Jack Henry & Associates, Inc. (JKHY) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Jack Henry Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead.

Thank you, Danielle. Good morning, and thank you for joining the Jack Henry Third Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide an overview of our business, along with updates on our strategic initiatives. Mimi will then discuss the financial results and updated fiscal 2026 guidance provided in yesterday's press release, which is available in the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session. Please note that this call includes forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the Risk Factors and Forward-Looking Statements sections in our 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release. Now I will hand the call over to Greg.

Thank you, Vance. Good morning, and thank you for joining today's call. As always, I want to begin by recognizing our associates for their hard work and dedication. They consistently go above and beyond to serve our clients and drive our success. I will share 3 key takeaways from the quarter and will then provide additional detail on our overall business. First, our financial performance. We produced record third quarter results with non-GAAP revenue of $616 million, up 7.3% over last year's third quarter. Our non-GAAP operating margin was a strong 22.9% on par with last year's Q3. Second, our sales performance. Our sales and marketing team delivered an outstanding quarter with 17 competitive core wins, including 5 institutions with more than $1 billion in assets. This represents our strongest third quarter for new core wins in 7 years and ties our best third quarter ever in over $1 billion wins. Year-to-date, we have won 43 core deals, 11 of which are institutions over $1 billion. That's up from 28 wins and 8 over $1 billion at this point last year. Based on our strong momentum, we are highly confident that we will exceed the 51 core wins achieved last year. Third, our higher-value core wins. We continue to see a higher number of trifecta solution wins. So far this year, 25 of our core wins or 58% of the total have included digital banking and card solutions. At this time last year, we only had 8 core deals that included digital banking and card solutions, just 29% of the total won. This healthy growth in trifecta wins reinforces the strength of our integrated platform and supports deeper, more valuable client relationships. Now turning to our broader business. I will begin with our use of artificial intelligence, followed by updates on several innovative solutions and specific products. As I have shared at recent investor conferences, we view AI as a significant strategic opportunity and have been operating and expanding our capabilities for more than 3.5 years by establishing strong governance processes that support a responsible, bold and balanced approach. Today, close to 100 AI tools are approved for internal use, ranging from general productivity platforms such as Gemini and Copilot to specialized business and development tools across all areas of our company. These tools support over 500 distinct use cases, delivering meaningful and measurable impacts. A few examples to share. In lending, developers working on our new Jack Henry origination solution, online account opening solution have increased productivity by roughly 90%, driven by faster coding and quicker issue resolution. In digital, as part of the new Jack Henry platform, we have built an AI-assisted recommendation system for exception item processing that is in closed beta with 3 banks. They all report that AI is reducing the time to close exceptions each day by 70% to 80%. And in customer service, our AI adviser bot is supporting our frontline representatives and has assisted with more than 3,700 complex support interactions over the past 2 months with a 96% success rate, servicing answers and seconds from our knowledge resources. To further accelerate adoption, we have deployed an internal team of AI coaches who work directly with our associates through workshops and hands-on support. We are also seeing meaningful productivity and efficiency gains from natural language development, sometimes referred to as vibe coding. For example, a nontechnical associate recently developed an internal application for our travel program, allowing us to meet a business need without licensing additional software. This is one example of many where our teams have independently built more efficient ways to address specific business challenges. Overall, we believe our approach to AI education and adoption significantly helps us minimize competitive risk. Additionally, regulatory requirements, network certifications and our role as the system of record make the banking industry very difficult to disintermediate. Shifting to our innovative solutions. We continue to make strong progress on our stablecoin strategy. Beta testing with clients to send and receive USDC is going well. And at this point, we are largely awaiting final regulatory guidance to proceed more expeditiously. We are delivering stablecoin processing through the public cloud native Jack Henry platform. This is important because the platform is connected to all of our core systems, serving as a bridge between emerging capabilities and our foundational cores. This provides our clients fast integrated access to capabilities such as stablecoin and our initial SMB solutions, Tap2Local and rapid transfers. Tap2Local, our SMB merchant payment solution continues to see significant traction as clients look to better serve SMBs increased deposits and recapture business from fintechs. At the end of April, more than 700 banks and credit unions were live with Tap2Local. Since beginning targeted marketing just a few days ago, active merchants have doubled to more than 1,600 with several thousand additional merchants currently in the enrollment process. We intentionally waited to begin marketing so we can ensure the product and infrastructure were fully operational. With that foundation now in place and marketing beginning to ramp up, we expect adoption to accelerate in the coming months. Client feedback has been very positive, particularly around Tap2Local's differentiated capabilities, including easy enrollment, tap to pay on both iOS and Android devices and continuous account