Q2 2024 Jack Henry & Associates Inc Earnings Call
Operator: Please press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Vance Sherrard, Vice President, Investor Relations. Please go ahead.
Pat.
Your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Vance Girard, Vice President Investor Relations. Please go ahead.
Vance Sherrard: Thank you, Laura. Good morning, and thank you for joining us for the Jack Henry second quarter 2024 earnings call. Joining me on the call today is David Foss, Board Chair & CEO, Mimi Carsley, CFO & Treasurer, and Greg Adelson, President & COO. After my opening remarks, I will turn the call over to Dave for his comments on our business and industry outlook. After Dave concludes his comments, Greg will discuss his transition to CEO, provide commentary on our operations, including updates on our technology modernization strategy and other key initiatives at Jack Henry. MIMI will then provide commentary on the financial results and updated guidance included in the press release issued yesterday that is available from the Investor Relations section of the Jack Henry website.
Vance Girard: Thank you Laura good morning, and thank you for joining us for the Jack Henry <unk> second quarter 2024 earnings call joining.
Vance Girard: Joining me on the call today is David Foss Board Chair, and CEO, Minicars, Lee CFO, and Treasurer, and Greg Adelson, President and COO.
Vance Girard: After my opening remarks, I will turn the call over to Dave for his comments on our business and industry outlook.
David B. Foss: After Dave concludes his comments, Greg will discuss his transition to CEO provide commentary on our operations, including updates on our technology modernization strategy in other key initiatives at Jack Henry.
David B. Foss: Mimi will then provide commentary around the financial results and updated guidance included in the press release issued yesterday that is available from the Investor Relations section of the Jack Henry website.
Vance Sherrard: We will then open the lines for Q&A. As a reminder, 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 multiple factors that could cause actual results or events to differ materially from those which we anticipate due to multiple risks and uncertainties. The company undertakes no obligation to update or revise these statements.
Speaker Change: We will then open the lines for Q&A.
Speaker Change: As a reminder, this call includes certain forward looking statements, including remarks or responses to questions concerning future expectations events objectives strategies trends or results.
Speaker Change: Like any statement about the future. These are subject to multiple factors that could cause actual results or events to differ materially from those which we anticipate due to multiple risks and uncertainties.
Speaker Change: 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.
Vance Sherrard: 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. On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for non-GAAP financial measures are in yesterday's press release. I will now turn the call over to Dave. Thank you, Vance. Good morning, everyone.
Speaker Change: On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income the reconciliations for non-GAAP financial measures are in yesterday's press release.
Speaker Change: I'll now turn the call over to Dave.
Dave: Thank you Vince 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 the quarter.
David B. Foss: 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 the quarter. For the second quarter of fiscal 2024, total revenue increased by 8% on both a gap and non-gap basis. Operating income increased 11% for the quarter and increased 14% on an on-gap basis.
Dave: For the second quarter of fiscal 2024 total revenue increased by 8% on both a GAAP and non-GAAP basis.
Dave: Putting income increased 11% for the quarter and increased 14% on a non-GAAP basis.
David B. Foss: Turning to the segments, we again had a solid quarter in the core segment of our business. Revenue was up by 8% for the quarter on both a gap and non-gap basis. Our payments segment also performed well, posting a 6% increase in revenue this quarter on both a GAAP and non-GAAP basis. We had another strong quarter in our complementary solutions businesses, with a 7% increase in revenue this quarter and a 9% increase on an on-gap basis. As I mentioned in the press release, our sales teams again had an outstanding quarter with a number of notable wins. In fact, this was the best second quarter ever for sales bookings and the second highest sales quarter in our history, trailing only our June quarter last year.
Dave: Turning to the segments, we again had a solid quarter in the core segment of our business revenue was up by 8% for the quarter on both a GAAP and non-GAAP basis. Our payment segment also performed well posting a 6% increase in revenue this quarter on both a GAAP and non-GAAP basis.
Dave: We had another strong quarter in our complementary solutions businesses with a 7% increase in revenue this quarter and a 9% increase on a non-GAAP basis.
Dave: As I mentioned in the press release, our sales teams again had an outstanding quarter with a number of notable wins. In fact this was the best second quarter ever for sales bookings and second highest sales quarter in our history trailing only our June quarter last year in.
David B. Foss: In the second quarter, we inked 14 competitive core takeaways, with four of them being multi-billion dollar institutions. Additionally, we signed 12 deals to move existing in-house core clients to our private cloud environment. We continue to see success with our card processing solutions, signing 12 new card processing clients this quarter. We also continue to see strong success signing clients to our Bano Digital Suite, with 135 new contracts in Q2, including 56 contracts for our new Bano Business Office. We also surpassed 11 million registered users on the Banner platform, which is a 25% increase over a year ago. I mentioned last quarter that our sales pipeline was at the highest level ever. It's logical to assume that our pipeline would be depleted after such a strong sales quarter in Q2. However, we continued to add to our pipeline, and we ended the quarter on par with Q1, which projects very well for us for the remainder of the sales year. In late January, Cornerstone Advisors published the results of its annual survey of bank and credit union executives.
Dave: In the second quarter, we inked 14 competitive core takeaways with four of them being multibillion dollar institutions. Additionally, we signed 12 deals to move existing in house core clients to our private cloud environment.
Dave: We continue to see success with our card processing solutions, signing 12, new card processing clients this quarter.
Dave: We also continue to see strong success signing clients to our bandwidth digital suite with 135, new contracts in Q2, including 56 contracts for our new banner business offering.
Dave: We also surpassed 11 million registered users on the banner platform, which is a 25% increase over a year ago.
Dave: I mentioned last quarter that our sales pipeline was at the highest level ever it's logical to assume that it would be depleted after such a strong sales quarter in Q2. However.
Dave: However, we continue to add to our pipeline and we ended the quarter on par with Q1, which projects very well for us for the remainder of the sales year.
Dave: In late January cornerstone advisors published the results of its annual survey of bank and credit Union executives. According to that study nearly 65% of banks and 75% of credit unions expect to increase their technology spending in 2024.
David B. Foss: According to that study, nearly 65% of banks and 75% of credit unions expect to increase their technology spending in 2024. This correlates with information we've seen from other sources, including Bank Director's Technology Survey last fall, in which a large majority of survey respondents said their bank's technology budget increased over the past year at a median rate of 10%. We're in the midst of conducting our annual Jack Henry Strategic Benchmark Study, and we'll share those results on our earnings call in May. We were pleased to have recently received two National Workplace Awards, Newsweek's Greatest Workplaces for Diversity and Computer World's Best Places to Work in IT. We have also been named one of America's most responsible companies by Newsweek for our corporate sustainability efforts.
Dave: This correlates with information we've seen from other sources, including Bank Directors Technology Survey last fall and went to a large majority of survey respondents said their banks technology budget increased over the past year and immediate rate of 10%.
Dave: We're in the midst of conducting our annual Jack Henry Strategic Benchmark studies, and we'll share those results on our earnings call in May.
Dave: We were pleased to have recently received two national Workplace Awards Newsweek's greatest workplaces for diversity and Computerworld Best places to work in I T.
Dave: We will also were named as one of America's most responsible companies by Newsweek for our corporate sustainability efforts.
David B. Foss: We're very proud of that recognition because we view corporate sustainability as a strategic investment for our stakeholders. I encourage you to read our 2024 sustainability report, which will be published on March 29th on the investor page at JackHenry.com. As you all know by now, a couple of weeks ago, we announced that I will retire from my current role on June 30th of this year. Greg Adelson will become CEO and President beginning July 1st, and I will serve as Executive Board Chair effective on that same day.
Dave: Very proud of that recognition, because we view corporate sustainability as a strategic investment for our stakeholders.
Dave: I encourage you to read our 2020 for sustainability report, which will be published on March 29th on the Investor page at Jack Henry Dot Com.
Speaker Change: As you all know by now a couple of weeks ago, we announced that I will retire from my current role on June 30th of this year.
Speaker Change: Greg Adelson will become CEO and president the beginning July 1st and I will serve as executive Board chair effective on that same day.
David B. Foss: This transition plan has been carefully considered for some time, and we are fortunate to have someone like Greg ready to step into the CEO role. As I said in the press release, it has been my immense pleasure to serve as president of this wonderful company for so many years. When I came into this role almost eight years ago, I had a number of large projects I wanted to address, and I'm happy that all of them have now been completed or are well on their way. I'm confident that Greg and the outstanding team we have in place today can continue our trajectory of strong growth, and I'm looking forward to working with them in my new role as Executive Board Chair. Of course, I'll be on the May earnings call, and I have a number of investor meetings scheduled between now and the end of our fiscal year, so I look forward to speaking with many of you in the coming months.
Speaker Change: This transition plan has been carefully considered for some time and we are fortunate to have someone like Greg ready to step into the CEO role.
Speaker Change: As I said in the press release it has been my immense pleasure to serve as CEO of this wonderful company for so many years.
Speaker Change: I came into this role almost eight years ago I had a number of large projects I wanted to address and I'm happy that all of them have now been completed or are well on their way.
Speaker Change: I'm confident that Greg and the outstanding team we have in place today can continue our trajectory of strong growth and I'm looking forward to working with him in my new role as Executive Board Chair of.
Of course I'll be on the May earnings call and I have a number of investor meetings scheduled between now and the end of our fiscal year. So I look forward to speaking with many of you in the coming months.
Greg Adelson: As we focus on the second half of this 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 client relationships, the spending environment, and our long-term prospects for success. With that, I'll turn it over to Greg for an operational update. Thank you, Dave.
Speaker Change: As we focus on the second half of this 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 client relationships, the spending environment and our long term prospects for success with that.
Speaker Change: I'll turn it over to Greg for an operational update.
Greg Adelson: I'm honored and humbled to become the next CEO of this great company in July. I do want to take a moment to acknowledge the outstanding job that Dave has done as CEO for the past eight years. Since Dave became CEO at the start of fiscal year 2017, Jack Henry has experienced outstanding growth, with revenue and net income both up approximately 50%. In addition to driving organic growth, Dave has led 26 acquisitions during his 25 years with the company. The legacy Dave is leaving will be remembered for many years to come.
Greg Adelson: Thank you, Dave I'm honored and humbled to become the next CEO of this great company in July I do want to take a moment to acknowledge the outstanding job that Dave has done as CEO of the past eight years since they became CEO at the start of fiscal year 2017, Jack Henry has experienced outstanding growth with revenue and net income both up approximately.
Greg Adelson: <unk>, 50%.
Greg Adelson: In addition to driving organic growth Dave has led twenty-six acquisitions. During his 25 years with the company. The legacy Dave is leaving will be remembered for many years to come.
Greg Adelson: On a personal level, I want to thank Dave for his mentorship and guidance for the past 13 years. He has prepared me well for this role, and I will continue to lead this company with an unwavering focus on our employees, clients, and shareholders. As the next CEO, I will continue the strategic journey that we are on today and will execute our strategic priorities, which include continuing to enhance our exceptional culture, continuing to advance our tradition of customer service excellence, cultivating a one Jack Henry mindset in all we do, drive technology innovation and execution at speed and scale, Foster an Open Ecosystem, and evaluate strategic acquisitions that will provide additional value to our clients and shareholders. Jack Henry has maintained a philosophy for over 47 years that starts with treating our associates as our first priority.
Greg Adelson: On a personal level I want to thank Dave for his mentorship and guidance for the past 13 years. He has prepared me well for this role and I will continue to lead this company with an unwavering focus on our employees clients and shareholders.
Speaker Change: As the next CEO I can I will continue the strategic journey that we're on today and we will execute our strategic priorities, which include continuing to enhance our exceptional culture continue.
Speaker Change: To advance our tradition of customer service excellence cultivate a one Jack Henry mindset and all we do.
Speaker Change: Drive technology innovation and execution at the speed and scale.
Speaker Change: Foster an open ecosystem.
Speaker Change: <unk> strategic acquisitions that will provide additional value to our clients and shareholders.
Speaker Change: Jack Henry is maintain a philosophy for over 47 years. It starts with treating our associates is our first priority happy associates are more invested in ensuring we have happy clients and happier clients ensure we reward our shareholders. In short you can expect continued focus on growing our company and delivering outstanding value to all of our.
Greg Adelson: Happy associates are more invested in ensuring we have happy clients, and happy clients ensure we reward our shareholders. In short, you can expect continued focus on growing our company and delivering outstanding value to all of our stakeholders. Dave and I will continue to work closely to ensure a smooth transition in July, and I look forward to collaborating with him in his new role as Executive Board Chair.
Speaker Change: <unk> D.
Speaker Change: Dave and I will continue to work closely to ensure a smooth transition in July and I look forward to collaborating with him in his new role as Executive Board Chair I'm also excited about continuing to work with the other great leaders at Jack Henry and specifically more closely with me and Vance Mimi has done an outstanding job since becoming CFO in September of 2020.
