of this advantage for the Jack Henry customer, but maybe one of the biggest advantages is for the Jack Henry clients of the bank or credit Union is the idea that they can now customize more directly what it is that they're offering to their customers. They can.

Define market niches that they want to go after and they can use Jack Henry technology or third party technology on the same platform in the same presentation to the end user at the end customer because it's all being run on the same platform. That's a big opportunity for our customers to take advantage of this disruption that's happening in the industry and turned it into.

Speaker 7: and they can use Jack Henry Technology or third party technology on the same platform in the same presentation to the end user, the un-customer.

Speaker 7: because it's all being run on the same platform. That's a big opportunity for our customers to

Opportunity by targeting segments that they want to they want to target and now let me flip it over to the end consumer or the small business what did they experience I think the best way I can articulate. This is think about forget about our bank's website think about the digital presentation that you use when you go to your bank mobile.

Speaker 7: In all of you flip it over to the end consumer or the small business. You know, what do they experience? I think the best way I can articulate...

Speaker 7: Think about, forget about a bank's website. Think about the digital presentation that you use when you go to your bank's mobile banking application.

Banking application.

Speaker 7: What if in the application, not only could you see all the stuff that the bank has for you, whoever you bank with, but you could also see your crypto balance.

What is in the application not only could you see all the stuff that the bank has for you whoever you banquet, but you can also see our crypto balance not that the bank is holding a crypto balance on their balance sheet, but you can see that rate in the same app I'm not talking about closing the app and opening and other app on your iPhone I'm, saying in the same app you can see here.

Speaker 7: not that the bank is holding your crypto balance on their balance sheet, but you can see that right in the same app. I'm not talking about closing the app and opening another app on your iPhone. I'm saying in the same app.

Speaker 7: You can see your crypto balance. You can see all the banking information that you have on your bank. You can see your retirement account, that you have a potential. All of those things presented in the same experience to the consumer, through that same app.

Crypto balance you can see all the banking information that you have from your bank you can see your retirement account that you have with Prudential all of those things presented in the same experience to the consumer through that same application, that's where this strategy gets us that's where we're headed by creating this platform that supports all of this interconnectivity and this.

Speaker 7: That's where this strategy gets us. That's where we're headed by creating this platform that supports all of this interconnectivity and this secure exchange of financial data between applications.

Secure exchange of financial data between applications. That's one of the key and that could go on and on and on and give you all kinds of examples but that's one that I think most people can relate to.

Speaker 7: That's one of the key and I could go on and on and on and give you all kinds of examples. But that's one that I think most people can relate to, you know, wouldn't it be cool? If I could look at my open my digital banking app with my bank and in that I would not only see my balances by bank but all my other stuff that I have with all these other providers all through the same presentation. That's where we'll get.

Wouldn't it be cool if I could look at my opened my my digital banking App with my bank and in that I would not only see my balances by bank, but all my other stuff that I have with all these other providers all through the same presentation, that's where we'll get.

Definitely exciting and great quarter.

Speaker 1: Next question coming from the line up, can Situoski with anonymous research? Your line is up.

And our next question coming from the line of Ken <unk> with Autonomous Research. Your line is open.

Speaker 13: Hi, good morning, David and Kevin. Thanks for taking the question. I appreciate the update on the long-term strategy. I just want to ask about your cloud native digital first offering. And I was wondering if you can give us a sense for how your offering compares.

Hi, Good morning, David and Kevin Thanks for taking the question I appreciate the update on the long term strategy I just wanted to ask you about your your cloud native digital first offering and I was wondering if you can give us a sense for how your offering compares to.

Speaker 13: We see FIS talk about its modern banking platform. We saw five serve announcements this week, the acquisition of FinZAC. So are there areas where you think your offering is superior versus those providers and are there areas where maybe you need to catch up to bring your offering up to par with theirs? You're just be grateful to get your thoughts on where you're differentiating.

To peers, because we we see <unk> talked about its modern banking platform. We saw fiserv announced this week the acquisition of <unk>. So are there areas, where you think your offering is superior versus those providers and are there areas, where maybe you need to catch up.

Yes.

Bring your offering up to par with theirs would just be great to get your thoughts on kind of where you differentiate it.

Speaker 7: Yeah, so Ken, I'm not, you know, I'm not in the business on a earnings call going into describing what our competitors are offering. The thing that I will say is we know those solutions very well. We have been investigating for years. This is, again, this is what we do. You know, delivering technology solutions to banks and credit unions is all we do. And so we know what our competitors are doing. I have every confidence that the technology solution that Jack Henry is delivering here, what I've just talked about, is a completely differentiated solution.

Yeah, So Ken I'm not I'm not in the business on an earnings call going into describing what our competitors are offering the thing that I will say as we know those solutions very well we have been investigating for years. This is again. This is what we do delivering technology solutions to banks and credit unions is all we do and so we know what our competitors are doing.

Have every confidence that the technology solution that Jack Henry is delivering here what I've just talked about is a completely differentiated solution.