reconciliation. As an additional validation to the product's uniqueness, Tap2Local recently won the Fintech Breakthrough Award for Small Business Payments Solution of the Year. We are also seeing strong early momentum with Jack Henry Rapid Transfers, which enables both SMBs and consumers to quickly move funds between external accounts, eligible cards and digital wallets. Rapid Transfers is now live with over 110 banks and credit unions with an additional 190 at various stages of onboarding. Transaction volumes have been healthy, particularly given that marketing has not yet begun. The average transaction size is approximately $260, which is double our original projections and is being driven by stronger-than-anticipated inbound transfers. Larger inbound transfers deliver one of the key value propositions, increased deposits for the financial institution. With higher average transaction sizes and consistent monthly activity without any marketing, Rapid Transfers is currently tracking well ahead of our initial modules, though we are still in the early innings of the rollout. As another key part of the Jack Henry platform, we are developing a cloud-native deposit-only core. Client testing is underway and development was completed 6 months ahead of our original schedule announced in February of 2022. We will continue to broaden our testing as the year progresses. I also want to highlight early progress on our enhanced embedded payments capabilities following the acquisition of Victor Technologies last fall. The Victor platform, now branded as Jack Henry Payments Orchestrator, enables financial institutions to embed payment capabilities directly into third-party nonbank brands such as fintechs and commercial customers. In Q3, we signed 1 bank and onboarded 3 fintechs to the platform and have quickly grown our sales pipeline to more than 40 banks and/or fintechs. Moving on to our reporting segments. In core, in addition to the 17 competitive wins I mentioned earlier, we also secured 4 on-premise to private cloud contracts, including 1 institution over $1 billion. So far this year, we have signed 23 in-to-out contracts with 8 being institutions over $1 billion. In payments, we continue to see strong growth in faster payments. Over the past year, our clients' adoption of Zelle grew by 25%, RTP by 26% and FedNow by 31%. In the third quarter, payment transaction volume across these channels increased 47% year-over-year. In complementary, we signed 36 new Financial Crimes Defender and faster payment module contracts during the quarter. As of March 31, we have completed 168 Financial Crimes Defender installations and another 68 in various stages of implementation. We've also installed 168 faster payment modules with an additional 256 in products. The Banno Digital platform had another strong quarter with 23 retail and 34 Banno's business signings. In total, we have 1,028 clients live on Banno, including 466 on Banno Business. The platform now serves more than 15.5 million registered users, up 13% from a year ago. As a reminder, all of our Banno wins and growth thus far has occurred within our core base. As we look ahead, we believe we are at a meaningful inflection point. We now have a competitive feature set, along with increased willingness among certain competitors to operate as open providers. As a result, we see an opportunity to begin expanding Banno beyond our existing base and more closely align it with our payment product strategy, where we have successfully sold outside the base for many years. We will provide more updates as we progress with this strategy. On the technology spending front, we recently released results from our eighth annual Strategy Benchmark survey, which highlights technology spending priorities. While we monitor a number of industry surveys, this one is particularly meaningful because it reflects direct input from the CEOs of our bank and credit union clients. The results point to a clear and growing commitment to technology investment. 88% of respondents expect to increase their technology budgets over the next 2 years, up from 76% last year. Of those, the largest segment, 41%, plans to increase investments between 6% and 10%. These trends are consistent with other industry surveys pointing to increased technology spending. We ask CEOs where they plan to prioritize those investments. For the first time, artificial intelligence ranks as the top priority, cited by nearly 50% of the respondents, followed by digital banking and data analytics. These priorities align directly with where Jack Henry has been investing and delivering innovation. Last week, we highlighted our differentiated innovation at the Jack Henry Annual Strategic Insight Symposium in Salt Lake City. We featured presentations and panels that included both Jack Henry leaders and well-known industry experts covering key topics such as the macroeconomic environment, the Jack Henry Benchmark survey, our technology priorities and progress, fraud initiatives, AI education and use cases, the impact of stable coins and tokens and meeting the needs of Gen Z. We will provide updates on many of these topics along with additional innovation updates at our Investor Day on September 15 in our Dallas offices. We recently completed and published our 2026 sustainability report. The report is an outstanding information source on the Jack Henry -- on Jack Henry and is available to review on the Investor Relations page on jackhenry.com. The report coincides with our 50th anniversary and reflects our continued focus on preserving long-term value for our associates, clients, communities, stockholders and the environment through responsible business practices. As part of our 50th anniversary celebration, our Board is looking forward to ringing the closing bell at NASDAQ tomorrow, May 7. This is one of the many activities we are doing throughout the year to mark this significant milestone. In closing, we remain focused on culture, service, innovation, strategy and execution. These key differentiators will enable Jack Henry to continue to drive industry-leading revenue growth and margin expansion. With strong sales momentum, increased client technology spending and a disciplined execution, we believe Jack Henry is extremely well positioned to capture the opportunities ahead. With that, I will turn it over to Mimi for more detail on our financials.