Greg Adelson: I am also excited about continuing to work with the other great leaders at Jack Henry and specifically more closely with Mimi and Vance. Mimi has done an outstanding job since becoming CFO in September of 2022, and Vance provides tremendous perspective on all things Jack Henry. Before I speak to our operational performance, I want to go back to Dave's comments regarding our continued strong sales performance. Dave shared our strong success in winning competitive core takeaways, as well as our robust sales pipeline. Additionally, we are beginning to see an increase in what has been historically low merger activity among our financial institutions, specifically with our core clients as the acquirers.
Speaker Change: To advance provides tremendous perspective for all things Jack Henry.
Speaker Change: Before I speak to our operational performance I wanted to go back to Dave's comments regarding our continued strong sales performance.
Speaker Change: Dave shared our strong success in winning competitive core takeaways as well as our robust sales pipeline. Additionally, we are beginning to see an increase in what has been historic low merger activity among our financial institutions, specifically with our core clients as the acquirers due to this increased demand we are currently adding.
Greg Adelson: Due to this increased demand, we are currently adding resources to both our banking and credit union core conversion teams. On the November earnings call, I promised an update on our technology modernization strategy. As a reminder, this strategy is changing how we deliver our solutions through a cloud-native, API-first environment, utilizing several key benefits embedded in the Google Cloud Platform, including cutting-edge security and business continuity advancements. The premise of this strategy is rebuilding traditional core and non-core functions into a flexible, cloud-native portfolio of services and solutions. Each component will integrate with other Jack Henry solutions and also with third-party fintechs via the Jack Henry platform.
Speaker Change: As to both our banking and credit Union core conversion teams.
Speaker Change: On the November earnings call I promised an update on our technology modernization strategy. As a reminder, this strategy is changing how we deliver our solutions through a cloud native API first environment utilizing several key benefits embedded in the Google cloud platform, including cutting edge security and business continuity advanced.
Speaker Change: And that's.
Speaker Change: The premise of this strategy is rebuilding traditional core and noncore functions into a flexible cloud native portfolio of services and solutions each component will integrate with other Jack Henry solutions and also with third party Fintech via the Jack Henry platform.
Greg Adelson: Our clients will be able to access everything they need to run their financial institution on a single platform with all the advantages that the cloud offers, including extremely high system availability, real-time processing, streamlined operations, rapid update deployment, modern security standards, and extensive scalability. As we have indicated previously, our approach to technology modernization has created more pipeline activity in the larger community bank segment, as well as a couple of introductory calls with regional institutions. Another benefit we will realize over time is the shared services model that is at the forefront of our technology modernization strategy. Features or solutions that were once built several times throughout the organization are now developed once and used in multiple solutions.
Speaker Change: Our clients will be able to access everything they need to run their financial institution and a single platform with all the advantages that the cloud offers including an extremely high system availability real time processing streamline operations rapid update deployment modern security standards and extend.
Speaker Change: Ziv scalability as.
Speaker Change: As we have indicated previously our approach to technology modernization has created more pipeline activity and the larger community Bank segment as well as a couple of introductory calls with regional institutions.
Speaker Change: Another benefit we will realize over time is the shared services model that is at the forefront of our technology modernization strategy.
Speaker Change: Features are solutions that were once built several times throughout the organization are now develop once and used in multiple solutions, our ability to develop and deliver more rapidly to our clients is an important benefit that will reduce development cost for each new or enhanced solution.
Greg Adelson: Our ability to develop and deliver more rapidly to our clients is an important benefit that will reduce development costs for each new or enhanced solution. The technology will also allow us to share the same services with outside partners and competitors to create a better overall experience for all community and regional financial institutions. At Jack Henry, we are focused on execution and doing what we say we're going to do.
Speaker Change: The technology will allow us to share the same services with outside partners and competitors to create a better overall experience for all community and regional financial institutions.
Speaker Change: At Jack Henry we are focused on execution and doing what we say we're going to do so everything I'm about to discuss is share with our clients through six month roadmap visibility.
Greg Adelson: So everything I'm about to discuss is shared with our clients through six-month roadmap visibility. Roadmaps are updated for all products, including the technology modernization strategy, and published every February and August for our clients to view. We hold our teams accountable for roadmap execution as well. As a reminder, our technology modernization strategy already includes recently launched cloud-native solutions like PayCenter, Bano Business, and Financial Crimes Defender. We now have over 250 clients using the Real-Time Payments Network and almost 150 using FedNow in our PayCenter application. For additional context, Jack Henry has approximately 60% of the live Real-Time Payments network clients and 35% of the live FedNow clients. We recently announced general availability for Bano Business and continue to add both banking and credit union clients. We now have more than 90 clients live and over 70 clients in various stages of implementation. Financial Crimes Defender is also generally available, and we have seven clients live and more than 150 in the implementation queue.
Speaker Change: Roadmaps are updated for all products, including the technology modernization strategy and published every February and August for our clients to view, we hold our teams accountable for roadmap execution as well.
Speaker Change: As a reminder, our technology modernization strategy already includes recently launched cloud Native solutions like pay center panel business and financial crimes defender.
Speaker Change: We now have over 250 clients using the real time payments network and almost 150, using fed now and our pace and our application for additional context, Jack Henry has approximately 60% of the live real time payment climates.
Speaker Change: And 35% of the live fed now clients.
Speaker Change: We recently announced general availability for banner business and continue to add both banking and credit Union clients. We now have more than 90 clients live in over 70 clients in various stages of implementation.
Speaker Change: Financial crimes defenders also generally available and we have seven clients live in more than 150 in the implementation queue.
Greg Adelson: One new offering we haven't spoken about yet is our open banking solution that provides turnkey API access to the largest integrated banking data aggregators across the industry as an immediate answer to the industry and regulatory pressure to remove screen scraping and share credentials. By creating direct API connections with clients, Jack Henry is making it easier for consumers to connect financial accounts securely and reliably without the need to share usernames and passwords. This offering is generally available today and has received a great deal of interest from both Jack Henry core and non-core clients. I also want to update you on some of the key functions we are building on the Jack Henry platform that are already in beta or plan to go into beta in calendar year 2024. I'll start with the incoming and outgoing wires, which we have talked about on previous calls.
Speaker Change: One new offering we haven't spoke about yet is our open banking solution that provides turnkey API access to the largest integrated banking data aggregators across the industry. It is an immediate answer to the industry and regulatory pressure to remove screen scraping and share credentials.
Speaker Change: By creating direct API connections with clients Jack Henry is making it easier for consumers to connect financial accounts securely and reliably without the need to share user names and passwords. This offering is generally available today and has received a great deal of interest from both Jack Henry core and non core clients.
Speaker Change: I also want to update you on some of the key functions. We are building on the Jack Henry platform that are already in beta are planned to go in beta in calendar year 2024.
Speaker Change: I'll start with the incoming and outgoing wires, which we've talked about on previous calls we plan to be generally available with our domestic wire solution over the next few months and move into beta with international wires by the end of this fiscal year.
Greg Adelson: We plan to be generally available with our domestic wire solution over the next few months and move into beta with international wires by the end of this fiscal year. We are building a general ledger component that will support the common base functions of a financial institution's back office and enable deeper insights into transactions and advanced fraud detection. We plan to be in beta by the end of the calendar year. A key advantage of the Jack Henry platform is that our clients will be able to easily access their data.
Speaker Change: We are building a general ledger component that will support the common based functions of our financial institutions back office and enable deeper insights on transactions and advanced fraud detection, we plan to be in beta by the end of the calendar year.
Speaker Change: A key advantage of the Jack Henry platform as our clients being able to easily access their data our new data broker solution, which is currently in beta will enable clients to access all of their Jack Henry data in a single repository with innovative AI intelligence capabilities.
Greg Adelson: Our new Data Broker solution, which is currently in beta, will enable clients to access all of their Jack Henry data in a single repository with innovative AI intelligence capabilities. To complement the data broker solution, we are creating an executive dashboard with real-time event monitoring to help our C-suite clients make informed, dynamic decisions throughout the day based on metrics they customize and update. I will now provide some context to the pricing philosophy we will use to deploy these components. Our go-to-market strategy centers around bundling key components that complement each other and provide enhanced financial and operational benefits like time to deploy, new feature enhancements, enhanced security, improved uptime, etc. For example, a bundle may include WIRES, the General Ledger, and Data Broker.
Speaker Change: To complement the data broker solution, we are creating an executive dashboard with real time event monitoring to help our C suite clients make informed dynamic decisions throughout the day based on metrics, they customize and update.
Speaker Change: I will now provide some context to the pricing philosophy will be used to deploy these components. Our go to market strategy centers around bundling key components that complement each other and provide enhanced financial and operational benefits like time to deploy new feature enhancements enhanced security improved uptime.
Speaker Change: Et cetera.
Speaker Change: For example, a bundle may include wires general ledger and data broker.
Greg Adelson: Our pricing model strategy will incorporate elements from our industry-accepted pricing models, such as license and or per seat fees, consumption-based, and per-account pricing. We will encourage engagement with any combination of our solutions and further reward those who consume more components. Ultimately, the value proposition becomes evident as clients recognize the benefits of additional modules, as well as the compelling features of the Google Cloud Platform. One last topic from our November call is our plan to offer several key solutions outside of the Jack Henry core base by the end of calendar year 2024. We remain on track to begin selling Bano Business, Financial Crimes Defender, various payment solutions, and available components from the Jack Henry platform in our fiscal year 25 sales year. We have targeted several competing cores that we believe bring the best mutual value and have a need for premier digital, fraud, and real-time payment solutions. I will continue to keep you updated on this strategy.
Speaker Change: Our pricing model strategy will incorporate elements from our industry accepted pricing models, such as license <unk> per seat fees consumption based and per account pricing.
We will encourage engagement with any combination of our solutions and further reward those who consume more components ultimately the value proposition becomes evident as clients recognize the benefits of additional modules as well as the compelling features of the Google cloud platform.
Speaker Change: One last topic from our November call as our plan to offer several key solutions outside of the Jack Henry core base by the end of calendar year 2024.
Speaker Change: We remain on track to begin selling banner business financial crimes defender various payment solutions and available components from the Jack Henry platform in our fiscal year 'twenty five sales year.
Speaker Change: We have targeted several competing cores that we believe bring the best mutual value and have a need for premier digital fraud, and real time payment solutions I will continue to keep you updated on this strategy.
Speaker Change: In closing I am passionate about accomplishing our strategic priorities and moving our company forward through innovation and execution I am grateful for the opportunity to lead this finance group of talented and dedicated professionals in the industry I want to thank all of them for their tireless effort and commitment.
Mimi Carsley: In closing, I am passionate about accomplishing our strategic priorities and moving our company forward through innovation and execution. I am grateful for the opportunity to lead this finest group of talented and dedicated professionals in the industry and want to thank all of them for their tireless effort and commitment. I will now turn things over to Mimi for some detail on the numbers.
Speaker Change: I'll now turn things over to <unk> for some detail on the numbers.
Speaker Change: Thank you, Greg and good morning.
Speaker Change: Our continued focus on serving our community and regional financial institution clients.
Mimi Carsley: Thank you, Greg, and good morning. Our continued focus on serving our community and regional financial institution clients, investing in our joint future, and delivering shareholder value led to another quarter of solid revenue and earnings growth. I'll begin with the details driving our, as expected, strong second quarter and year-to-date results, then conclude with our full year guidance update. Second quarter GAAP and non-GAAP revenue increased 8%, a continuation of the strong start to our year and keeping us on track for a tremendous fiscal 2024, as year-to-date growth was 8% on both a GAAP and non-GAAP basis. Deconversion revenue of $4.9 million, which we pre-released last week, was down approximately $1.5 million, reflecting minimal financial institution consolidation. Year-to-date deconversion revenue is $9 million, $1.9 million less than the prior period.
Speaker Change: And our joint future and delivering shareholder value.
Speaker Change: Another quarter of solid revenue and earnings growth.
Speaker Change: I'll begin with the details driving our as expected strong second quarter and year to date results, then conclude with our full year guidance update.
Speaker Change: Quarter, GAAP and non-GAAP revenue increased 8% a continuation of the strong start to our year and keeping us on track for a tremendous fiscal 'twenty 'twenty four is year to date growth was 8% on both a GAAP and non-GAAP basis.
Speaker Change: Deconversion revenue of $4 9 million, which we pre released last week was down approximately one 5 million, reflecting minimal financial institution consolidation.
Speaker Change: Year to date Deconversion revenue is 9 million $1 9 million less than the prior period.
Speaker Change: As a reminder, effective September 1st on word <unk> results are included in both GAAP and non-GAAP figures.
Mimi Carsley: As a reminder, effective September 1st onward, PayRails results are included in both GAAP and non-GAAP figures. Now, let's look more closely at the details. Gap services and support revenue increased a healthy 7%, while non-gap increased a more robust 8%. The first half increased 7% for GAAP and 8% for non-GAAP.
Speaker Change: Now, let's look more closely at the details.
Speaker Change: GAAP services and support revenue increased a healthy 7%, while non-GAAP increase in more robust 8%.