Speaker 7: And just in part because it is not a core solution, right? Both of the examples you gave are core solutions. This is unbundling the core. This is redefining.

And just in part because it is not a core solution. Both of the examples you gave our core solution. This is unbundling. The core this is redefining what we think about this court. There is no dependents. The other thing that I'll highlight no dependence on a legacy database with what we're talking about here. There is no requirement that you have the legacy data.

Speaker 7: What we think about as court, there is no dependence, the other thing at all highlight, no dependence on the legacy database for what we're talking about here. There is no requirement.

Speaker 7: that you have a legacy database underneath the core solution and what we're talking about here. So it's a totally differentiated strategy.

Base underneath the core solution and what we're talking about here. So it's a totally differentiated strategy.

Speaker 7: from the others that you name. So we feel very confident in what we've created here and our ability to disrupt.

From the others that you that you named so we feel very confident in what we've created here and our ability to disrupt.

Speaker 7: disrupt the market. But again, this isn't something that we're rolling out next week. This is a strategy discussion. This is a long-term where is our company going? And how are we going to differentiate for the long-term against anybody else in the market? But as Dave said earlier, the platform is in place. Or in his example, the chassis to the vehicles in place.

Disrupt the market, but again this isn't something that we're rolling out next week. This is a strategy discussion. This is a long term wears are going and how are we getting differentiated differentiate for the long term.

<unk> against anybody else in market, but as Dave said earlier the platform is in place or in his example, the chassis to the vehicles in place and so now as Dave mentioned, we're already got some solutions out in beta that's not the core but its pieces and parts of the core that's already on the platform beta that'll be rolled out later this summer.

Speaker 2: And so now as Dave mentioned, we're already got some solutions out in beta. That's not the core, but it's pieces and parts of the core that's already on the platform beta. That'll be rolled out later this summer in general.

<unk> and general availability.

Speaker 13: Okay, great. That's really helpful. I like the car analogy that's really helpful to dumb it down for all of us. I think I guess the next question for me is, you know, it's interesting that you're talking about unbundling these solutions, allowing clients to embed syntax of their choice into these offerings. And so it seems like they're not tied into any legacy product.

Okay.

Great.

Very helpful I like the car analogy that.

Really helpful to dumb it down.

For all of Us.

I think I guess the next question for me is it's interesting that you're talking about unbundling.

<unk> solutions.

Allowing clients to embed fintech of their choice into these offerings.

And so it seems like theyre not tied into any legacy products Youre unbundling those functions.

Speaker 13: you're unbundling those functions. I mean, how comfortable are you that that's not gonna create a revenue headwind going forward just because maybe these customers aren't locked into your offering as much as they were before, or do you feel like you're pretty open?

How comfortable are you that that's not going to create a revenue headwind going forward just because maybe these customers arent locked into your offering as much as they were before or do you feel like you are pretty open today.

Speaker 7: Well, I feel like we're pretty open today. And you know, this is a question that we've had for you. Why does Jack Henry continue to support this idea of open connectivity and creating these connections without charging $100,000 just for somebody to connect into Jack Henry solutions? And the answer is our philosophy has been and continues to be our job is to help make our customer success.

Well I feel like we're pretty open today. This is a question that we've had.

Hi, This is Jack Henry continue to support this idea of open connectivity and creating these connections without charging a $100000 just for somebody to connect into Jack Henry solutions and the answer is we our philosophy has been and continues to be our job is to help make our customers successful and if we are truly committed to making them successful we try to make.

Speaker 7: And if we are truly committed to making them successful, we try to make all that stuff easy and make it relatively inexpensive.

All of that stuff easy and make it relatively inexpensive and our customers as part of the reason they do business with Jack Henry because they know that we will offer that connectivity. This isn't something new this isn't a new philosophy for US. This has always been the way it's been a Jack Henry and so so it's counterintuitive to most people why don't you try and create as many barriers as you can.

Speaker 7: And our customers, that's part of the reason they do business with Jack Henry because they know that we will offer that connectivity. This isn't something new. This isn't a new philosophy for us.

Speaker 7: This has always been the way it's been a Jack Henry. And so it's counter-intuitive to most people. Why don't you try and create as many barriers as you can?

Speaker 7: to people doing business with others in the space. Why do you make it so easy to connect into your system?

Two people doing business with others in the space why do you make it so easy to connect into your systems I think it's because we make it easy for people want to do business with Jack Henry and they want to buy more solutions from us because we create those options for them and again our job is to help our customers be successful and we are truly committed to that and this is just the continued.

Speaker 7: I think it's because we make it easy that people want to do business with Jack Henry and they want to buy more solutions from us because we create those options for them.

Speaker 7: And again, our job is to help our customers be successful. And we are truly committed to that, and this is just the continued extension of that plan.

Extension of that philosophy.

Speaker 13: That's really helpful, David. And then maybe if I could just make one last one here. I think you mentioned that you've been working on this strategy for the last couple of years and that this is a long-term strategy. Does this increase the CAPEX requirements or the operating expense requirements that all going forward to really build this out or do you still feel comfortable with the 50 to 75 basis points of a margin expansion in 2023 and beyond?