Thank you, Greg, and good morning, everyone. I would like to begin by thanking our associates who continually deliver value to our financial institution clients. The result is another quarter of solid revenue and earnings growth and continued momentum as we approach the end of our fiscal year. I will begin with our healthy third quarter results, then conclude with our updated fiscal '26 guidance. Q3 GAAP revenue increased 9%. Non-GAAP revenue increased 7% for the quarter and 8% year-to-date, a continuation of consistently strong performance. Third quarter deconversion revenue of approximately $19 million, which we previously announced was up approximately $9 million for the quarter, reflecting a steady pace of M&A activity among financial institutions. As a reminder, the dollar amount of deconversion revenue has little correlation with the number of transactions or annual revenue impact, and the absolute amount of deconversion revenue can vary greatly quarter-to-quarter. We continue to see industry consolidation as largely neutral to slightly positive for our business. Now let's look more closely at the details. GAAP services and support revenue increased 10% for the quarter, while non-GAAP increased 8%. Service and support growth during the quarter was primarily driven by strength in data processing and hosting revenue for both private and public cloud. Specific callouts include implementation services and license revenue. Private and public cloud offerings continue to drive strong growth. Cloud revenue increased 9% in the quarter. This reoccurring revenue contributor is 33% of our total revenue. Shifting to processing revenue, which is 43% of total revenue and another strategic component of our long-term growth model. We saw a solid performance with 7% GAAP and 6% non-GAAP growth for the quarter. Consistent with recent results, quarterly drivers included increased digital, card and faster payment processing revenue. Completing commentary on revenue, I would highlight total reoccurring revenue was 91% for the quarter. Next, moving to expenses. Beginning with cost of revenue, which increased 7% on a GAAP and non-GAAP basis for the quarter. Drivers for the quarter are consistent with recent previous quarter results and include higher personnel costs, direct costs growing consistent with lines of revenue and increased amortization of intangible assets. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense increased 15% for GAAP and 12% on a non-GAAP basis for the quarter. Quarterly increase was primarily due to the net personnel costs driven by an increase in headcount over the trailing 12 months. And ending with SG&A expense for the quarter on a GAAP basis, it increased 9% and an increase of 8% on a non-GAAP basis. Results reflect an increase in personnel costs, specifically from headcount additions over the 12 months. We remain focused on generating annual compounding margin expansion. Q3 delivered consistent non-GAAP margin at 23%. Year-to-date non-GAAP margin improvement was 195 basis points with a non-GAAP margin of 25%. Non-GAAP margin benefits inherently from the leverage in our business model, strategic cost management and leveraging our existing workforce as we continue to focus on enterprise process improvement and AI utilization. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.71, up 12%. For the year-to-date period, GAAP earnings per share was $5.41, an increase of 20%. Reviewing the 4 operating segments, we see positive performance across the board. Core segment non-GAAP revenue increased 9% for the quarter, with operating margin contraction of 27 basis points due to temporary product mix of lower-margin revenue sources such as implementation and work orders. Payments segment quarterly non-GAAP revenue increased 5%. The segment again had outstanding non-GAAP operating margin growth with quarterly results of 159 basis points. Card processing revenue showed steady growth and was partly offset by lower network incentive revenue. The segment also benefited from continuing shift and significant growth from faster payments. The complementary segment quarterly non-GAAP revenue increased an impressive 7% with healthy 99 basis points of non-GAAP margin expansion. Quarterly revenue growth continued to reflect demand for our digital solutions and a beneficial product mix with sales sourced from new core wins, existing core customers and noncore financial institutions. For the quarter, Corporate Services, formerly Corporate and Other, non-GAAP revenue increased 27%. This is primarily the result of increased hardware sales. Since the segment reflects expenses not allocated to other segments, we will not be discussing operating margins as it provides no meaningful insight. Now a review of cash flow and capital allocation. Q3 operating cash flow was $186 million, a 72% increase over the prior fiscal year Q3. Quarterly free cash flow of $122 million delivered a 137% increase over the prior fiscal year Q3. Our consistent dedication to value creation resulted in a trailing 12-month NOPAT return on invested capital of 23% compared to the 20% in the third quarter of the prior year. We are very proud of the durability of this metric and how it reflects our high-quality allocation of capital for our shareholders. Additionally, I would highlight the following significant year-to-date capital decisions resulting from our strong free cash flow generation. $284 million in share repurchases, $127 million in dividends paid plus the asset acquisition of Victor Technologies. We're proud to return meaningful cash to investors while maintaining a conservative balance sheet. The average purchase price of the shares repurchased was $160. We ended the quarter with debt of $90 million, consistent with normal course of the business revolver usage but expect to end the year -- the fiscal year debt-free, barring acquisitions or other opportunities. During the quarter, we established a new $1 billion revolver credit facility to support future growth opportunities. I will now discuss our third consecutive increase to full year guidance. As you are aware, yesterday's press release included updated increases to fiscal 2026 full year GAAP guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal '24. Fiscal '26 deconversion revenue guidance has been increased to $37 million. Full year GAAP revenue growth guidance increases to a range of 6.1% to 6.6%. Based on our strong year-to-date results, we have tightened the range of non-GAAP annual revenue growth guidance, resulting in a new outlook of 6.6% to 7.1%. Consistent with our budget plan and year-long messaging, Q4 will see relatively lower non-GAAP revenue growth compared to the previous 3 quarters. Drivers include projected digital revenue slowing from lower active user growth, card revenue growth, seeing pressure from risk management and less onetime network incentive revenue. Expenses during the fourth quarter are expected to reflect relatively higher pressure from medical cost benefits returning to historical levels, cloud migration infrastructure expense and commissions. Our expectation on fourth quarter revenue are below current analyst consensus. At the same time, full year revenue growth consensus is aligned, reflecting that part of the difference is that some of the revenue analysts expected in the fourth quarter shifting to the third quarter. Margins are projected to contract in the fourth quarter based on previously disclosed factors. However, based on the full year revenue growth and our robust financial model, we are increasing full year guidance for non-GAAP margin expansion to a range of 75 to 95 basis points from the original 20 to 40 basis points on the August call. As a reminder, we see fluctuations in quarterly results related to software usage license components along with the timing of implementations. Therefore, the correct performance indicator for our business is the consistently strong fiscal year financial results. Q4 results are not aligned with our early expectations for fiscal '27. The presented results and guidance metrics are indicative that our business operations remain healthy and sound with growth opportunities across all 4 operating segments. The full year GAAP tax rate estimate for fiscal '26 is 23.25%. The above increased guidance metrics result in a stronger full year outlook for GAAP EPS of $6.78 to $6.87 per share, a growth of 9% to 10%. As a reminder, even updated deconversion revenue guidance potentially understates GAAP EPS growth. Full year free cash flow conversion outlook for 95% to 105% for fiscal '26 with a bias towards the upper end of the range. Including, Q3 reflects another exceptional performance from our associates leading to increased guidance. We're pleased by the continued performance momentum and resulting fiscal year outlook. We remain strongly convinced that demand for our solutions aligned with continued technology spend by our clients and prospects, all supported by industry-leading service excellence from our associates will drive outstanding financial results and superior shareholder value. We appreciate the contributions of our dedicated associates that produce these superior results and our investors for their ongoing conference. Danielle, please open the line for questions.