Speaker Change: At first half increased 7% for GAAP and 8% for non-GAAP basis.
Speaker Change: Services and support growth during the quarter was the result of increases in data processing and hosting and the timing of user group revenues.
Speaker Change: We continue to experience robust growth in our private and public cloud offerings.
Mimi Carsley: Services and support growth during the quarter was the result of increases in data processing and hosting and the timing of user group revenue. We continue to experience robust growth in our private and public cloud offerings, which again increased 10% in the quarter and for year-to-date. This reoccurring revenue contributor has long been a double-digit growth engine. Shifting to processing revenue, we saw consistently positive performance with 9% growth on both the GAAP and non-GAAP phases for the quarter and first half from this recurring revenue source. Similar to recent results, drivers included a combination of higher card and other payment processing, plus strong digital demand. Next, moving to expenses, beginning with cost of revenue, which increased 5% on both a GAAP and non-GAAP basis during the quarter, 7% for GAAP versus 6% non-GAAP year-to-date. Drivers for the quarter included higher direct costs, consistent with increases in related revenue, and internal licenses and fees. However, growth in cost of revenue was limited to 5% due to active cost control and the timing of merit increases. Next, R&D expense decreased 3% on both a gap and non-gap basis for the quarter.
Speaker Change: Again increased 10% in the quarter and for year to date is.
Speaker Change: It's ranked our reoccurring revenue contributor has long been a double digit growth and jet.
Speaker Change: Shifting to processing revenue, we saw consistently positive performance with 9% growth on both a GAAP and non-GAAP basis for the quarter and first half from this reoccurring revenue source.
Speaker Change: Similar to recent result drivers included a combination of higher card and other payment processing with strong digital demand.
Speaker Change: Next moving to expenses.
Speaker Change: With cost of revenue, which increased 5% on both a GAAP and non-GAAP basis during the quarter, 7% for GAAP versus 6% non-GAAP year to date.
Speaker Change: Drivers for the quarter included higher direct cost consistent with increases in related revenue and internal licenses and fees.
Speaker Change: Growth in cost of revenue was limited to 5% due to active cost control and the timing of merit increases.
Speaker Change: Next R&D expense decreased 3% on both the GAAP and non-GAAP basis for the quarter. The decrease was due to lower personnel expense net of capitalization and inclusive of benefit.
Mimi Carsley: The decrease was due to lower personnel expense, net of capitalization, and inclusive of benefits. For the first half, R&D expense increased 4% on a GAAP basis and 3% on a non-GAAP basis. And lastly, on a gap basis, SG&A rose 24% for the quarter, 21% on a non-gap basis, primarily due to the shift in our customer conference from Q1 to Q2 plus higher personnel and related costs. Year-to-date SG&A expense increased 31% on a GAAP basis and 9% non-GAAP.
Speaker Change: And the first half R&D expense increased 4% on a GAAP basis and 3% for non-GAAP.
Speaker Change: And lastly on a GAAP basis, SG&A rose, 24% for the quarter, 21% on a non-GAAP basis, primarily due to the shift in our customer conference from Q1 to Q2 was higher personnel and related costs.
Speaker Change: Year to date SG&A expense increased 31% on a GAAP basis and 9% non-GAAP.
Mimi Carsley: The primary difference is the $16.4 million in one-time costs related to the Voluntary Early Departure Incentive Program, VDIP, in Q1. We remain focused on generating compounding margin expansion, and the quarter delivered 111 basis points of non-GAAP margin at 21.3%. Non-Gap Margin benefited from operational performance and a one-time shift in our merit increases from Q2 to Q3, offset slightly by the timing of our customer conference. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.26, up 14%.
Speaker Change: Primary difference is the $16 4 million in one time costs related to the voluntary early departure incentive program.
In Q1.
Speaker Change: We remain focused on generating compounding margin expansion in the quarter delivered 111 basis points and non-GAAP margin at 21, 3%.
Speaker Change: non-GAAP margin benefited from operational performance and a one time shift in our merit increases from Q2 to Q3 offset slightly by the timing of our customer conference.
Speaker Change: These strong quarterly results produced a fully diluted GAAP earnings per share of $1 26 up 14%.
Mimi Carsley: Breaking down the results into the three operating segments, we're pleased by the consistent, solid performance achieved. Our core segment revenue increased 8% on a non-GAAP basis, with non-GAAP operating margins increasing 166 basis points, benefiting from private cloud trends and strong cost control. Year-to-date non-GAAP revenue growth was 8%, and the associated margin increased 80 basis points. Payment segment revenue increased 6% on a non-GA
Speaker Change: Breaking down the results into the three operating segments. We're pleased by the consistent solid performance achieved.
Speaker Change: Our core segment revenue increased 8% on a non-GAAP basis with non-GAAP operating margins, increasing 166 basis points.
Speaker Change: Benefiting from private cloud trends and strong cost controls.
Speaker Change: Year to date non-GAAP revenue growth was 8% and the associated margin increased 80 basis points.
Speaker Change: Payments segment revenue increased 6% on a non-GAAP basis.
Mimi Carsley: The segment had impressive non-GAAP operating margin growth of 128 basis points. This was due to the strong growth in our EPS business, moderate card growth, coupled with our scalable operating model, and disciplined cost control. Year-to-date non-GAAP revenue growth matched the quarter at 6%, with 94 basis points of margin expansion. However, it should be noted that card revenue growth has been negatively impacted by lower card production, among other non-processing revenue items.
Speaker Change: <unk> had impressive non-GAAP operating margin growth of 128 basis points.
Speaker Change: This was due to the strong growth in our EPS business moderate card growth, coupled with our scalable operating model and disciplined cost control.
Speaker Change: Year to date non-GAAP revenue growth matched the quarter at 6% with 94 basis points of margin expansion it.
Speaker Change: It should be noted that card revenue growth has been negatively impacted by lower card production among other non processing revenue items.
Mimi Carsley: Excluding these impacts, processing-related revenue increased 8% for the quarter and 9% year-to-date. Finally, complementary segment non-GAAP revenue increased 9% with a flat margin. Year-to-date non-GAAP revenue also increased 9% with 25 basis points of margin expansion. Growth year-to-date was driven primarily by digital, recently released solutions, and overall product mix. Quarterly margins face headwinds from direct support costs, amortization of new products, and licenses and fees. Now, let's turn to a review of cash flow and capital allocation. Year-to-date operating cash flow is $239 million, a $48 million increase over the prior period, producing free cash flow of $129 million, slightly more than $119 million last year. Excluding asset sale impacts of $1,000,000 and $28,000,000 from the current year-to-date and prior period, respectively, free cash flow is $37,000,000 higher through the first half of our current fiscal year. Additionally, the timing of tax payments this year represented a $15 million headwind to free cash.
Speaker Change: Excluding these impacts processing related revenue increased 8% for the quarter and 9% year to date.
Speaker Change: Finally complementary segment non-GAAP revenue increased 9% with flat margin.
Speaker Change: Year to date non-GAAP revenue also increased 9% with 25 basis points of margin expansion.
Speaker Change: Growth year to date was driven primarily by digital recently released solutions and overall product mix.
Speaker Change: Quarterly margins faced headwinds from direct support cost amortization of new products and licenses and fees.
Speaker Change: Now, let's turn to a review of cash flow and capital allocation.
Speaker Change: Year to date operating cash flow was 239 million a $48 million increase over the prior period.
Speaker Change: Using free cash flow of $129 million slightly more than $119 million last year.
Speaker Change: Excluding asset sale impacts of $1 million and $28 million from the current year to date and prior period, respectively. Free cash flow was 30 70 million higher during the first half of our current fiscal year.
Speaker Change: Additionally, the timing of tax payments this year represented a $15 million headwind to free cash flow.
Mimi Carsley: Our consistent dedication to value creation resulted in a trailing 12-month return on investor capital of 20%. Additionally, I would highlight other notable return on capital metrics for the first half of our fiscal year, including $20 million in share repurchases offsetting annual dilution, $20 million in debt reduction, and $76 million in dividends. As we head into the second half of fiscal 2024, I will conclude with guidance highlights. As you are aware, yesterday's press release included updated fiscal 2024 full-year gap guidance, along with a reconciliation to non-gap guidance metrics. As a reminder, we filed an 8K on August 3rd that described how, starting in the current fiscal year, we are using a revised approach for deconversion revenue. Based on current trends, we expect to see similar acquisition levels for our core customers in the second half of the fiscal year. As such, we're reiterating our full-year deconversion revenue guidance of $16 million.
Speaker Change: Our consistent dedication to value creation resulted in a trailing 12 month return on invested capital of 21st at <unk>.
Additionally, I would highlight other notable return of capital metrics for the first half of our fiscal year, including $20 million of share repurchases offsetting annual dilution.
Speaker Change: $20 million in debt reduction and 76 million in dividends.
Speaker Change: As we head into the second half of fiscal 2024, I will conclude with guidance highlight.
Speaker Change: As you are aware Yesterdays press release included updated fiscal 2020 for full year GAAP guidance, along with the reconciliation to non-GAAP guidance metrics.
Speaker Change: As a reminder, we filed an 8-K on August 3rd they described how starting in the current fiscal year, we're using a revised approach for deconversion revenue.
Speaker Change: Guidance based on current trends, we expect to see similar acquisition levels of our core customers in the second half of the fiscal year.
Speaker Change: As such we're reiterating our full year of deconversion revenue guidance of $16 million.
Mimi Carsley: Based on positive year-to-date results from strong execution and near-term visibility, we are tightening our revenue growth outlook around the current midpoint. We now expect to generate full-year non-GAAP revenue growth of 7.4% to 8.0% compared to the 7.2% to 8.2% provided on the November call. This corresponds to an increased full-year GAAP revenue guidance of 6.6% to 7.2% for Fiscal 24. In tandem with our revenue outlook, we now expect an increase in annual non-debt margin expansion of 35 to 40 basis points, compared to 30 to 35 basis points previously provided. The full-year tax rate is now approximately 23.5%, with potential bias slightly higher.
Speaker Change: Based on positive year to date results from strong execution and near term visibility we are tightening our revenue growth outlook around the current midpoint.
Speaker Change: And now expect to generate full year non-GAAP revenue growth of seven 4% to 8.0 per cent compared to the seven 2% to eight 2% provided on the November call.
Speaker Change: This corresponds to an increased full year GAAP revenue guidance of six 6% to seven.
Speaker Change: 2% for fiscal 'twenty four.
Speaker Change: In tandem with our revenue outlook, we now expect an increase in annual non-GAAP margin expansion of 35 to 40 basis points.
Speaker Change: Compared to 30 to 35 basis points previously provided.
Speaker Change: Full year tax rate is now approximately 23, 5% with potential bias slightly higher.
Mimi Carsley: Incorporating the noted positive updates, full-year guidance for GAP EPS is revised upwards to $5.09 to $5.13 per share from previous guidance of $4.98 to $5.04 per share. As a reminder, the guidance for deconversion revenue compared to actual fiscal 2023 deconversion revenue, VDIP severance-related costs, and non-recurring gain on asset sales resulted in an approximate 37-cent headwind Lastly, some additional modeling commentary. We are comfortable with the current level of the Q3 consensus for revenue growth, operating margin, and GAAP EPS. Our full-year guidance of 60% free cash flow conversion is reiterated. However, the legislation that passed the House last week would have a material beneficial impact on fiscal 2024, free cash flow, and beyond. We are monitoring legislative progress and are hopeful for a swift and positive outcome.
Speaker Change: Incorporating the noted positive update full year guidance for GAAP EPS is revised upward to $5 nine to $5 13 per share from previous guidance of $4 98 to $5.04 per share.
Speaker Change: As a reminder that guidance for deconversion revenue compared to actual fiscal 2023 deconversion revenue.
Speaker Change: He gets severance related costs and non recurring gain on asset sales resulted in an approximate 37 cent headwind for fiscal 2020 for GAAP EPS.
Speaker Change: Lastly, some additional modeling commentary we are comfortable with the current level of Q3 consensus for revenue growth operating margin and GAAP EPS.
Speaker Change: Our full year guidance at 60% free cash flow conversion is reiterated.
Speaker Change: However, the legislation that passed the house last week would have a material benefit show impact on fiscal 2020 for free cash flow and beyond.
Speaker Change: We are monitoring legislative progress and are hopeful for a swift and positive outcome.
Operator: Based on the current bill language, if passed, our free cash flow conversion would rebound to historical norm levels, either in Fiscal 24 or Fiscal Year 25, depending on the timing of certain items. In conclusion, QT reflects the strong performance we've seen consistently in the first half and expects the remainder of our fiscal year. We are exceptionally positive about our ability to deliver innovative and in-demand solutions, the resilience of our clients, and our focus on execution and shareholder value creation. We appreciate all the contributions of our hardworking and dedicated associates who drove these strong results. We thank all Jack Henry investors for their continued confidence. Laura, will you please open the call for questions? We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: Based on the current Bill language, if past our free cash flow conversion would rebound to historical norm levels either in fiscal 'twenty for our fiscal year 'twenty five depending on the timing of certain items.
