Jack Henry & Associates, Inc. (JKHY) Q4 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Jack Henry Fourth Quarter and Full Year Fiscal 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, Drew. Good morning, and thank you for joining the Jack Henry Fourth Quarter and Full Year 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 a summary of our quarterly and annual results along with updates on our operations and strategic initiatives. Mimi will then discuss the financial results and fiscal 2027 guidance provided in yesterday's press release, which is available at 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, everyone, and thank you for joining us today. I want to start by recognizing our associates. Their hard work and unwavering focus on culture, service, innovation, strategy and execution helped deliver an historic year for Jack Henry. Today, I will cover 3 main takeaways from the quarter and fiscal year before diving deeper into our overall business. First, we delivered record financial performance in both the fourth quarter and full fiscal year. In Q4, our non-GAAP revenue was $633 million, up 7% over last year's fourth quarter and significantly higher than the implied guidance we provided for the quarter. Our non-GAAP operating margin was 21%. For the fiscal year, our non-GAAP revenue was $2.5 billion, up 7% over last year. Our non-GAAP operating margin was 24%, a very strong 92 basis point increase over the prior year. This was our third consecutive year of margin expansion of 60 basis points or greater and each exceeded our initial guide of 20 to 40 basis points. Second, we set new sales records for the year. Our sales and marketing team delivered an outstanding 58 competitive core wins for the year, up from 51 last year and surpassing our previous record of 57 wins achieved in both 2019 and '24. This is the largest number in over 20 years when growth was largely driven by de novo institutions rather than competitive takeaways. Just 6 of our 58 wins in fiscal year '26 were de novos. Our public cloud native modernization strategy and innovative new solutions have helped us continue to attract larger institutions. Of the 58 wins, 14 were institutions with more than $1 billion in assets. Over the past 3 fiscal years, we have won 45 core deals with institutions over $1 billion in assets, representing approximately $98 billion in total assets. That compares with 15 institutions representing $26 billion in assets signed over fiscal years '22 and '23 when we started to initiate our upmarket strategy. As we briefly mentioned in our Q3 call, we signed the largest new bank client in our company's history in Q4, Woodforest National Bank with $9.2 billion in assets. Woodforest was one of 15 competitive core deals we won in the fourth quarter. Third, we continue to win higher-value trifecta deals that include core digital banking and card. Of our 58 core wins for the year, 59% included all 3 solutions. Last year, only 39% of our 51 core deals were trifecta. This success reflects the strength of our solutions and our collaborative One Jack Henry approach to all we do. One final point about our sales success. You may remember that at the end of last fiscal year, we implemented a new sales process to achieve a healthier balance of new sales and renewal contracts. This was the first full fiscal year operating under that process, and the results exceeded our expectations. 60% of our sales were new contracts in fiscal year '26, up from 45% the prior year. Now for more detail on our overall business, starting with some accolades for the team. We were recently recognized by 3 prominent publications, U.S. News & World Report's Best Companies to Work for, TIME Magazine's Best Companies and Newsweek's America's Greatest Workplaces. Additionally, we were the largest and the second oldest company included in American Banker Best Places to Work in Financial Technology rankings. This is particularly meaningful because most companies on that list are smaller specialized fintechs. This recognition reflects both the strength of our culture and the innovation we continue to deliver for our clients. Our commitment to innovation remains a key differentiator for Jack Henry. And during the fourth quarter, we built on our momentum through several important advancements. Starting with artificial intelligence. We announced our expanded collaboration with Google Cloud to provide AI-driven security capabilities for banks and credit unions. Building on our 4-year strategic partnership, we will use Google's agentic defense products to develop a proprietary AI security platform to strengthen cyber resilience for financial institutions and help them defend against emerging threats. We also joined Project Glasswing, Anthropic's collaborative cybersecurity initiative. Together, these efforts reflect our ongoing commitment to leveraging advanced technologies to help financial institutions operate securely in an increasingly complex threat environment. In addition to cybersecurity, we are bringing creative AI capabilities directly into the solutions that our clients use every day. A great example is within our Financial Crimes Defender platform, where we are using AI to streamline the labor-intensive process of drafting summaries for suspicious activity reports or SARs. Once an investigation wraps up and an AI-driven summary is generated for review while keeping the fraud investigator in full control, this can reduce drafting time by 75% to 85%, allowing investigators to dig deeper and spend more time stopping fraud. Other examples include Banno Conversations, where AI translates over 200 languages to help bankers better serve diverse communities and our flagship CRM tool, Synapsys, where AI will instantly generate client relationship summaries and provide actionable next step guidance for more impactful account holder engagement. We currently have 22 AI-enabled products in the market and have identified more than 20 additional AI capabilities for release over the next 6 months. In all cases, we will maintain strict risk management, compliance and governance frameworks to ensure our clients always remain in control. These client-facing capabilities are driven by the rapid AI adoption across our own internal operations. Today, over 100 AI tools are approved for internal use, supporting more than 890 documented use cases. We've