[Operator Instructions] The first question comes from Vasu Govil from KBW.

Greg, first one for you. It was another very strong quarter on new core wins. I'm curious what's driving this trend? And if you are starting to already see some benefits from the competitor platform consolidation or if that's still on the come?

Yes. Thanks for the question. Yes, I think it's a combination of both. We've been talking a lot about what we've been doing on the innovative side. And so that's continued to play out with the products, the solutions. Obviously, our customer service hasn't wavered a bit. I will tell you, of the 17 core wins, 13 of them came from one provider and one competitive provider. But I will say that most of those, as you can imagine, the core processing contracting side takes anywhere from 9 to 12 months typically. So a lot of those were already in motion ahead of whatever announcements were made. But we did take some from really everybody, just so you know. So we had some wins from really all of our competitors. But again, the bulk of them came from one.

And then maybe a quick one for you on the margin guide. The guide obviously implies a meaningful step down in the fourth quarter, and I caught your comment on the normalized medical expenses you're baking in. Any other drivers there? Or just trying to get a sense of whether there's any conservatism baked into the guide?

Yes, you're welcome. So yes, you're accurate, and I appreciate you hearing the commentary regarding Q4, which is not indicative of the full year performance, but more so due to some unique factors in Q4 that were expected as we thought about for the cadence of the year. So you're right to call out the medical expenses returning to normalized levels. We also had some commission shift where we saw some benefit earlier in the year. We expect based on the timing of those implementations for the commissions to -- some of that to hit in Q4. Additionally, just some of the mix we're seeing from some of the lower-margin business, some of it related to work orders and implementation also lead to a Q4 having less margin expansion or, in fact, margin contraction for the year. But again, the right metric for our business is the annual, and we're pleased to be able to increase guidance on full year margin expansion.

The next question comes from Peter Heckmann from D.A. Davidson.

I wanted to talk a little bit about Anthropic's Mythos. Has Jack Henry been able to set up a timetable to access Mythos to use -- look at their own systems to identify any cyber vulnerabilities? And do you think that's something that Bancorp customers are increasingly going to demand from their vendors on a periodic basis.

Yes, Pete, so this is Greg. So a couple of things on Mythos. So we've been heavily involved ever since it came out. So I actually did a call with a lot of our competitors and others with the Head of Cybersecurity in Washington. So we had -- as soon as everything was announced, we were pulled in. Our cyber teams have been involved in a multitude of meetings. Project Glasswing, which is now called Mythos Workshop, our teams are getting information associated with that and joining various meetings. We've obviously done a whole host of things that we need to do for operational readiness across the organization. But candidly, we were doing that already. But the other thing is that you probably heard that on April 29, the Trump administration raised some objections. And so there's still some delay on where some of this utilization will get done. But our teams are heavily involved both with -- not only at our organization and with Mythos, but also across the entire landscape of our industry. All of our competitors and Jack Henry are working together with Washington to make sure that we protect our banks and credit unions.

And Greg, if I could add on to that. Mythos is just the current kind of attention in the industry, but we've made significant investments in fortifying and stepping up from a cybersecurity from an awareness and observability and a zero trust kind of resiliency philosophy over the last several years. So we feel like we're in a much stronger position today than we had been over the last several years to be able to handle this type of situation.

The next question comes from Jason Kupferberg from Wells Fargo.

This is Tyler DuPont on for Jason. I wanted to just start by piggybacking off of the core questions and commentary. Given you signed 43 takeaways so far fiscal year-to-date, how should we be thinking about upside to that 50 to 55 annual target? If I heard correctly in the prepared remarks, Greg, you suggested that you have confidence in exceeding last year's number. But given last 4Q, you guys won 23 deals, that would imply over 60 this year. So I guess just given the success you've seen so far year-to-date, I'm wondering if you can help put sort of a finer point on expectations as we look to the rest of the year.

Yes, I appreciate the question. I can't really give a finer point. I can tell you that I'm very confident that we will be north of 51 and probably north of 55, somewhere in that range. I don't know exactly -- contracts are interesting as far as timing to go get them done. We've been completing a couple of contracts recently that took a lot longer than we expected and sometimes they get kind of turned over to the next quarter. But in reality, it's not just the number of wins we have, but also the size of the wins. So as we referenced, we had 11 over multibillions, but we've also won just this past quarter, we won $3.5 billion. We've won $5 billion. We've won $7.5 billion. And just recently, we just won an almost $10 billion client that is coming with 1.2 million accounts, which is actually about 25% larger than any customer we have today, including our largest asset size in the number of accounts. And those contracts took a long, long time to secure. So as you continue to go upmarket, contracts take longer. So it's really hard to give you a definitive answer. But the answer I'll give you is our sales team is really kicking butt right now. And obviously, a lot of the things that are going on in the industry are providing opportunities for us. And I think the best is still to come based on feedback and pipelines that we have. Our pipelines are extremely strong, not just in core, but in payments and complementary as well, and we're very bullish on that.

Great. That's great to hear. And I guess just as a quick follow-up, I just want to touch on free cash. The $122 million in the quarter was pretty meaningfully above, it looks like both consensus and even your own historical trends. So can you maybe just touch on how we should be thinking about free cash flow going forward versus the 90% to 100% conversion guide sort of both as we look down the barrel to the final quarter and as we try to hone our models for next year.

Yes. So I would say, Tyler, there were a couple of things as we look at trailing 12-month free cash flow. First and foremost, a tremendously strong operational foundation that led to strong cash, but there was also impact -- positive impact from the tax bill change that we saw come to clarity as well as some small asset sales. But overall, we feel great as we are improving the color this year for free cash flow conversion to that $95 million to $105 million, with a bias to the high side, sitting at around 109 -- $108 million, $109 million year-to-date from a trailing 12 months. We feel very good that we're returning to the historical norm levels of our free cash flow.

The next question comes from Rayna Kumar from Oppenheimer.

Just given the volatile macro and political environment, as you talk to banks and credit unions, how are they thinking about IT spending for the next 6 to 12 months? And then separately, any read -- initial read on FY '27 revenue growth and margins?

Yes, Rayna, I'll take the first one. So kind of as we talked about in my prepared remarks, and we just came out of our strategic initiatives meeting with our top 150 or so clients. The focus -- and we actually had somebody from Washington come in and talk to our clients as well. But it's based on what's going on in the macro environment, honestly, it's not affecting the banks and credit unions focus on what they need to get done in the tech spending. So as we referenced in our own benchmark survey that just came out, we had 88% said that they were going to increase their spending as compared to 76% last year. And with that average, I think it was 41% is actually at 6% to 10% of an increase. And so that really coincides with everything that we've been talking about for the last 2 or 3 surveys that we've referenced on our calls, bank directors and others surveys. So that remains. The only difference is really where they're talking about spending the money. So AI for the first time became the #1 priority for them. But obviously, deposits, digital banking, in particular, fraud, other components are still up at the top. But -- so we're seeing it. I mean, again, our pipelines are very, very robust right now, again, in all parts of our business, not just core. And again, we're getting larger institutions. As I referenced, just this year, we've already won the one I just referenced that was almost $10 billion in assets, but 1.2 million accounts which is significantly larger than any one we have, which that comes with a lot of other products with it. So things along that line that continue to make us believe that the robustness of the technology spending will continue.