Speaker Change: In conclusion Q2 reflects the strong performance we've seen consistently in the first half and expect the remainder of our fiscal year. We are exceptionally positive about our ability to deliver innovative and in demand solutions. The resilience of our clients and our focus on execution and share.
Speaker Change: Holder value creation.
Speaker Change: We appreciate all the contributions of our hardworking and dedicated associates that drove these strong results.
Speaker Change: We think all Jack Henry investors for their continued confidence.
Speaker Change: Laura will you. Please open the call for questions.
Laura: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from John Davis of Raymond James. Please go ahead. Hey, good morning, guys.
Laura: Okay.
Laura: And our first question will come from John Davis of Raymond James. Please go ahead.
John Kimbrough Davis: Hey, maybe just wanted to follow up on the free cash flow comments that you just made, you know, getting back to historical levels, I'm assuming you mean kind of right around 100%. That would imply kind of 40 points of headway, www.kartikmehta.com, 25 or 30 points, so just, A, we just want to make sure that when you say historical levels, you're talking in and around 100%, and is it, you know, kind of 40 points of headway? Great question!
John Kimbrough Davis: Hey, good morning, guys.
John Kimbrough Davis: Wanted to follow up on the free cash flow comments that you just made now getting back to historical levels I'm, assuming you mean kind of right around 100%. So that would imply kind of 40 points of headwinds that.
John Kimbrough Davis: And that will get reversed I thought before it was maybe 25 or 30 points of just hey, I just want to make sure when you say historical levels youre talking to in and around 100%.
John Kimbrough Davis: And is that kind of 40 points of headwind this year.
Speaker Change: Andy Great question.
Mimi Carsley: I think it's premature to see the timing and the impact as to when that hits 2024 or 2025. But I would say certainly our historical norm range of 80 to 100% is where we believe we would revert back to. It just depends on the timing.
Speaker Change: Premature to see the timing and the impact as to when so whether that hits 2020 for 2025, but I would say certainly our historical norm range of 80% to 100% is where we believe we would revert back to.
It just depends on the timing.
Mimi Carsley: Okay, no, that's helpful. And then just on second half margins, I think the guide implies margins will be down year over year after being up over a hundred in the first half of the year, so maybe just talk a little bit about some of the headwinds. http://TheBusinessProfessor.com Yeah, so, we manage the business on a full year basis, J.D., and so as we think about it, we're pleased to have the additional margin expansion in Just in terms of the actual timing and seasonality of it, it just depends on when certain events like personnel-related costs and licensing costs occur in any particular quarter from a climb-over perspective. As you know, our first quarter is usually the highest margin of our year, and then typically, the end points are lower, so I wouldn't say to read anything more into the seasonality, and we're just basing it on a full year guide. Okay, great.
Speaker Change: Okay. No. That's helpful. And then just on second half margins I think the guide implies margins will be down year over year after being up over 100 in the first half of the year. So maybe just talk a little bit about some of the headwinds that <unk> faced kind of in the back half of fiscal 'twenty four.
Speaker Change: Yeah. So.
Speaker Change: We manage the business on a full year basis, J D and so as we think about it we're pleased to have them. The additional margin expansion in the guide that we provided yesterday and today I'm just in terms of the actual timing and seasonality of it it just depends on when certain events like.
Speaker Change: Personnel related costs licensing costs in any particular quarter from a climb over perspective as you know our first quarter is usually the highest margin of our year and then typically the end points are our last ourselves. So I wouldn't say read anything more into the seasonality and we are just based.
Speaker Change: It on a full year guide.
Speaker Change: Okay, Great and then and then Dave one for you, but also congrats on your retirement and your move to executive Chair and Greg Congrats on the CEO role, but Dave you talked a lot about the competitive environment being fairly favorable we continue to break records on the sales front pipeline as robust maybe you can talk a little bit about what specific products.
David B. Foss: And then, and then Dave, one for you, but also congrats on your retirement and your move to the executive chair. And Greg, congrats on the CEO role. But Dave, you talk a lot about the competitive environment being fairly favorable. We continue to break records on the sales front, and our pipeline is robust. Maybe you can talk a little bit about specific products, or is there a segment of the market that you're having outside success with? You know, the top line results and the sales have been very, very good over the last 12 months. And just maybe a little bit more color on what exactly it is... Sure.
Dave: Or is there a segment of the market that youre, having outsized success.
Dave: The topline results in the sales have been very very good over the last 12 months and just maybe a little more color on what exactly is driving that.
David B. Foss: Thanks, J.D. So, as I've said previously, you know, it's amazing. We're 47 years into our run as a core provider, and yet core continues to be a really strong driver. You know, I just quoted to you 14 wins in the quarter, four of them multibillion-dollar banks.
Dave: Sure. Thanks, JD. So as I've said previously it's amazing were 47 years into our run as a core provider and yet core continues to be really strong driver you know I just quoted to you 2014 wins in the quarter four of them multibillion dollar banks that definitely leads the industry by far as compared to anybody else in the industry. So core is.
David B. Foss: You know, that definitely leads the industry by far as compared to anybody else in the industry. So core is still a key driver for us. But then, you know, oftentimes tied to the core, but sometimes not.
Dave: It's still a key driver for us, but then oftentimes tied to the core but sometimes not and we have these other best of breed solutions and we've talked about many of them on the call before banner.
David B. Foss: And we have these other best-of-breed solutions, and we've talked about many of them on the call before. Bano, you know, Bano, the retail Bano solution has been a key driver for us. Well, now we have Bano Business in the equation, and you heard me quote the 56 contracts that were just signed in this quarter for Bano Business. There is a real demand for a solution like that, a modern, digital, brand-new digital banking solution like that for small to medium business clients. I've talked in the past about our treasury solution. Again, a modern digital treasury solution for large commercial clients. So, of course, it's not the bank that uses that.
Dave: Ban all of the retail banner solution has been a key driver for US will know we have been all business in the equation and you heard me quote to 56 contracts that were just signed in this quarter for <unk> business. There is a real demand for a solution like that a modern digital brand new digital banking solution like that for small medium business clients I've talked in the past about our treasury.
Dave: <unk> again, a modern digital Ah treasury solution for large commercial clients. So of course, it's not the bank that uses that as their their large commercial customer that uses that there hasn't been a brand new ground up treasury solution and certainly no digital first treasury solution written in many many years.
Dave: So that continues to be a driver for us fraud.
Dave: Crimes defender Greg just quoted the numbers to you as far as financial crimes defender, we have seven live, but we have a whole bunch of them now in the backlog because it's a brand new ground up.
David B. Foss: It's their large commercial customer that uses that. There hasn't been a brand-new, ground-up treasury solution, and certainly no digital-first treasury solution written in many, many years. So that continues to be a driver for us. Fraud, financial crimes defender: Greg just quoted the numbers to you as far as financial crimes defender is concerned.
Dave: Developed fraud solution.
Dave: The deal with fraud in today's environment and so its many of those things and do things like the correlation I think you need to make is.
Dave: Every one of those that I just talked about has been written brand new in the last two five years by Jack Henry. So these are not things that we acquired that we have to try and figure out how to make them. Modern those are these are things that Jack Henry has innovated, yes, where we paid a lot to do the development work, but when you get done with that you have something that is a best of breed solutions.
David B. Foss: We have seven live, but we have a whole bunch of them now in the backlog because it's a brand-new, you know, ground-up, developed fraud solution to deal with fraud in today's environment. And so it's many of those things, and the correlation I think you need to make is... Every one of those that I just talked about has been written brand new in the last five years by Jack Henry, so these are not things that we acquired that we had to try and figure out how to make them modern. These are things that Jack Henry has innovated.
Dave: <unk> centered around digital many of them centered around public cloud and there is a huge demand today for those types of offerings and so I don't see this slowing down at all if we're really well positioned today and we're continuing to innovate.
Dave: Key technology provider in our space.
Speaker Change: Great appreciate the color.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: And the next question will come from Nick <unk> of UBS.
David B. Foss: Yes, we paid a lot to do the development work, but when you get done with that, you have something that is a best-of-breed solution centered around digital, many of them centered around the public cloud, and there is a huge demand today for those types of offerings. And so I don't see this slowing down at all. We're really well-positioned today, and we're continuing to innovate as a key technology provider in our space. Thank you all.
Nick: Hey, guys. Thanks for taking my question and congrats Greg and Dave.
Nick: Firstly I just wanted to follow up on the payments segment and when can this thing get back into the 89% growth range. I know there was a few puts and takes called out which is lower card production.
You also have payroll.
Just to double this year I'm not I'm not sure if that is still on the table, but.
Speaker Change: Just be curious to hear your thoughts there.
Speaker Change: Thanks, Nick for the question.
Nick Cremo: Great. And the next question will come from Nick Cremo of UBS. Hey guys, thanks for taking my question and congratulations to Greg and Dave. First, I just wanted to follow up on the payment segment. And when can this segment get back into the 8-9% growth range? www.kartikmehta.com. We also have PayRails.
Speaker Change: So I would really point to you on the card within card within payments the processing related so that's the reoccurring nature of within that segment and that grew strongly at 8% and so that is an indicator of the overall success of that that segment and our ability to get back to you know.
Speaker Change: What we view them from the growth worth algorithm the prospects for that segment. So I would say some of the non processing related the pass through of the card production is more temporary and expect that the processing engine will continue to drive strong growth.
Mimi Carsley: It's supposed to double this year. I'm not sure if that is still on the table, but... I would be curious to hear your thoughts. Thanks, Nick, for the question. So I would really point to on the card, within the card, within payments, the processing related. So that's the reoccurring nature of within that segment, and that grew strongly at 8%. And so that is an indicator of the overall success of that segment and our ability to get back to, you know, what we view from the growth algorithm, the prospects for that segment. So I would say some of the non-processing related, the pass-through, the card production is more temporary, and I expect that the processing engine will continue to drive strong growth. Thank you.
Speaker Change: Thank you and then for my follow up maybe a more medium term question, but.
Speaker Change: Can you just discuss the opportunity you see for generative AI on the revenue side, but also more importantly on the cost side just relating to any of the benefits that you could see from increased software engineer productivity with.
Speaker Change: AI tools and call center automation. Thank you.
Speaker Change: So I'll start with one or you want to okay. So I'll start and then Greg will chime in here because this has been a.
Greg Adelson: And then for my follow-up, maybe a more medium-term question. You just discussed the opportunity you see for generative AI on the revenue side, but also, more importantly, on the cost side, just relating to any of the benefits that you could see from, you know, increased software engineer productivity with these AI tools and call center automation. Okay, so I'll start and then Greg will chime in here because this has been, as I'm sure you can imagine, a big topic of conversation for months around Jack Henry and lots of opportunities for us. So on the first slide, one thing I should be clear about: traditional AI, so machine learning and robotic process automation. Jack Henry has been in that business for years.
Speaker Change: As I'm sure you can imagine a big topic of conversation for months or around Jack Henry and lots of opportunities for us. So you know on the on the on the <unk> side. So one thing I should be clear about so traditional AI machine learning.
Greg Adelson: And robotic process automation Jackson, who has been in that business for years. So you know traditionally we've been doing that for a long time generative AI, which is specific to your question Nick.
Greg Adelson: Lots of opportunities there on the development side and the trick on the development side is our primary value is through our IP or intellectual property and so when you're using generative AI to write code you have to be really really careful with nothing that youre doing becomes part of the public domain and so we're being very careful about what are we doing and how are we doing it but we.
Greg Adelson: So traditional AI, we've been doing that for a long time. Generative AI, which is specific to your question, Nick, lots of opportunities there for development. But the trick on the development side is that our primary value is through our IP, right, our intellectual property. And so when you're using generative AI to write code, you have to be really, really careful that nothing that you're doing becomes part of the public domain.
Greg Adelson: Our active today with our development teams using generative AI you pointed out our customer service offerings. So that is an area that we're focused on internally and I'll, let Greg touch on that but we also rolled out at our client conference in October a generator offering for our customers to serve their customers and that was well received at our client conference.
Greg Adelson: Here in the fall and then if you think about all of the processes that we do within Jack Henry that have known or not customer service and are not software development.
David B. Foss: And so we're being very careful about what we do and how we do it, but we are active today with our development teams using generative AI. You pointed out customer service offerings, so that is an area that we're focused on internally, and I'll let Greg touch on that, but we also rolled out at our client conference in October a generative AI offering for our customers to serve their customers, and that was well received at our client conference here in the fall. And then, if you think about all the processes that we do within Jack Henry that are not customer service and are not software development, just automating things we do within the company is another big area of focus, and I'll let Greg add his thoughts.
Greg Adelson: Just automating things, we do within the company is another big area of focus and I'll, let Greg add his thoughts yeah. No I think I mean, I think the other thing I would add is that we're we're also making sure we have strong governance around what we do and so we're taking a lot of time to make sure that we're evaluating we're partnering with Google and a couple of other <unk>.