also internally deployed more than 50 AI agents through our custom-developed AI platform, leveraging Gemini and other frontier models to provide specialized expertise, workflow automation and self-service support at scale. Through our associate-enabled Vibe Coding platform, our teams have built more than 100 AI-powered applications that eliminate manual processes, automate repetitive work and empower business teams to rapidly solve problems without traditional development cycles. The impact is meaningful and expanding. Engineering teams are doubling productivity through AI-assisted development workflows. Operations teams are reducing recurring reporting processes from days to hours, and analysts are cutting research and document creation from hours to minutes. Beyond AI, we are also advancing next-generation money movement capabilities for financial institutions. In Q4, we announced that we are part of Open USD, a new stablecoin for global money movement backed by over 140 leading financial companies, including BlackRock, Mastercard and Visa. We will begin integrating Open USD when it launches later this year. This complements the work we are doing in beta testing for send and receive USDC capabilities. Together, these solutions will provide our clients access to additional capabilities such as cross-border and treasury payments. Additionally, we are seeing strong momentum across our newest solutions, including our Tap2Local SMB merchant payment and Rapid Transfers digital money movement offerings. Since our last earnings call, we've added Tap2Local for over 200 banks and credit unions, bringing the total number to more than 900. We have also more than doubled the number of merchants who are now enrolled, and we expect adoption to continue growing rapidly in the coming months. Rapid Transfers is now live with over 140 banks and credit unions with an additional 150 in various stages of onboarding. As consumer adoption accelerates, transaction volumes continue to grow. The average transaction size is more than double our original projections, driven by stronger-than-anticipated inbound transfers. One example we have heard from clients is that before Rapid Transfers, customers would go to an ATM to withdraw cash from one institution and then immediately deposit that money on the same ATM into their bank or credit union account. With Rapid Transfers, that same transaction can now be completed in seconds with a few clicks on a phone or a computer. While these initiatives address different client needs, they are all enabled by the Jack Henry platform, our public cloud-native platform that connects seamlessly to our core systems. The platform serves as an integrated bridge between our foundational cores and modern solutions. This is increasingly important as the industry enters an era defined by AI, open banking, real-time data, tokenized money and embedded financial experiences. Banks and credit unions need architectures that provide the flexibility, connectivity and scale required to compete in a rapidly evolving financial services landscape. We began building the platform over 4 years ago, and it is a key driver of our competitive wins, especially among larger institutions. Moving on to our reporting segments. In Core, in addition to the 15 competitive core wins in Q4, we also secured 13 on-premise to private cloud contracts, including 7 institutions over $1 billion. For the year, we signed 36 in-to-out contracts with 15 being institutions over $1 billion. Today, 79% of our Core clients are operating in the private cloud. 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 24% and FedNow by 29%. In the fourth quarter, payment transaction volume across these channels increased 45% year-over-year. We also saw healthy card activity, signing 17 debit and credit card deals in Q4. That brought our full year total to 65, up from 63 in the prior year. In complementary, we signed 61 new Financial Crimes Defender and Faster Payment module contracts in the fourth quarter and 183 for the full year. As of June 30, we have completed 189 Financial Crimes Defender installations and another 57 are in various stages of implementation. We have also installed 191 Faster Payment modules with an additional 231 in progress. The Banno Digital Platform had another strong quarter with 26 retail and 34 Banno business signings. That brought the full year total to 219, up 24% over prior year. The platform now serves more than 15.8 million registered users, up 11% from a year ago. Another area where we are seeing strong momentum is in treasury management. We signed a record 17 new treasury contracts in Q4, bringing our full year total to 45 deals, up 25% over the prior year. In addition to higher volume, our treasury services are attracting larger clients. Over the last 2 years, the average asset size of clients signing with treasury deals was $2.1 billion, up 43% from fiscal years '23 and '24. We are looking forward to seeing many of you at our Investor Day at September 15 in Dallas, where we will share updates on our overall business, key strategies and innovation, including some live demos. We are also excited about our annual client conference, Jack Henry Connect in mid-October. This is a great opportunity every year for us to meet with prospects, clients and partners. Last year, 23 of our new core wins were with prospects who attended the Jack Henry Connect Conference. Prospect and client registration for this year's conference is currently tracking 36% ahead of last year's pace, and we already have over 250 registered for our CEO forum, which would shatter last year's record of 211 attendees. In closing, fiscal year 2026 was a milestone year for Jack Henry. In addition to celebrating our 50th anniversary, we delivered record sales and financial performance. We continue to benefit from the strength of our innovation strategy, differentiated solutions and disciplined execution. We are attracting larger institutions and winning an increasing share of higher-value trifecta opportunities. Interest in technology investments across the financial services industry remains strong as reflected in our robust sales pipeline. Looking ahead, we are well positioned to deliver consistent revenue growth, margin expansion and long-term value for our shareholders. With that, I will turn it over to Mimi for more specifics on our financials.