And then Rayna, I can take the second half of your question kind of building on that positive outlook that Greg just framed. It's a little premature to talk about FY '27. We're just excited about ending '26 in a great spot. Again, I would just call out that the quarterly pace of the year is not indicative of any kind of launching off pad for '27. So although we are all calling for a weaker Q4, it does not mean anything diminishes from our positive outlook for the full year and then next year. Even at roughly 91% reoccurring revenue, you would think a budgeting process would be easier, but we have a very comprehensive budgeting process here at Jack Henry. And so we are still working with each of our operational leaders to talk about the next year's plan and rigorous prioritization around investment and spending. So we will give more color to that when we talk about full year results next quarter. But overall, we're thinking a positive direction for FY '27.

The next question comes from Madison Suhr from Raymond James.

I just wanted to start on the trifecta wins. I think you mentioned 58% of wins this year were those trifecta wins. Just given what you're seeing in the pipeline, I mean, do you think this elevated level of cross-sell is sustainable, not only for the quarter, but just as we think about kind of the next year or so?

I do. I appreciate you asking the question. I mean I think we've seen the results of all the work and innovation that we put into our -- both our digital platform and our card platform. We've made a lot of changes through the years, and you've heard us reference over the last couple, in particular, about getting to a level of feature parity that we needed to compete with some of the larger digital-only providers, and we're starting to see that. We're starting to get some wins from all of the players, candidly. And so -- and they're not just coming in core wins, which is great, obviously, but you have to wait for those to be installed. We're also getting some current Jack Henry clients that were on competitive digital platforms that are now making the decision to move the Jack Henry Banno instead. So short answer to your question is I do feel very strongly that the work that we've done and are continuing to add with features like Rapid Transfers and Tap2Local that are not available anywhere else are big differentiators for us to winning deals.

Okay. Great. And then I did want to follow up just on the Payments business. It grew 5% in the quarter. Just curious from your guys' vantage point, what's kind of the key buckets or key things that could accelerate growth in payments from here, just given I know that mid-single is maybe slightly below where you guys want to be.

Yes. We continue to see steady growth in card, the resilience of the consumer spending. And then on top of that, you get a boost from continued rebounded growth in remit and Bill Pay, Bill Pay, I would call out, even though it's not huge growth numbers, the increase has been quite positive, and that's a signaling of the resurgence post acquisition of Payrailz. And then on top of that, you have just tremendous growth, almost 50% growth in faster payments. So it's across the board. Volumes for card are good, but then you have extra growth from other areas of the business.

The next question comes from Dominick Gabriele from Loop Capital.

I guess Jack Henry is always focused on an open platform versus a walled garden. And I think that's really been a benefit to the business over time in gaining customers. Do you expect to partner with various AI potential financial providers with their products? And how would you think about that relationship? Would you take it similar to the types of partnerships with third parties, allowing their products to be on your platform and really focusing on Jack Henry's added value when the customers ultimately decide to choose Jack Henry products regardless.

Yes. It's a good question. I appreciate it. A couple of things. We are doing that today. So several of the AI-related companies are partnering with us today. That's how we're using some of the tools and also some of the -- incorporating some of it into some of the products that we are working on. We are being very careful on that. So partner is a really difficult word to use because in some cases, a partnership infers a lot of revenue changing hands on both sides. A lot of what I would call it is more of an integrated relationship. And in some cases, they're creating more financial gains for both of us and others, they're just creating opportunities for us to leverage tools that we're licensing. So -- but that is happening today and will continue to happen. We have a whole host of folks that we have hired to evaluate those tools and doing that, and we're being very careful because everybody's got something new to talk about. But that will continue. And to your point, we've been by far the most openness -- open platform through the years. And so we look at AI, we look at fintech opportunities, we look at fintechs that are using AI that's already embedded into their solutions as opportunities, and then we'll evaluate them one at a time.

Great. Maybe just as a follow-up, if you look at the various growth rates of the segments, Core has been doing quite well. And outside of the comments you just made on payments, complementary double digits. I'm just curious of the quarter-over-quarter kind of implied reduction in the other 2 pieces of the business, given there is some momentum there. If you could just help walk through kind of that, I'd really appreciate it.

Sure. So as we always say, not to look at 1 quarter, but to look at the full year, particularly because some of these products, as you look at the installed calendar and even though we're thrilled to be looking at over 50 core wins, the revenue we're getting today is based on the wins we had, especially for core that we locked in last year, some of the complementary products can be installed sooner. But the profile of those customers does impact the revenue. So if you have years where the size of the installed base is different or the mix of the products they're taking, it can impact both revenue and margin. On top of that, what we've seen is some of the onetime service revenue related to work orders and implementation is also -- it's been a nice added revenue source, but I would say that kind of varies as well from quarter-to-quarter. And that's really the biggest driver causing for the fourth quarter in addition to just some grow-over challenges from last year's strength.

The next question comes from Eric Teller from Wolfe Research.

It's Eric from Wolfe. I just wanted to understand a little bit more. When I think about the beginning of the year, you guys had called out pricing, M&A and some other variables, credit union account growth as having been potential risks or headwinds that decelerated what otherwise would have been a 7% to 8% algorithm for your year, ended up doing better than that as the year is progressing and not seeing those headwinds as materially. And you're seeing better core growth also, I think, than probably you anticipated at the beginning of the year. And so putting all those pieces together, where do you see the business positioned now in terms of your normal 7% to 8% trajectory? Do you think you have enough pillars for that business to sustain 7% to 8% in the next couple of years again without specifically guiding to '27? I'm just curious if you think the building blocks are there.