Greg Adelson: <unk> that we have some solutions with two to kind of test the models.
Greg Adelson: Opportunities here not only in the contact center as David mentioned.
Greg Adelson: But also in a couple of other products I did mentioned.
Greg Adelson: The AI assist kind of module that we would use in some of our data.
Greg Adelson: Analysis that we call executive dashboard for the C suite folks and so there's there are several opportunities that we're still evaluating but again, we want to make sure that we get this right and that we're building it with the right guardrails.
David B. Foss: Yeah, no, I think, I mean, I think the other thing I would add is that we're also making sure we have strong governance around what we do, and so we're taking a lot of time to make sure that we're evaluating. We're partnering with Google and a couple of other folks that we have some solutions with to kind of test some models. We're using opportunities here not only in the contact center, as David mentioned, but also in a couple of other products.
Greg Adelson: And things along that line, but you'll continue to hear more about where we're going with that in the coming months.
Greg Adelson: Yeah.
Greg Adelson: Okay.
Greg Adelson: And our next question will come from Jason Kupferberg of Bank of America Merrill Lynch.
Jason Alan Kupferberg: Okay. Thanks, guys I wanted to come back to some of the pipeline comment certainly seems encouraging that you've got some real solid stability in the pipeline. Despite having a really strong quarter of bookings. So can you talk about how the composition of the pipeline has changed in recent quarters in terms of say customer size product mix.
Greg Adelson: I mentioned the AI Assist kind of module that we would use in some of our data analysis that we call the Executive Dashboard for the C-suite folks, and so there are several opportunities that we're still evaluating, but again, we want to make sure that we get this right and that we're building it with the right guardrails and things along that line, but you'll continue to hear more about where we're going with that in the coming months Our next question will come from Jason Kupferberg of Bank of America in Maryland, guys, on the pipeline despite having a really strong quarter of booking. So can you talk about how the comp...
Jason Alan Kupferberg: And.
Jason Alan Kupferberg: If there's if there's any.
Jason Alan Kupferberg: Numbers, you want to share around that just in terms of helping us understand the composition of the pipeline.
Speaker Change: That'd be great sure sure Jason I wouldn't say that there's significant notable change in the composition of the pipeline is we have a number of core deals. So again, we just signed 14 or announced 14 deals here.
Speaker Change: That is not slowing down I would say that the size of those core opportunities, meaning the size of the institution.
David B. Foss: Pipeline, The Bulletproof Executive 2013 www.youtube.com www.globalonenessproject.org, Jason, I wouldn't say that there's been a significant, notable change in the composition of the pipeline. We have a number of core deals, so again, we just announced 14 deals here. That is not slowing down.
Speaker Change: Has gone up and is continuing to go up so we are being recognized among the larger.
Speaker Change: Community and regional bank space as being a real player.
Speaker Change: So I think the overall size of the institutions Bank and credit Union has has gone up but then if you look at the rest of the mix. Most of it are the things that I highlighted when I was kind of going through with J D.
David B. Foss: I would say that the size of those core opportunities, meaning the size of the institution, has gone up and is continuing to go up, so we're being recognized among the larger community and regional bank space as being a real player, and so I think the overall size of the institution's bank and credit union has gone up. But then, if you look at the rest of the mix, most of it is the things that I highlighted when I was kind of going through with JD, the hot topics today, and what's driving that success. It's all this brand new technology that we're offering today, so two years ago, almost nothing of these, except Bano, was on the list, but now all these things have been rolled out in the last couple of years, and they are dominating the sales process today because they're brand new technology, people have been hungry for these things. A brand new fraud solution that uses AI, I mean, everybody's dying for that type of technology, and so
Speaker Change: The hot topics today, you know what's driving that success. It's this all of this brand new technology that we have that we're offering today. So two years ago almost nothing of those except panel was on the list, but now all of these things have been rolled out in the last couple of years and they are dominating the sales.
Speaker Change: Process today, because they are brand new technology people who've been hungry for these things are brand new fraud solution that uses AI and everybody's dying for that type of technology and so here. We are we've just gone live with financial crimes defender and so much of it is because of these brand new things that have been rolled out in the last year or two or three that's what's dominating that.
Speaker Change: A lot of the sales conversations today and that's what's driving a lot of the strengths in the in the pipeline because you look at what's happening with our competitors in the space, There's really nothing innovative that's been coming out in the last couple of years and here Jack Henry has a long list of brand new innovative solutions.
David B. Foss: We've just gone live with Financial Crimes Defender, and so much of it is because of these brand new things that have been rolled out in the last year or two or three. That's what's dominating a lot of the sales conversations today, and that's what's driving a lot of the strengths in the pipeline. Because you look at what's happening with our competitors in the space, there's really nothing innovative that's been coming And then on the competitive landscape in core, are you guys seeing a broader range of competitors? www.kartikmehta.com Yeah, I'd say no change at all. You know, we compete against traditional players. We've competed against the traditional players forever.
Speaker Change: And then on competitive landscape in core are you guys seeing a broader range of competitors. If you continue to move a little bit further upmarket, maybe others are trying to move a little bit more downmarket, just how are competitive dynamics in core evolving.
Speaker Change: Yes, I'd say no change at all and others, we compete against.
Speaker Change: The traditional players we've competed against the traditional players forever. There have been ups starts you know trying to either come into the U S internationally or start from scratch and none of those are really even showing up in rfps.
Speaker Change: With the exception of once or twice a year. So I wouldn't say, there's any change of any kind on the core side as far as the competitive landscape.
Mimi Carsley: There have been upstarts, you know, trying to either come into the U.S. from abroad or start from scratch, but none of those are really even showing up in RFPs with the exception of, you know, once or twice a year. So I wouldn't say there's any change of any kind on the court side as far as the competitive landscape. I would expect Q3 to be fairly subdued and then followed by a stronger Q4 just based on typical seasonality. Yeah, I think that's fair to say.
Speaker Change: Okay, just a housekeeping one for me on free cash flow I know you are maintaining the guide I'm assuming.
Speaker Change: Changes in legislation.
Speaker Change: But fair to say that Q3 would be fairly subdued and then followed by a stronger Q4, just based on typical seasonality.
Speaker Change: Yeah, I think that's fair to say.
Mimi Carsley: And I think, if anything, we're reiterating the guide, but there's probably a little bit of upside there, even without legislation. Okay, well, thanks for that. And next, we have a question from David Tugut of Evercore ISI. Thank you, good morning, and congratulations to you both, Dave and Greg.
Speaker Change: And I think if anything we're reiterating the guide, but theres, probably a little bit of upside there.
Speaker Change: Even without legislative change.
Speaker Change: Okay, well thanks for that.
Speaker Change: Okay.
Speaker Change: And next we have a question from David <unk> of Evercore ISI.
Okay. Thank you good morning, and congratulations to both David Greg.
David Mark Togut: Dave, I know when you initially became CEO eight years ago, one of your major priorities was the card migration platform, moving your kind of back-office processing of debit cards over to the back office of what was then First Data, now Fiserv First Data, and then, obviously, adding the capability to do credit card processing on top of that. You know, where do we stand, um, overall in this initiative in terms of the cost savings that have been delivered to Jack Henry, and then where are you in terms of the uptake of credit card processing? Yeah, so I'll start, but I'll ask Greg. Greg's a lot closer to the details as far as where we are today.
David B. Foss: Dave I know when you initially became CEO eight years ago. What are your major priorities was the card migration platform move in your kind of back office processing of debit cards, you know over the back offices.
Speaker Change: Then for stated now Fiserv first data and then obviously.
Speaker Change: Adding the capability to do credit card processing on top of that.
Speaker Change: Where do we stand overall on this initiative in terms of the cost savings it's delivered to Jack Henry and then where are you in terms of the uptake of the credit card processing offering.
Speaker Change: Yeah, So I'll start, but I'll ask Greg Greg's a lot closer to the details as far as where we are today. So from my perspective. This has been a a wildly successful initiative for Jack Henry and at the time and I've been in this business a long time and the idea of bringing three companies together to deliver a solution that's going to replace two different platforms all to one platform.
Greg Adelson: So from my perspective, this has been a wildly successful initiative for Jack Henry. And at the time, you know, I've been in this business a long time, and the idea of bringing three companies together to deliver a solution that's going to replace two different platforms, you know, all on one platform was a very, very big, daunting project. But now looking back on it, it's been incredibly successful for our company as far as hitting the targets that we expected to hit financially for Jack Henry as far as the sales opportunities that it's created, which have been very significant over the past few years. So I look back on that project as a really significant success.
Greg Adelson: Was a very very big daunting project.
Greg Adelson: But now looking back on it and it's been incredibly successful for our company as far as hitting the targets that we expected to hit a financially for Jack Henry as far as the sales opportunities that it's created which had been very significant over the past few years. So I look back on that project is a really significant success now the thing I will emphasize before I ask Gregg.
Greg Adelson: Now, the thing I will emphasize before I ask Greg to chime in here is that I said all along you are not going to see the credit card side of this business become anywhere close to what the debit card side is. We were doing, we were focused on the credit card side because we had certain customers who said, we want to process both debit and credit cards with the same provider, and we wanted to make sure that we had that option for them. And so I'll ask Greg to kind of talk about where we are today. Yeah, specifically on the credit card, so we, roughly between full service card, agent card, in-house card, you know, we have roughly over 100 institutions. And so, and I think part of the challenge is, you know, some of the smaller institutions, which is why we came out with the agent program, were they really didn't want to go in with the full service just based on resources and some of the risk and things like that.
Gregg: In here I said, all along you are not going to see the credit card side of this business become anywhere close to what the debit card side side. As we were doing we were focused on the credit card side, because we had certain customers, who said we want to process, both debit and credit with the same provider and we wanted to make sure that we have that option for them and so I'll ask Greg just kind of talk about where we are.
Greg Adelson: Yes, specifically on the credit card. So we roughly between full service card agent card in house card, we have roughly over 100.
Greg Adelson: Institutions.
Greg Adelson: And so and I think part of the.
Greg Adelson: The challenges some of the smaller institutions.
Greg Adelson: Which is why we came out with an agent program was they really didn't want to go in with the full service just based on our resources in.
Greg Adelson: And some of the risk and things like that so I think we've done the team continues to sell it we continue.
Greg Adelson: To have the number of deals come in just not to the same level as as debit continues to grow.
Greg Adelson: But also we're continuing to add feature functionality to the services.
Greg Adelson: So I think we have done, the team continues to sell it. We continue to have, you know, the number of deals come in, just not at the same level as debit continues to grow. But also, you know, we're continuing to add features and functionality to the services. As Dave mentioned, it is a tri-party relationship, and we continue to work with the other two parties to make sure that, you know, we stay innovative and ahead of the game. So the relationship has actually gone well, which has actually contributed to the fact that the growth has been significant as well, both from a service side and a transaction processing side. Thanks for that!
Greg Adelson: As Dave mentioned it is a it is a tri party relationship and we continue to work with the other two parties to make sure that we stay innovative and ahead of the game. So the relationship has actually gone well, which is actually contributed to the fact that the.
Greg Adelson: That the growth has been significant as well so both from a service side.
Greg Adelson: A transaction processing side.
Speaker Change: Thanks for that and just as a follow up.
Speaker Change: Jack Henry outperformed on gross margin versus our model and I know you initiated a beta program, a few quarters ago, which which Mimi I think you describe to what extent did vita uptake actually help gross margin in the quarter. So like stripping out any onetime charge benefits of focusing more on like <unk>.
Mimi Carsley: And just as a follow-up, Jack Henry outperformed on gross margin versus our model. And I know you initiated a VDIP program a few quarters ago, which Mimi, I think you described. To what extent did VDIP uptake actually help gross margin in the quarter? So, like stripping out any one-time charge benefit, and focusing more on sustainable reductions in the cost of labor. Yeah, I wouldn't say that it had, you know, a significant impact. That was a one-time charge related to some kind of severance and the program. We, as we said, didn't do it for any kind of in-year savings. This wasn't a sneaky kind of design rift plan.
Speaker Change: Favorable reductions in cost of labor.
Mimi: Yeah, I wanted to say that it had.
Mimi: You know a significant impact that was a one time charge related to kind of sovereign and the program. We as we said we didn't do it for kind of in year savings. This wasn't a sneaky.
Mimi: Can you kind of design risk plan. This was a very talent focused plan to ensure that we had that type of talent for the future needs of the organization.
Mimi Carsley: This was a very talent-focused plan to ensure that we had the type of talent for the future needs of the organization. And in fact, the majority of those roles have been filled with, you know, rising talent in the organization. Some at lower levels in the organization as we zero-based budgeted every position, but the majority of those roles have been filled. So, I wouldn't say it was a significant reason for the margin expansion or the expense savings this quarter. Thank you. Welcome.
Mimi: And in fact, the majority of those roles have been back filled with.
Mimi: Rising talent in the organization summit last lower levels in the organization as we zero based budget every position, but the majority of those roles have been filled so I wouldn't say with cigna.