That's fair.

It's really helpful. David and then maybe if I could just sneak one last one here I think you mentioned that you've been working on this strategy for the last couple of years.

And that this is a long term.

Our strategy does this increase the capex requirements or the the operating expense requirements at all going forward to really build this out or do you still feel comfortable with the 50 to 75 basis points of margin expansion in 2023 and beyond.

Speaker 7: Yeah, everything that we've got is so my comments and my commentary there, you know, the 14% of revenue that we're putting back into R&D, that is a number we've been telegraphing to you all for years now. We're sticking with that number and all the guidance that Kevin has provided, all of that is baked into the numbers that we've provided. And the key point there is 14% on arising revenue.

Everything that we've guided so my comments in my in my commentary there the 14% of revenue that we're putting back into R&D that is the number we've been telegraphing to you all for years now we are sticking with that number and all of the guidance that Kevin has provided all of that is baked into the numbers that we provided.

And the key point, there is 14% on a rising rate.

Speaker 7: Essentially, that's creating about $20 million a year in additional money for us to invest in R&D. So that doesn't require us to do any slowdown on any of the great work our teams do to support our existing cores and our existing complimentary solutions. All of that.

Essentially that's creating about $20 million a year in additional money for us to invest in R&D. So that doesn't require us to do any slowdown on any of the great work our teams do to support our existing cores and our existing complementary solutions. All of that continues as it has been but just because we are sticking with 14% on a rise.

Speaker 7: continues as it has been, but just because we're sticking with 14% on rising revenue number, that creates the additional dollars for us to put against these aren't, this critical R&D initiative for our company. So no need for us to accelerate on CAPEX, no need for us to...

The revenue number that creates this additional.

These additional dollars for us to put against these arent. This critical R&D initiative for our company. So no need for us to accelerate on Capex no need for us to take a hit to earnings or anything like that but we can continue to execute on this wonderful strategy and by the way so I want to be clear with everybody and we've been working on the strategy.

Speaker 7: take a hit to earnings or anything like that, but we can continue to execute on this wonderful strategy. And by the way, so I wanna be clear with everybody, and we've been working on the strategy several years, we've had developers coding.

The years, we've had developers coding for two to two and a half years, but this strategy has been in development for a long time. So I wanted to be clear that we didn't just start on this two five years ago to start thinking about this we've been thinking about this for a long time, we actually had coders starting to write code about two two and a half years ago and in that 14%. The team that is focused on this new strategy.

Speaker 7: for two to two and a half years. But this strategy has been developed for a long time. So I want to be clear that we didn't just start on this two and a half years ago, sort of thinking about this. We've been thinking about this for a long time. We actually had coders starting to write code about two or two and a half years ago. And in that 14% of the team that is focused on this new strategy has been growing and employees.

<unk> has been growing in place we have not taken developers for many of our other products and we won't because we have to keep those other products continued to increase our feature functionality. So.

Speaker 2: We have not taken developers from any of our other products and we won't because we have to keep those other products continue to increase their feature functionality. So it's not going to take away many of our existing development. It's just the long-term strategy that's been put in place over the last few years.

It's not going to take away from any of our existing development. It's just it's just the.

This long term strategy, that's been put in place over the last few years.

Speaker 13: Okay, that makes a lot of sense. Thank you very much. Look forward to following the progress.

Okay makes a lot of sense. Thank you very much look forward to following the progress.

Speaker 1: I am showing no further questions. I will not then call back over to Mr. Kevin Williams.

I'm showing no further questions I will now turn the call back over to Mr. Kevin Williams.

Speaker 2: Thank you. We are obviously very pleased with the results from ongoing operations and extremely excited for the future with the new strategy that they rolled out. I want to thank all of our associates for the way they've handled the challenges that we are currently endeavoring by taking care of themselves and our customers and continue to work hard to improve our company to continue moving forward for the future. All of us at Jack Henry continue to focus on what is best for our customers and shareholders. I want to thank you again for joining us today and Olivia will you please provide the replay now?

Thank you.

We are obviously very pleased with the results from our ongoing operations and extremely excited for the future with the new strategy that they rolled out I want to thank all of our associates for the way they've handled the challenges that we're currently endeavoring by taking care of themselves and our customers and continue to work hard to improve our company to continue moving forward for the future all of us at Jack Henry.

We need to focus on what is best for our customers and shareholders I want to thank you again for joining us today and Olivia will you. Please provide the replay number.

Okay.

Speaker 1: Please, I'm German. Today's replay number is 1-800-585-8367. Again, it's 1-800-585-8367.

Ladies and gentlemen, today's replay number.

One 805 85867 again is one 800.

Slide 8367.

Speaker 1: Entering access code 9874774.

Entering access code 980 74774.

Speaker 1: Again, for the Repler Access Code is 987-477.

Again with the replay access code is 90 74774.

Speaker 1: That's my grad conference for today. Thank you for your participation. You may now disconnect.

And that does conclude our conference for today. Thank you for your participation you may now disconnect.

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