Eric, I appreciate the question. Yes, even though we haven't really talked about some of those headwinds as we progress through the year, we've grown over them. It's not that they've disappeared. We had it in our budget plan. We knew of some of the departures. We knew of some of the new contract renewals that we're going to face a bit of compression from a renewal perspective. We've just been able to grow over that. So I just -- I don't want to say like those pressures have abated. It's just we've been able to perform in spite of them. So as we look at next year, again, too premature to put any refinement on it, but I think the growth algorithm is certainly still intact. And as we've talked about, I think, even as much as on last quarter's call, the new exciting areas of innovation and business opportunity like the ones that Greg highlighted in SMB, faster payments, et cetera, it's going to be a couple of years until that has a meaningful contribution to the revenue growth that would kind of push us towards the upper bound of our growth algorithm and beyond. But we feel confident that next year is looking in line with the guidance we have historically given.

Yes. The only thing I want to add to that is that we did talk about that typically, we start to even out over the year with M&A. That is starting to play out exactly as we had said. But we had some -- in the early parts of the fiscal year when we were finishing our budgets and everything else, we had a little bit more of an upside down, but that started to balance itself out like we thought. The other thing is we referenced the changes we made in the renewal processes with how we went to renewals, and that has worked really, really well, candidly. And then I do think what Mimi just referenced with some of the new products and services that are still in earlier stages and -- but starting to gain some traction, that's where we get a lot of our confidence for the longer term in getting to the numbers you're talking about.

Okay. Greg, I just want to -- one follow-up on the core wins. It came up a couple of times, but I don't feel -- I still feel a little bit hungry for an understanding of what's actually driving the incremental step up in the magnitude of the wins than the run rate? Because like you said, these were basically formed from probably a few quarters ago in terms of the deals being signed or at least close to signed. So it wasn't really the industry changes we're hearing from competitors right now that caused the increase. So what did cause it to really kick in a few quarters ago already? Because it seems like if you add on what we're seeing in the competitive landscape, that could be additive even more so than the 55 going into next year if you -- when you take the 2 together.

Yes, I agree with you. I mean, I think you all have heard me enough talk about the differentiators and I bring them up every time because we're still getting some folks that don't fully understand it. And we are building things that nobody else is building, and we're doing it at a level of execution that nobody else is doing. So when you get an industry that's completely full right now of competitive uncertainty that is happening specifically with our largest competitors, we are the provider that is absolutely executing on the things that we said we were going to do and hasn't lost a step in customer service and never has. So people are -- I mean, I'm getting inbound calls from larger institutions that want to talk to us. I'm getting inbound calls from the largest consulting firms in the world that want to learn more about what we're doing. And we've been showing these large consulting firms our technology and their quote is, we are blowing them away. They never thought a core provider could do what we were doing with what we've built on the platform. So when you take all of that in the years of a lot of effort of building out the technology and now to a point where we can actually demonstrate it and have live products, that is really driving it. And again, with the unrest of what's going on with our competitors. So I do believe it's going to continue because we're going to continue to execute as we have been, and our products are only going to get further and further ahead of where our competition is.

The next question comes from Ken Suchoski from Autonomous Research.

I wanted to get your high-level thoughts on how AI can play a role in the core processing industry. And we noticed one bank with over $25 billion in assets expanding its collaboration directly with OpenAI. And I'm curious to get your take just on, one, how much of a risk is there that banks or credit unions work directly with these AI companies? And then two, how involved is the core provider if that does happen? Or how does the core provider's role change in that scenario?

Yes. I think there's a couple of things. I think you referenced the $25 billion institution. And I do think the larger institutions as you continue to move up, they probably have more opportunity, more wherewithal money-wise and talent-wise to work with some of these providers directly. So you may see that. I can tell you in the community bank space, as I said on our benchmark survey, the #1 priority was AI. And our community and regional banks that Jack Henry works with, they don't have the wherewithal in most of the cases to build that out. So they're relying on us, which is why we've taken such a proactive way of doing this for the last 3.5 years. So as I mentioned, not only are we building the level of efficiency and effectiveness inside of the organization, we have 14 different POCs that we have going on right now with products. We have a whole host of things that we've built in our Financial Crimes solution, including things like SAR reports, suspicious activity reports that go out and doing those using AI, creating things that provide efficiency gains for our banks and credit unions with various tools like exception item processing that I referenced in the script. So things along that line that I think will continue to drive opportunities for people like us, at least that are very innovative and building out that level of innovation with our customers. Could there be a few that go around? Yes, maybe, but they're going to be fewer and far between than they are at the larger institution size.

Yes. That makes sense, Greg. And maybe just one for Mimi. Just on the payments non-GAAP revenue growth rate just because we're getting some questions on. I think I heard lower network incentives this quarter. Is that more of a onetime issue? Or does that carry through to future quarters? Just trying to think through the growth rate there and if it can accelerate from the 5%?

Yes, of course. The network incentive thresholds are kind of negotiated kind of year-by-year and sometimes intra-year. So I don't see that as a headwind kind of going forward in any kind of structural change way. It just happens that it has more of an impact this year in Q4 on top of a growover from an already strong year. So to me, the underlying trends of the strength in card volume, the strength in our enterprise payments business makes me feel comfortable about the ongoing growth rate in that segment.

The next question comes from Cris Kennedy from William Blair.

It's great to hear about the larger wins. It seems like you're making a lot of progress there. Can you just remind us of the dynamics and/or the economics to Jack Henry as you move upmarket?

Yes. Thanks, Cris. Yes, the economics obviously change based on the amount of products that they buy with us. And again, I just referenced this larger one that we just literally won was not part of the account that I gave you. We just won over the last couple of weeks. But that one is asset size isn't -- it's roughly $10 billion in assets, which for us would be the second largest win in our history as a brand-new core as far as asset size. But more importantly, it's the number of accounts. So they have 1.2 million accounts, which is, like I said, 25% greater than any of our current customers, but they're buying a whole host of products from Jack Henry. So that creates a larger scale of opportunity for us than maybe some of the other institutions that are buying only a handful. The key of why I keep referencing trifecta is because trifecta for us really is the opportunity for us to drive 3 of our largest revenue products in with a single client. So really, the rest of it becomes gravy. And so it really does depend, Cris, but when we go in to sell a deal, we try to sell them everything we have. Some of it also could be timing. If the contract terms on some of the other products are not coterminous with the core, you sometimes have to wait to go back and win the digital or the card or other things like that to drive that. But economics really, truly vary. Like I just said, the $10 billion opportunity could look a lot greater than a lot of our other opportunities, and it's smaller in asset size.