Mimi: A significant reason.
Mimi: The reason for the margin expansion or are they expense savings this quarter.
Understood. Thank you.
Mimi: Welcome.
Vasundhara Govil: The next question will come from Vasu Govil of KBW. Hi, thanks for taking my questions, and I want to add my congratulations to Dave and Glenn. My first question is on Bannow, https://www.youtube.com. And I caught that Bano Business was a contributor there, but even without that, it seems like http://TheBusinessProfessor.com higher than the quarterly average. Any call-outs on that? And apologies if I missed it, but did you give us the number of customers that we signed up last year? Yeah, $11 million.
Mimi: Okay.
Mimi: The next question will come from Vasu <unk> of K B W.
Vasu: Hi, Thanks for taking my questions and I want to add my congratulations to Dave and Greg.
Vasu: My first question is on <unk>. It seems to have had an outstanding quarter in number of new wins and I caught that.
Vasu: <unk> business was a contributor there, but even without that it seems like the number of wins for significantly higher than the quarterly average any callouts on that and apologies if I missed it but did you give us a number of them.
Vasu: Customers in millions that you usually give every quarter.
Vasu: The number of customers that we signed is that what youre asking.
Speaker Change: Thank you.
Speaker Change: Right right right, yes, $11 million, we surpassed 11 million at the end of the quarter. So I quoted that.
Speaker Change: $11 million and so no. There's nothing I think part of what happened here is you know I quoted the number for the <unk> business wins, and then beyond banner business with the regular banner platform.
David B. Foss: Yeah, we surpassed $11 million at the end of the quarter, so I quoted that $11 million. And so, no, there's nothing. I think part of what happened here is, you know, I quoted the number of wins for Banto Business, and then beyond Banto Business with the regular Banto platform, that number was up. I think the reason for that is because there were people out there waiting for Banto Business before they would also sign up to go to the regular Banto platform, which includes retail. And so that's the significant point. Now that Banto Business is in the market, generally available, we have customers who said, okay, I've been holding off because I want to do both at the same time, both Banto Business and regular Banto. That would be the only call-out that I would have as far as the size of the wins is concerned.
Speaker Change: That number was up I think the reason for that is because there are people out there waiting for banjo business before they would also signed to go into the regular banner platform, which includes retail and so that's the significant point now that <unk> business is in market generally available we had customers who said, okay I have been holding off because I wanted to do both at the same time, both panel business and Uh Huh.
Speaker Change: Regular panel that would be the only callout that I would have as far as the.
Speaker Change: The size of the wins.
Speaker Change: And just in terms of relative revenue opportunity, if you're just selling benno regular versus <unk> plus panel.
Speaker Change: <unk>.
Speaker Change: Is it a two X opportunities at greater on the panel business is.
Greg Adelson: And just in terms of relative revenue opportunity, if you're just selling Bando regular versus Bando Plus, is it a 2x opportunity, is it greater on the Baino business side? Yeah, so I think one thing that we need to clarify: you have to have Bano retail to have a Bano business. So, one of the things that Dave was just alluding to is that some of the folks who were waiting to get Bano business or Bano retail were waiting on Bano business and they wanted them at the same time. You can buy Bano retail without buying Bano business, but you have to have retail to get the business side.
Speaker Change: Yes, So I think one thing that just to make sure that we clarify so you have to have been a retail to have banner business.
Speaker Change: One of the things that Dave was just alluding to is that some of the folks who are waiting to get Bandele business. Our banner retail is because they were waiting on <unk> business and they wanted them at the same time, you can by banner retail without buying banner business, but you have to have retail to get to the business side. So so back to the two X comment I don't think it's a two X component.
Speaker Change: It is an additive component to ensuring that one that we get the retail and we continue to add fee structures to that based on how we model that but but I wouldn't call. It a two X.
Mimi Carsley: So, back to the 2X comment. I don't think it's a 2X component. It is an additive component to ensuring that one, we get the retail, and we continue to add fee structures to that based on how we model that, but I wouldn't call it a 2X. That's how. And then a quick one for you, Mimi. I appreciate that the midpoint of the revenue guide. It does look like you took off the top end just a little bit, and I know you called out that card production slowed down. Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com/policies. Good question, Patu.
Speaker Change: Understood. That's helpful. And then a quick one for you Mimi I appreciate that the midpoint of the revenue guide didn't change, but it does look like you took off the top and just a little bit and I know you called out the card production slow down was that the bigger driver or any sort of other call outs on on how you see that evolving.
Mimi: Good question got you I think generally the tightening was more so based on our confidence as we're now halfway through the year with strong results. Since you know already banked and the ability to really center around that guide and so I think it's more that than thinking about the top end comes.
Kartik Mehta: I think generally, the tightening was more so based on our confidence as we're now halfway through the year with strong results and, you know, already banked on the ability to really center around that guide. So I think it's more than thinking about the top end coming down, just feeling more and more confident about that midpoint. We still have a second half to go here and a decent amount of growth that we have anticipated in our plan, especially in Q3 and Q4 around processing, around cards, around our payments business. So, too early yet to say it's going to be higher than that, but we are very confident in our ability to deliver. The next question is from Kartik Mehta of North Coast Research. Hey, good morning.
Mimi: Down just feeling more and more confident about that mid point, we still have a second half to go here and and a decent amount of growth that we have anticipated in our plans, especially in Q3 and Q4 around processing around card around our payments business. So too early yet to see.
Mimi: Say, it's going to be higher than that.
Mimi: But very confident in our ability to deliver.
Thank you very much.
Mimi: Okay.
Speaker Change: The next question is from car T Mehta of Northcoast research.
Speaker Change: Hey, good morning, Steve you've commented a lot on core and obviously, Jack Henry is doing well, but as you look at the market. What would you anticipate in terms of number of core deals I know.
David B. Foss: Dave, you know, you've commented a lot on core and, obviously, Jack Henry's doing well. But as you look at the market, what would you anticipate in terms of the number of core deals? I know, when COVID happened, it kind of slipped, and then we went back to kind of normal.
Speaker Change: When COVID-19 happened and kind of slipped and then we went back to kind of normal. So as you look at 2024, what would you anticipate the number of deals that might show up in the marketplace.
Steve: Oh, well, it's it's a pretty predictable number you know every year, it's somewhere around 100 deals in total that happened per year as far as somebody leaving wherever is their current provider and going to a different provider, that's not hey, I'm staying with my same provider and switching to another system. It is going to a different provider normally.
David B. Foss: So as you look at 2024, what would you anticipate the number of deals that might show up in the marketplace? Well, it's a pretty predictable number, you know, every year it's somewhere around a hundred deals in total that happen per year as far as somebody leaving whoever is their current provider and going to a different provider. That's not, hey, I'm staying with my same provider and switching to another system.
Steve: About 100 deals a year is a good number to use on average.
Steve: Perfect.
Steve: You've talked about obviously the sales pipeline being very strong I think Craig talked about maybe hiring more people.
Steve: As you look at your sales pipeline and kind of look.
David B. Foss: It is going to a different provider; normally, about a hundred deals a year is a good number to use on average. And you've talked about the sales pipeline being very strong. I think Greg talked about maybe hiring more people. And as you look at your sales pipeline and kind of look out forward, you know, how much confidence can you have in that revenue that's going to come up in terms of the number of quarters you feel good that as that revenue converts, you'll be able to put up kind of this high single-digit revenue growth? On the core side, we have very accurate predictability. We go through this chart monthly as far as the core conversions that are slotted, whether it's a new core customer coming in, it's a customer moving from in-house to our private cloud environment, or if it's a customer who's acquiring another institution and we're merging them in. We have all those things.
Steve: Forwards.
How much confidence can you look at that revenue that's going to come up in terms of the number of quarters you feel good.
Steve: That is that revenue converts that you'll be able to put up kind of high single digit revenue growth.
Speaker Change: We are on the growth side, we have very accurate predictability, we have a we go through this monthly.
Speaker Change: The chart as far as the core conversions that are slotted, whether it's a new core customer coming in its a customer moving from in house to our private cloud environment or if it's a customer who is acquiring another institution and we're merging them in we have all of those things we have great great.
Speaker Change: Great dashboard tools that we use at Jack Henry So it's very predictable for us.
Speaker Change: Turning to it at all.
Speaker Change: The only add on I would say as we look at that on an annual basis. So in any one quarter depending on prior year at the comp of the size of the organization that was being implemented or migrated versus this year.
Mimi Carsley: We have great dashboard tools that we use at Jack Henry, so it's very predictable for us. The only add-on I would say is we look at that on an annual basis, so in any one quarter, depending on the prior year, the comp of the size of the organization that was being implemented or migrated versus this year, you know, the size of an organization, we still feel confident in that number, but it can vary quarter to quarter depending on just the roster of slots and the profile of those customers. So that's the only color I would add.
Speaker Change: As an organization, we still feel confident in that number but it can vary quarter to quarter, depending on just the roster of slots in the profile of those customers. So that's the only color I would add.
Speaker Change: Just one last question maybe for you you talked a little bit about the free cash flow and let's assume that the legislation doesn't pass, but you're still seemed confident that maybe there is upside to the original guide on free cash flow conversion and I'm wondering maybe what.
Mimi Carsley: Just one last question, Mimi, for you. You know, you talked a little bit about free cash flow, and let's assume that the legislation doesn't pass, but you still seem confident that maybe there's upside to the original guide on free cash flow conversion, and I'm wondering maybe what's behind that or what's changed since the original guide to give you confidence that maybe it'll be better. Yeah, I think a couple of things that are coming in. One is just the certainty of the results that we have had year to date.
Speaker Change: What's behind that or what.
Speaker Change: <unk> changed since the original guide.
Speaker Change: To give you confidence that maybe it will be better.
Speaker Change: Yeah, I think a couple of things that are coming in one is just the uncertainty of the results that we have year to date. The other is as we lowered the tax rate.
Speaker Change: As part of the guide that helps from a cash flow as well. So there's just a couple of small components as we fine tune the free cash flow forecast for the remainder of the year that makes me feel comfortable about their being upside there.
Mimi Carsley: The other is as we lower the tax rate, as part of the guide, that helps from a cash flow perspective as well. So there are just a couple of small components as we fine-tune the free cash flow forecast for the remainder of the year that make me feel comfortable about there being upside there. Thank you very much.
Speaker Change: Thank you very much.
Chris Kennedy: The next question comes from Chris Kennedy of William Blair. Good morning, and thanks for taking the question and congratulations to Greg and David. Regarding the technology... Is there a way to think about the revenue opportunity associated with that, and if you could maybe frame it again? The private cloud transition that you guys have been going through for the last 10 years or so. Yeah, I think you have to think about it differently than a private cloud transition because that was truly pulling, as Dave has alluded to many times, pulling a customer out, and it was typically a 2X kind of thing. I don't think that when you look at the tech modernization, because depending on the number of components that are purchased and really the advent of the timing of some of that, it isn't a take everything we have today and move it over.
Speaker Change: The next question comes from Chris Kennedy with William Blair.
Chris Kennedy: Good morning, and thanks for taking the question and congratulations to Greg and David.
Chris Kennedy: Uh huh.
Chris Kennedy: Regarding the technology initiatives is there a way to think about the revenue opportunity associated with that and if you could maybe frame that against the.
Chris Kennedy: The private cloud transition that you guys have been going through for the last 10 years or so.
Speaker Change: Yes, I think it's you have to think about it differently than the private cloud transition because that was truly pulling.
Speaker Change: As Dave has alluded to many times pulling a customer out and it was typically a two X kind of thing I don't think that when you look at the tech modernization because depending on the number of components that are purchased in and really the the.
Speaker Change: Advent of the timing of some of that it isn't a take everything we have today and move it over.
Mimi Carsley: So it isn't that same level of revenue growth, but the part that is exciting for us is the ability to take these components, drive, again, an additional wedge into the relationship, and create that opportunity for larger customers or smaller customers to dip their toe into the public cloud. And as Dave has said many, many times, I mean, you know, there's a lot of our customers that aren't ready to do this. But there are some that are ready and, you know, part of our beta process today.
Speaker Change: So it isn't that same level of revenue growth, but the part that is exciting for us is the ability to take these components draw.
Speaker Change: Drive again, and additional wedge into the relationship and create that opportunity for larger customers or smaller customers to dip their toe into the public cloud and as David said, many many times I mean there.
Speaker Change: There's a lot of our customers that aren't ready to do this there are there some that are already in part of our beta process today.
David B. Foss: So there's going to be a constant evaluation of the timing of when that, you know, big hit comes. But, you know, we do know that it's coming based on the feedback that we're getting from some of the larger institutions that we've been speaking to because they're more apt to do this sooner than later. And so just continued growth on that path. But, you know, there's still some time before, you know, we can give much certainty or, what I would say, certainty on some of the revenue from parts of this. The other thing I'll add to this, Chris, that's important to keep in mind is that there are components that will be offered now. This is not an apple to apple comparison of the old core versus the new core. You know, the way we used to think of core, and now it's just the same thing, but it's on a different platform.
So that's going to be a constant evaluation of the timing of when that big hit comes but we do know that it's coming based on the feedback that we're getting from some of the larger institutions that we've been speaking to because they're more apt to.
Speaker Change: To do this sooner than later.
Speaker Change: And so just continued growth in that path, but there's still some time to be taken before we can give a much certainty or what I would say certainty on some of the revenue.
Speaker Change: The other thing I'll add to this Chris it's important to keep in mind. There are components that will be offered now. So this is not an apples to apples comparison of the old core versus new core the way we used to think of core and now. It's just the same thing it's on a different platform. There are components of what we'll be offering with us that nobody has ever offered before and Greg alluded earlier to data broker that has not been an offering that has not been a.
David B. Foss: There are components that we'll be offering with this that nobody has ever offered before. And Greg alluded earlier to Data Broker. That has not been an offering.
Speaker Change: Thing as far as the industry is concerned that's brand new opportunity brand new revenue.
Greg Adelson: That has not been a thing as far as, you know, the industry is concerned. That's a brand new opportunity, brand new revenue. It's part of the core offering, if you will, in the future. But there are several other examples like that that create a revenue upside opportunity. But it's not, you just have to think about it differently than the way we've thought previously about converting a core from one platform to another.
Speaker Change: It's part of the core offering if you will in the future, but there are several other examples like that that that create a revenue upside opportunity, but its not you just have to think about it differently than the way we've thought previously about converting our core from one platform to another.
Speaker Change: Yeah, and I think one thing I do want to add is that.
Speaker Change: We will get to a point, where we talk about platform.
Speaker Change: As is really the driver of what sits on that platform. So data broker executive dashboard or open banking solutions other things like we already mentioned defender.
Greg Adelson: Yeah, and I think one thing I do want to add is that, you know, we'll get to a point where we talk about the platform as being really the driver of what sits on that platform. So data broker, executive dashboard, or open banking solutions, other things, like we already mentioned, Defender, Bano, all those components are all going to sit on the platform and will drive additional revenue. And then just following up on, in the press release, you talked about 28 and a half percent growth in digital revenue in the first half of the year. Is there a way to think about the contribution from digital within services and support revenue? Thanks for taking the time to answer this question. Yeah, let me get back with you on that detail. Okay, the next question comes from Andrew Schmidt of Citi. Hey Dave, Greg.
Speaker Change: All of those components are all going to sit on the platform.
Speaker Change: We will drive additional revenue.
Speaker Change: Understood. Thank you for that and then just following up on in the press release, you talked about 28, 5% growth in digital revenue in the first half of the year is there a way to think about the contribution from digital within the services and support revenue. Thanks for taking the question.
Speaker Change: Yeah, let me get back on with you on that detail.
Speaker Change: Thank you.
Speaker Change: Okay and the next question comes from Andrew Schmidt of Citi.
Andrew Schmidt: Hey, Dave Gregg Thanks for having me on the call.
Andrew Schmidt: So quick question on just the just the poor wind side of things you mentioned the funnel the number of rfps being relatively consistent but I'm curious if there's any changes in win rates just given what youre seeing in competitive environment. It seems fairly advantageous from a competitive perspective, some serious I'm curious if there is.
Andrew Schmidt: So, a quick question on just the... We mentioned the funnel, the number of RFPs being relatively consistent. I'm curious if there's been any changes in wind rates, just given what you're saying. ®MD-BO ®MD-BO series. I'm curious.
David B. Foss: Yeah, Andrew, I don't think there's anything notable again, with only 100 deals happening per year, we're in the 50 to 55, or have been for a while at 50 to 55. So we're winning more than half of those opportunities per year. I don't know that there's anything, you know, getting to 60 is a big deal for us. But you know, from a percentage basis, that doesn't look real huge.
Andrew Schmidt: Any changes on the win rate front, thanks, a lot guys.
Andrew Schmidt: Yeah.
Andrew Schmidt: I don't think there is anything notable again with only 100 deals happening per year were in the $50 to 55 or have been known for a while $50 to 55, so we're winning more than half of those opportunities.
Andrew Schmidt: Per year, I don't know that Theres anything.
Andrew Schmidt: Giving the 60 is a big deal for us but.
Andrew Schmidt: From a percentage basis. It doesn't look real huge so I don't think I would call out anything as being significant or our challenge and our job is to make sure we maintain that rate because as I said before we are by far leading the industry and as long as we maintain that rate that bodes well for us as far as our R. R.
Greg Adelson: So I don't think I would call out anything as being significant. Our challenge and our job is to make sure we maintain that rate. Because, as I said before, we are by far leading the industry. And as long as we maintain that rate, that bodes well for us as far as our, our, our algorithm for revenue growth, and so on. So nothing significantly notable there.
Andrew Schmidt: Algorithm forward looking algorithm of revenue growth and so on so nothing significantly notable there.
David B. Foss: Makes a ton of sense. And then if you talk about just the views on acceptance of the public cloud, you hear that, you know, it's slow, but obviously attitudes are changing. For more information, visit www.FISA.gov or http://TheBusinessProfessor.com like a general ledger and broader work.
Speaker Change: Got it it makes a ton of sense and then if you can talk about just the views on acceptance of the public cloud.
Speaker Change: We're hearing that.
Slow, but obviously attitudes are changing towards more corporate having things like the general ledger and the cloud maybe you could just talk through the process that have to work through.
Speaker Change: Sure themselves to be comfortable with hosting things like a.
Speaker Change: General Ledger.
Speaker Change: Broader core components in the cloud that'd be great. Thanks.
David B. Foss: Yeah, it's an interesting question, interesting topic, frankly, you know, I've been doing this for a long time and kind of listening to and talking to all the financial institutions that we talk to, they all want to get there, they're all trying to figure out how do we get there, many of them are not quite sure how to get there, and with the regulatory environment that we live in, you know, regulators are not saying, hey, we think you should go do this. So there's a lot of walk before you run happening where people, and that's part of where our Jack Henry platform strategy really, really positions us well, because what our strategy allows people to do is adopt a modularized approach, I'm going to do wires in the public cloud and kind of see how that goes and make sure I don't have a regulator knock on my door and say, what are you guys doing, you know, so they can kind of ease into the public cloud environment.
Speaker Change: An interesting it's an interesting question interesting topic critically you know I've been doing this for a long time and kind of listening to and talking to all the financial institutions that we talk to they all want to get there they're all trying to figure out how do we get there. There's many of them are not quite sure how to get there and with the regulatory environment that we live in.
Speaker Change: The regulators are not saying Hey, we think you should go do this so there's a lot of walk before you run happening where people in and that's part of where our Jack Henry platform strategy really it really positions us well because what our strategy allows people to do is adopt a modularized approach I'm going to I'm going to do wires in the public cloud and kind of see how that goes.
Speaker Change: And make sure I don't have a regulator knock on my door and say what are you guys doing.
Speaker Change: So they can kind of ease into the public cloud environment, but we have several of our noncore solutions today fully public public clouds O'bannon was there a financial crimes defend or something that we've talked about today, but as far as the core functionality. This whole strategy allows people to walk before they run and that is appealing to a lot of folks that we're talking to and so we.
David B. Foss: But, you know, we have several of our non-core solutions today, fully public cloud, so Banna was there, Financial Crimes Defender, some that we've talked about today, but as far as the core functionality, this whole strategy allows people to walk before they run, and that is appealing to a lot of folks that we're talking to, and so we think that's going to help with the question that you're asking. Thank you very much.
Speaker Change: Think that's going to help with the question that you're that you're asking.
Speaker Change: Thank you very much.
Speaker Change: Yes.
Speaker Change: And our next question comes from James Faucette of Morgan Stanley.
Speaker Change: Yeah.
James Fawcett: And our next question comes from James Fawcett of Morgan Stanley. Great. Thank you very much, Greg and Dave, you...
Great. Thank you very much.
James Faucette: Greg and Dave extend my congratulations to both of you.
Speaker Change: Wow.
Greg Adelson: Implementation Resources I think you've talked about 150 plus clients, and I'm wondering if there's any benefit or about potentially increasing that number. For the committee, increasing resources to accelerate those implementations a bit, or do you feel pretty comfortable with the pacing that you've got right now? No, that's a great insightful question.
James Faucette: Just in terms of the.
James Faucette: The implementation resources I think you've talked about 150, plus clients and implementation for financial crime quick vendor and another 70 for Benno business I'm just wondering.
James Faucette: If there is any benefit or should we think about potentially increasing committee increasing resources.
To accelerate those implementations a bit or do you feel pretty comfortable with.
James Faucette: The pace and that you've got right now.
Speaker Change: No. That's a great insightful question. So we do that on a regular basis. So we meet with the team on a monthly basis based on installation Q. So we do look at kind of what the time is to do an implementation for a particular product can we add resources that will add value and getting those that revenue on the into the company fast.
Greg Adelson: So we do that on a regular basis. So we meet with the team on a monthly basis based on installation queues. So we do look at kind of what the time is to do an implementation for a particular product. Can we add resources that will add value and get those that revenue into the company faster? So to your point, we do that on a regular basis for all of our products, got it, got it, some of it, and then some of it James is also tied to just the timing of this, like Dave just mentioned a lot of sales, so some of it's the timing of uh of that as well. Okay, got it, got it, but for now, we... You're in pretty good shape from what you're spending on That's correct.
Speaker Change: So to your point, we do that on a regular basis for all of our products.
Speaker Change: Got it got it some of it and then some.
Speaker Change: James is also tied to just the timing of like Dave just mentioned a lot of sales. So some of its the timing of.
Speaker Change: Of that as well.
Speaker Change: Okay got it got it but for now we should think about your feeling like that you are in pretty good shape from what you're spending from an implementation standpoint et cetera.
Greg Adelson: Okay, and then, just thinking about, I know, um.., a topic that's been talked about for a long time. Any change in the overall environment around M&A, and it seems like there continues to be at least some. All down, private value, which is up.
Speaker Change: Correct.
Speaker Change: Okay, and then just thinking about I know.
Speaker Change: Topic, that's been talked about for a long time, but you know.
Speaker Change: Any change in the overall environment around M&A.
Speaker Change: And it seems like there continues to be at least.
Speaker Change: Hold down.
Speaker Change: Private valuations et cetera, but I'm, just wondering what youre seeing.
David B. Foss: I'm just wondering what you're seeing in that market and if there is, Go to www.ottobock.com to purchase a copy of the book. Thank you. www.kenhub.com So, you know well, you've followed us for a long time, James, you know well how much we love to be involved in deals, and we love to do deals. I will just tell you, we don't have a single deal sitting for review right now at Jack Henry. It is still a slow, slow time.
Speaker Change: That market and if there are.
Speaker Change: Potential.
Speaker Change: Assets that are particularly attractive, especially from a technology perspective, just taking your temperature on potential for M&A.
Speaker Change: So you know well you followed us for a long time frames, you know well how much we love to be a love to be involved in deals and we love to do deals I will just tell you. We don't have a single deal sitting for review right now at Jack Henry.
Speaker Change: It is still a slow slow time.
David B. Foss: There are certainly companies out there that we'd be interested in, but not a single deal on the table right now. Got it. Well, I always look forward to seeing you. Thank you. That's right.
Speaker Change: There are certainly companies out there that we'd be interested in but not a single deal on the table right now.
Speaker Change: Got it well.
Speaker Change: We look forward to the future I appreciate that.
David J. Koning: We're hopeful. The next question comes from Dave. David Koning of BEAR.
Speaker Change: That's right.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: The next question comes from Dave Koning.
David J. Koning: Koning of Baird.
Mimi Carsley: Yeah, hey guys, thanks so much. Just a couple quick ones. First of all, the EPS guide, at the midpoint, it was raised by about 10 cents. It looks like maybe 1-2 cents on EBIT is higher, a few cents on tax, but it seems like there's about 5 cents I can't reconcile. Hi Dave, so on the EPS, I would say it's about a penny or two for operational costs, and then the remaining split is about 50-50 the difference in the tax rate plus net interest income that we're earning based on a higher interest rate. I'm sure you know of many banks that will pay good rates.
David J. Koning: Hey, guys. Thanks, so much just a couple quick ones first of all EPS guide at the midpoint. It was raised by about 10 cents. It looks like maybe one to two on EBIT is higher a few cents on tax but it seems like there is about five cents I can't reconcile what where might that be.
Speaker Change: Hi, Dave.
Dave: So on the EPS I would say its about a penny or two for operational and then the remaining split is about 50 50 is a difference in the tax rate plus interest net interest income.
Dave: We're earning based on higher interest rates.
Speaker Change: Got you I'm sure you know of many banks that will pay a good good right. So and then I guess secondly, just on.