The next question comes from Will Nance from Goldman Sachs.

Mimi, I wanted to -- I'm sorry to ask another kind of guidance-oriented question. Very clear that the fourth quarter is not kind of indicative of a jumping off point. I just wanted to pressure test a couple of things in the fourth quarter on that statement. When we think about some of the things you called out, I think on the complementary side, lower digital account growth and then on the margin side, normalization of commissions in health care as well as the commencement of some of the public cloud spend and some of the duplicative costs there. And I was wondering if you could just maybe talk to either why those wouldn't continue into next year or if they are and we're supposed to kind of take from that, that you're factoring that into the budgeting process as you go through it. If you could just kind of speak to your confidence about like levers that you have to offset those things because you obviously have pretty good visibility on them as of today.

Yes. Happy to, Will. And I appreciate your acknowledgment that it's a little early for FY '27. But yes, I think particularly some of the headwinds that we see in Q4 around the digital account growth, it just happens to be the size of some of the wins previously. So we have some bluebirds that are scheduled to come on, and we'll see what the mix for the remaining year of the sales team wins look like as it impacts next year's implementation, but no concerns there at all. As Greg mentioned, we feel great from a competitive parity perspective and our -- both the robustness of the pipeline and the wins we're getting. So no concerns there of that being a carryover into FY '27. On some of the expenses that you mentioned, we mentioned in previous quarters that some of that savings particularly around some of the timing on the commissions as well as some of the timing from the expense medical claims being lower, really just created an opportunity for more of like a onetime windfall, if you will. And we've seen that at the beginning of the year, we talked about the $20 million to $40 million, and we're now set to deliver $75 million to $95 million. So we'll see where we start next year, but we always start conservative with the ambition that that's the floor and look to produce more. But nothing structural. But you're right, we expect kind of a normalization that should probably produce a little bit of a front half grow over challenge relative to the savings we saw this past year. But we continue to look at every position and every project with a refined eye to making sure it makes sense for the business.

Will, one thing I do want to emphasize related to the digital backlog is that the importance of us winning these deals from -- with existing Jack Henry clients from our competitors is why we continue to emphasize this. But right now, in our digital backlog, the digital wins with existing Jack Henry clients from competitors is twice the size of the backlog for the core wins. So that puts that in perspective of, again, we are winning some larger deals back in the Jack Henry base of deals that we did not win years ago.

Got it. That's super helpful. I appreciate all that color. And then maybe if I could just kind of ask a little bit more longer term of a question, and I should acknowledge despite some of the headwinds that you mentioned earlier this year, this is one of the best years that Jack Henry has put up from a margin expansion perspective in many years, and that's despite a more flattish back half of the year. And so I just want to acknowledge that you're kind of doing that with some of the headwinds that I think an earlier question mentioned. And so just wondering, as you look out, particularly in the context of the acceleration in core wins and a lot of the sales momentum that you have, how do you kind of think about that long-term margin expansion target? And just given what could be a faster pace of top line growth, like is there is there room to operate at the higher end of that margin expansion target while the sales momentum is going strong.

Yes. I think your goals are in line with our goals. We know that margin expansion is one of the key pillars from a shareholder value creation, and we are highly motivated to drive that. Not talking about any particular year, so this is not a reference to '27, but more kind of the near-term horizon. We've talked about there's a number of great tailwinds that will help us, whether that is the mix of the new products coming to fruition at higher margins, whether that is moving to a public cloud environment, whether that is AI and continuous improvement efficiencies. So we think there's definitely opportunities to improve the margin profile of the company.

The next question comes from Dave Koning from Baird.

Nice job. One thing, corporate, just that segment grew super fast. Hardware you called out. I think that's pretty lumpy. But you made a comment that you expect growth in all 4 segments. Historically, corporate was kind of a decliner. Is there something that's changed there? And is it maybe less lumpy? Or is there some extra growth you expect? Maybe just discuss that a little bit.

Yes. I appreciate the question, Dave. I agree, hardware can be lumpy, and we saw that as a big headwind last year. It's hard to say what we expect for next year yet in terms of hardware. We did have an increase a little bit this year that's produced some wins. I would say, in general, that segment while we manage it quite tightly, it doesn't have the same operating characteristics as our other segments. And so it tends to be a little bit more ancillary services than key areas of revenue.

Yes, that's fair. And then just one last one on network. The network incentives, I get what they are. Just from a magnitude standpoint, is that like a -- I know it's lumpy, but is that like a 1% to 2% headwind in Q3 and Q4, just so we can understand kind of normalized.

Yes, I would say probably combined, looking at it from a combination perspectively and holistically across it. And I would focus more on the card volume itself as being more of an indicator forward and that strength, that continued strength of the consumer we think will lead to network incentives this year, just the threshold was pretty high.

Yes. And the other thing is on network incentives. It's an aggregate of all of our card association relationships and a lot of it is also predicated on average spend, not necessarily transactions. So we get paid on transactions. Obviously, the interchange is generated at the larger spend dollars. So some of that is predicated on spend dollars going down, but not necessarily our transactions going down for the network incentives.

The next question comes from Kartik Mehta from Northcoast Research.

Greg, I realize there hasn't been as much M&A activity at least so far in 2026 as some anticipated. But if M&A activity picks up, do you think that impacts at all the number of RFPs that might be there for the core over the next couple of years?

I do. I do think that a lot of opportunities that tend to happen are folks that are undetermined on what they're going to do in the long term on whether potentially being acquired is an alternative or kind of preparing themselves for that through the process. So as you can tell, a lot of folks that maybe are going to be potentially looking to be purchased, they're going to be less likely to do an RFP at that point in time. So it can have an impact on both ways. But based on what we have seen, to answer your question, Kartik, we've seen a really steady dose. I think that the -- if you take the average number of RFPs that we typically talk about in a year, which is roughly 200, I think that number will be closer to 250 to 275 over the next couple of years with, one, the unrest that's going on at some of the competitors, but also just the whole M&A story itself.