Greg Adelson: On January payments volumes, many competitors and industry participants called out the first two or three weeks of January being pretty slow. It sounds like maybe the second part of January got better, but what have you seen through January and maybe even into early February just in payments? Yeah, I would say overall, our volume transactions, MIRS, Visa, MasterCard, Domestic, pretty similar. We did see the same experiences that they've talked about publicly about January weather. And who knows right now with all the rains in California, but what we typically see by the end of January with some rebounding from those very temporary lows.
Speaker Change: January payments volumes, many many competitors in the industry participants called out the first two or three weeks being pretty slow it sounds like maybe the back part of January got better, but what have you seen kind of through January and maybe even into early February just in payments volumes.
Speaker Change: Yeah, I would say overall, our volume transaction nears visa and Mastercard domestic pretty similarly, we did see the same experiences that they've talked about publicly about January weather and who knows right now with all the rains in California that but what we saw I typically it by the end of January with some rebound.
Speaker Change: From those very temporary lows.
Greg Adelson: Well, thanks guys, good job. The next question is from Dominic Gabriel of Oppenheimer. Hey, good morning.
Speaker Change: Yeah got you well thanks, guys good job.
The next question is from Dominic Gabriel of Oppenheimer.
Dominic Gabriel: Thanks for everything, Dave. And I'm looking forward to working with you, Greg. I guess, you know, we've been talking to investors since your quarter since the management team change announcement. And Greg, talk about, you know, what you've learned under Dave and being a part of the Jack Henry team over the years that should give investors confidence that the new management team, including Mimi, who's done a great job, obviously, since her start, will continue executing with the same consistency over the years that, Yeah, it's We work, you know, very tightly together, and, you know, between my time with Dave, I've done a lot of things. I was heavily involved in the card work that happened, you know, years ago.
Dominic Gabriel: Hey, good morning.
Dominic Gabriel: So everything Dave and looking forward to working with you Greg.
Dominic Gabriel: I guess, we've been talking to investors intra quarter since the management team change announcement and Greg.
Dominic Gabriel: Talk about what you've learned under Dave and being a part of the Jack Henry team over the years that should give investors confidence that the new management team, including me me, who has done a great job. Obviously sensors start we'll continue executing with the same consistency with years and years to come.
Yes, that's correct.
Dominic Gabriel: I think it just starts with our culture that we built for 47 years here.
Speaker Change: You know, it's a very collaborative approach we work very tightly together.
Speaker Change: And between my time with Dave I've done a lot of that was.
Speaker Change: Heavily involved in the card.
Speaker Change: Work that happened years ago.
Dominic Gabriel: Obviously, some of the M&A that we've done in the payments group when I led the payments group, you know, and just from a philosophy standpoint, Dave and I are very much aligned on how we look at things, how we evaluate what we do for our three pillars of success that we always talk about, our associates, clients, and shareholders. And so I don't think you're going to see very much change at all, a lot of the same level of consistency in how we think and operate.
Speaker Change: Obviously with some of the M&A that we've done in the payments group when I led the payments group.
Speaker Change: And just I think from a from a philosophy standpoint, Dave and I are very much aligned.
Speaker Change: On how we look at things, how we evaluate what we do for our three pillars of success that we always talk about our associates clients and shareholders and so I don't think youre going to see very much change at all a lot of the same level of consistency on how we think and operate there'll be some nuances and opportunities where.
Greg Adelson: You know, there'll be some nuances and opportunities where, you know, some things that I have in my background and, you know, what Dave has in his background, so I'm hoping that those will all be things that we can add to. But the reality is that, you know, I've spent 13 years at this company, and all 13 have been working for Dave directly, so I would say there's a lot of consistency that you should look forward to. Greg's a snappier dresser than I am.
Speaker Change: Some things that I have in my background.
Speaker Change: <unk> had in his background, so I'm, hoping that those will all be things that we can add to but the reality is is that you know I've spent 13 years at this company and all 13 have been working for Dave directly.
Speaker Change: So I would say theres a lot of consistency that you should look forward to greg's a snap your dresser then.
Speaker Change: [laughter].
David B. Foss: Thanks so much for that both of you and then, Mimi, if we could just drill a little bit deeper on the guidance. I was just looking at the slides from this quarter to last quarter, and it looked like there was a rise in the non-GAAP revenue expectation but a lowering of the high end of GAAP revenue. I was just curious about what would cause that that deviation as the deconversion fees are. So I just want to make sure It looked like from what I saw that the range was a little higher on the growth in non-gap revenue, but then you took down the high end of, The Bulletproof Executive 2013 https://www.kartikmehta.com http://TheBusinessProfessor.com Okay, perfect. And then maybe just one last one.
Speaker Change: Thanks, So much sure that both of you and then.
Speaker Change: If.
Speaker Change: Maybe if we could just drive driving a little bit deeper on the guidance I was just looking at the slides from this quarter to <unk>.
Speaker Change: Last quarter.
Speaker Change: And it looked like.
Speaker Change: There was a rise in the non-GAAP revenue expectation, but a lowering of the high end of GAAP revenue.
Speaker Change: I was just curious on what would cause that debt deviations as the deconversion fees are stable.
Speaker Change: Stable.
Speaker Change: So I just want to make sure I understand your question Gummy, Youre, saying Youre seeing.
Speaker Change: Greater change in non-GAAP, or Youre, saying, youre seeing a greater change in GAAP.
Speaker Change: It looks like it looks like from what I saw that the the range was a little higher.
Speaker Change: And on the growth in non-GAAP revenue, but then you took down the high end of the.
Speaker Change: GAAP revenue maybe.
Speaker Change: Yeah Yeah.
Speaker Change: Yeah, Let me, let me look further into it but.
Speaker Change: Nothing that comes to mind.
Speaker Change: It shouldn't be more of a flow through because we're keeping the D conversion guide for the full year at 16.
Speaker Change: There's not much that's changing there.
Speaker Change: You'd see a similar pattern.
Speaker Change: non-GAAP and GAAP.
Speaker Change: Excellent that's what I would've thought okay, perfect and then maybe just one last one.
Mimi Carsley: You know, if you guys could just talk to us about your business investment strategy in terms of expense, dollar allocation, as you look forward, we've obviously, at least versus my models, the expenses were much better than I was expecting for the quarter and out of those http://TheBusinessProfessor.com versus accelerating revenue. The Bulletproof Executive 2013, You're welcome. So, Dom, I would say a couple of things this quarter, and that will also impact the full year and, therefore, the guide. Two things.
Speaker Change: If you guys could just talk to us about your business investment strategy in terms of expense dollar allocation as you look forward.
Speaker Change: We've obviously seen at least versus my model. The expenses were much better than what I was expecting for the quarter in and out of the shoot some seasonality with <unk>.
Speaker Change: About the expense investment.
Speaker Change: Versus accelerating revenue strategy. Thanks, so much.
Speaker Change: Youre welcome So Dan I would say a couple of things this quarter and that will also impact the full year and therefore the guide.
Mimi Carsley: One is the timing, not just the timing of the Connect Conference, but the Connect Conference was even more successful than last year. So from a profitability perspective, that helped from margins and expenses being lower. The other is the decision we made around a one-time change in the timing of our merit for our associate population.
Speaker Change #100: Two things one is the time not just the timing of the connect conference, but the connect conference was even more successful than last year, so from a profitability.
Speaker Change #100: <unk> ability perspective that helped.
For margins and expenses being lower.
Speaker Change #100: The other is the decision we made around <unk>.
Speaker Change #100: One time change and the change in timing of our merit for our associate population and so that also helps from a straight through to the bottom line from an expense perspective, but.
Mimi Carsley: And so that also helps, you know, from a straight through to the bottom line from an expense perspective. As always, and with consistency, we not only zero-based budget, but we look at and think about the investments, the amount of spend going to our top projects and top products, the amount from capitalization and R&D. You saw the consistency of the 14% of R&D spend. So we're always thinking about how to invest for the future, thinking about what those business plans look like and what that ROI looks like, and the bandwidth of the organization. So I think there'll be more consistency from a spending towards the future that you've seen in the past. And I think some of the margin expansion was just due to a heightened focus on cost control and some of the changes that we've made from the Merit Fund. Great, thanks so much.
Speaker Change #100: As always and with consistency, we not only zero based budget, but we look and think about the investments.
Speaker Change #100: Mount of spend going through our top projects and top products.
Speaker Change #100: The amount from a capitalization R&D you saw the consistency of the 14% of R&D spend so we're always thinking about how to invest for our future thinking about what those business plans look like and what that ROI looks like.
Speaker Change #100: And the bandwidth of the organization. So I think there'll be more consistency from spending towards future that you've seen in the past and I think some of the margin expansion was just due to.
Speaker Change #100: Our heightened focus on cost control.
Speaker Change #100: And that some of the changes that we've made from the merit timing.
Operator: It was nice to see the ROI. Thanks for answering my questions. For more information, visit www.fema.gov. And next, we have a question from Ben Varga of Autonomous Research.
Speaker Change #101: Great. Thanks, so much it was nice to see the ROIC.
Speaker Change #102: Pretty much remained stable this quarter too so thanks for all the answering my questions I appreciate it.
Speaker Change #102: First.
Speaker Change #102: And next we have a question from Ben Varga of Autonomous research.
Ben Varga: Hey guys, thank you for taking the question. You know, I just wanted to echo everyone else's congratulations on the leadership transition. My first question is about the Bano business. It's great to see the initial client interest, I think. In terms of the implementations that you have in the queue, how long does it typically take for those opportunities to start contributing to revenue? Yeah, it's really a timing thing based on the client themselves. Honestly, an implementation of Bano Business takes less than 60 days, so some of those are tied to core deals, some of those are tied to other product implementations, so really it's dependent more on the client than it is on Jack Henry, and kind of back to the question earlier that James had related to that.
Ben Varga: Hey, guys. Thank you for taking the question.
Ben Varga: I just wanted to echo everyone else's congratulations on the leadership transition. My first question is about <unk> business, it's great to see the initial client interest I guess.
Ben Varga: Terms of the implementations that you have in the queue. How long does it typically take until those opportunities start contributing to revenue.
Speaker Change #104: Yes, it's really a timing thing based on the client themselves honestly and implementation of <unk> business is less than 60 days.
Speaker Change #104: Some of those are tied to core deals some of those are tied to other product implementation. So really it's dependent more on the client than it is on Jack Henry.
Speaker Change #104: And kind of back to the question earlier, the James had related to that so some of that is really we tried to push the clients alone, but it is not necessarily a Jack Henry lag as it is waiting for the client so, but it's 60 days or less if they are ready to go.
Ben Varga: So some of that is really, you know, we try to push the clients along, but it's not necessarily a Jack Henry lag as it is waiting for the client, but it's 60 days or less if they're ready to go. And then as we think about the growth opportunity for Bano Retail, are these wins coming from greenfield opportunities for the most part, or are you also kind of bumping up against some of the other digital banking providers? Yeah, absolutely.
Speaker Change #105: Got it that makes perfect sense and then.
Speaker Change #105: We think about the growth opportunity for panel retail are these wins coming from greenfield opportunities for the most part or are you also kind of bumping up against some of the other digital banking providers. Thanks again.
Yeah, absolutely no we have a lot of competitive takeaways from the other the other providers are there are some opportunities within both the core base, we've talked about taking it outside the Jack Henry core base, and where we're going with that but right now, there's probably an equal mix of opportunities from a handful of the larger.
Greg Adelson: No, we have a lot of competitive takeaways from the other providers. There are some opportunities, you know, within both the core base and the secondary market. We've talked about taking it outside the Jack Henry core base and where we're going with that. But right now, there's probably an equal mix of opportunities from a handful of the larger digital banking providers today that we're winning some deals from and as well as, you know, our existing core base. And I think it's fair to say there is no such thing as a greenfield opportunity anymore. So everybody has something; we're displacing something every single time.
Speaker Change #105: Digital banking providers today that we're winning some deals from and as well as our existing core base and I think it's fair to say there is no such thing as a greenfield opportunity.
Speaker Change #105: Everybody has something we're displacing something every single time, yes, Thats fair point.
David B. Foss: This concludes our question and answer session. I would like to turn the conference back over to Vance Gerrard for any closing remarks. Thank you, Laura. We look forward to speaking further with many of you at investor events in the coming weeks. On behalf of the management team, I would like to express our appreciation to all the Jack Henry & Associates whose efforts produced these outstanding financial results. Thank you for joining us today, and Laura, will you please provide the replay number? The replay number for today's call is 877-344-7529, and the access code is 902-5867. This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #105: This concludes our question and answer session I would like to turn the conference back over to Vance Gerard for any closing remarks.
Vance Gerard: Thank you Laura we look forward to speaking further with many of you at investor events in the coming weeks on behalf of the management team I would like to express our appreciation to all the Jack Henry Associates, whose efforts produced these outstanding financial results.
Speaker Change #107: Thank you for joining us today and Laura will you. Please provide the replay number.
Laura: The replay number for today's call is 870 734475 to nine and the access code is nine zero to 5867 <unk>.
Speaker Change #108: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #108: Okay.
Speaker Change #108: Yeah.