So even with increase in M&A, that should not -- it should actually increase your opportunities?

In both ways, right? So we typically win more than we lose, right, in the M&A side. And then I think with the opportunities for us to continue to win our fair share of pure competitive takeaways.

Yes. And then just one last question for you or Mimi. In the past, you've talked about whenever there is some kind of an economic event, if banks get a little skittish, there's a portion of the business that might be impacted because it's a little bit faster sales cycle than the core or some of your other products. At this point in time, what percentage of the business do you think could be at risk if the economy slows or the banks get a little bit worried about what's happening?

Yes. So overall, we have not seen volatility related to the economic related to global issues happening. I would say, and something we've mentioned historically is the card business has the most sensitivity to macroeconomic. But overall, we have not seen a big change in the mix of that kind of exposure, if you will, to the economy.

Yes. And I think -- so specifically consumer sentiment drives a lot. And as you know, we have -- the bulk of our card business is debit, and that tends to be the one that gets pushed. But regardless, I mean, I don't know any of the products that we've seen. And again, we just came out of our SI event in Salt Lake and the feedback from our clients was, I mean, they're going to spend more and more because they know that that's their way to combat a lot of things. Technology solves a lot of their problems.

The next question comes from James Faucette from Morgan Stanley.

Greg, I want to circle back to a comment you made a few minutes ago that you're seeing increased engagement with consulting and systems integrators. And just wondering with those conversations, if you view that as a potential source of better implementation efficacy, especially if you can enlist the SIs to do a lot more of the work. And then just thinking about that as a potential incremental channel or point of leverage.

I'm really glad you asked the question, thank you. So absolutely, the things that we have found through these conversations, and we've had a multitude of conversations with 2 particular firms in particular. So I would say that, one, they are able to help validate the things that we were doing in the space as compared to others and giving us that feedback. And so we feel really good about that. Two is what you described, which is they're providing an entree into some of the larger institutions. In fact, I had 2 inbound calls from institutions that came as references from these consulting firms, and we haven't even inked a deal with either one of them yet. And so they're providing that level of validation that, hey, Jack Henry can play in this larger market. So -- and then thirdly, to your point, do they become potential implementation partners or other aspects? The answer is yes. And we're entertaining all of those things as opportunities present themselves.

And Greg or Mimi, I just want to touch quickly on some of the things that you're doing in the Payments segment, continue to be intrigued by those. But I'm wondering how we should think about the margin profile of Tap2Local relative to the current segment margin? And is the Moov economics model initially dilutive because of onboarding support? Or can it be accretive because of the way the distribution runs through existing Banno and FI relationships? And how should we think about those trajectories over time?

Yes. I would say -- thanks for asking the question, James. I would say that some of those new growth initiatives are exciting on 2 fronts, both from a top line revenue perspective, still very early days. Greg shared some of the exciting momentum metrics. But from a revenue contribution perspective, it's still very small and expected to grow quite nicely over the next several years. From a margin perspective, because of the nature of the rev share, because of the limited amount of development work we've had to do to get that solution in market because of the partnerships we have on the marketing side with the network, it's going to be great margin. So excited when that comes to fruition. When I look about long-term growth momentum drivers for the business, those are certainly areas that I think will continue to accelerate payment size within our business and overall growth rate.

The next question comes from Timothy Chiodo from UBS.

I apologize if this was already addressed. I'm joining late from another earnings call. I realize it's maybe challenging to talk a little bit about large named competitors, but it's just coming up in a lot of investor discussions with the recent Wells Fargo win for Pismo and Visa overall. And I was hoping you could just let us in the investment community know how you're thinking about them as a potential new competitor that might not have been a part of the thought process maybe 2 years ago and now appears to be gaining some degree of traction.

Yes. So it has not been asked, Tim. So we'll forgive you for going to the other one first. That's okay. But here's the answer to the question. Pismo is not a full core. So if you even compare it to -- I think some folks had made comparisons to Finxact and Thought Machine and others. By the way, they left us out of there from a comparison standpoint with the things that we've built in the platform. But what I would say is it is -- the term core is really what's been the challenging component here. It has the ledgering capability. That is it. It does not have any of the other -- so people are calling it a headless core because of the UI and lacking of that, but it doesn't have any of the pure functionality of a core itself, which is why somebody like Wells Fargo can spend the money to build that out based on the Visa relationship that they have, and they can hold them accountable for executing based on the Visa relationship that they have. So I think there's a lot of dynamics in a deal like that, that are way more impactful than just what they're supposedly going to be doing with building out a potential core. I really believe that they could be using some of it more as a side core solution set, using the general ledger as a baseline for that. But there isn't any true deposit capabilities or lending capabilities in Pismo today, and I validated that with Visa. I mean we obviously have a strong relationship with Visa, and I have validated that at very top levels. So I think there's a little bit of an overreaction to what is truly going on with Pismo today. And we are not seeing them. I actually talked to our sales folks, and I said, do we see them in any single deal and the answer is no. Obviously, we do see them in card deals sometimes with what they're trying to do with DPS and bringing those 2 things together. But that's my answer for today based on what I know, based on conversations I've had with Visa directly and what our sales team has brought back to me.

This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for closing remarks.

Thank you, Danielle. Management will be participating in multiple investor events over the next few months, and we look forward to our conversations with investors. As Greg mentioned, we will be having our Investor Day on September 15 at our office in Dallas, and that will obviously be webcast. However, if you would like to attend in person, please reach out to Steve Fine on our IR team for more information. In conclusion, we extend our appreciation to all Jack Henry associates for their outstanding efforts, which have set us up to finish a successful fiscal 2026. Thank you for joining us today. Danielle, please provide the replay number.

The replay number for today's call is (855) 669-9658 and the access code is 4124634. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.