Thank you, Greg, and good morning, everyone. I'll begin by thanking our associates who continually deliver value and industry-leading service to our financial institution clients. The result is another strong quarter, including a fiscal year of solid revenue and earnings growth. We exit a positive year with meaningful momentum, excited as we start fiscal '27. I will begin with our impressive fourth quarter and full year results, then conclude with our fiscal '27 guidance. Q4 GAAP revenue increased 5%. Non-GAAP revenue increased 7% for the quarter and full year, a continuation of consistently strong performance. Fourth quarter deconversion revenue of approximately $9 million, which we previously announced was down approximately $11 million for the quarter, reflecting M&A activity among financial institutions. As a reminder, the dollar amount of deconversion revenue has little correlation with the number of transactions or impact to Jack Henry's annual revenue 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 3% for the quarter, while non-GAAP increased 6%. Services and support growth during the quarter remains consistent, primarily driven by strength in data processing and hosting revenue for both private and public cloud. Private and public cloud offerings continue to drive robust growth. Cloud revenue increased 7% in the quarter. This reoccurring revenue contributor is 32% of our total revenue. Shifting to processing revenue, which is 44% of total revenue and another strategic component of our long-term growth model. We delivered healthy performance with 7% GAAP and non-GAAP growth for the quarter. Consistent with recent trends, quarterly drivers include increased card, digital and transaction and faster payments revenue. Completing commentary on revenue, I would highlight total quarterly reoccurring revenue was 91%. Next, moving to expenses. Beginning with cost of revenue, which -- increased 8% on a GAAP and 7% on a 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 higher internal licenses and fees. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense increased 17% for GAAP and 16% on a non-GAAP basis for the quarter. The quarterly increase was primarily due to net personnel costs driven by trailing 12-month headcount growth. Ending with SG&A expense. For the quarter on both a GAAP and non-GAAP basis, it increased 19%. Results reflect higher personnel costs, including increased medical costs from second half normalization trends and increased compensation tied to trailing 12-month growth. As we previously shared, Q4 was a higher expense quarter, primarily driven by nonrecurring activity. We remain focused on generating annual compounding margin expansion. Q4 delivered non-GAAP margin of 21%. More importantly, fiscal year non-GAAP margin improvement was 92 basis points with a non-GAAP margin of 24%. This is the third straight year of compounding non-GAAP margin expansion as aligned with our commitment to investors. Non-GAAP margin for the full year reflects inherent leverage in our business model, management's continued focus on creating AI efficiency, strategic cost management, leveraging our existing workforce and enterprise process improvement. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.57, down 10%. For the fiscal year, GAAP earnings per share was $6.98, an impressive increase of 12%, with the largest contributor being operations. Reviewing the 4 operating segments for the quarter, we see positive performance across the board. Core segment non-GAAP revenue increased 6% for the quarter with non-GAAP operating margin contraction of 139 basis points due to temporary product mix of lower-margin revenue sources such as implementations, where we added 2 new conversion teams and customer work orders. Payments segment quarterly non-GAAP revenue increased 6%. The segment again had fantastic non-GAAP operating margin growth with quarterly results of 174 basis points. Card processing revenue showed steady growth and was partially offset by atypical lower incentive revenue. The segment also benefited from continuing large percentage growth from faster payments. The Complementary segment quarterly non-GAAP revenue increased 6% with non-GAAP margin growth of 16 basis points. Quarterly revenue growth benefited from digital solution demand, beneficial product mix and additional sales sourced from new core wins, existing core customers and noncore financial institutions. For the quarter, Corporate Services non-GAAP revenue increased 31%. This is primarily the result of meaningful increases in hardware sales. Since this segment reflects expenses not allocated to other segments, we will not be discussing non-GAAP operating margins as it provides no meaningful insight. Now a review of cash flow and capital allocation. Q4 operating cash flow was $303 million, a 7% decrease over the prior fiscal Q4. Quarterly free cash flow of $245 million delivered a 10% decrease over the prior fiscal year Q4. This was primarily the result of lower deconversion revenue. Full-year free cash flow of $539 million was a substantial increase of 31%, primarily due to operations and cash tax impact. This was an attractive increase over our recent fiscal year results that were negatively impacted by the expiration of a tax provision. Our consistent dedication to value creation resulted in a trailing 12-month NOPAT return on invested capital of 23% compared to the 21% in 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 with this fiscal year, including significant share repurchases and lower average debt. Additionally, I would highlight the following significant fiscal year capital decisions resulting from our strong cash flow generation and cash on hand. We purchased $448 million in shares, representing a 4% reduction in shares outstanding, paid $170 million in dividends plus the asset acquisition of Victor Technologies. We're proud to return 122% of free cash flow to investors while maintaining a conservative, flexible balance sheet. The average purchase price of shares repurchased was $152 versus the average share price during fiscal year of $161. We ended the quarter with debt of $40 million, consistent with normal course revolver usage. I will now discuss our guidance for fiscal 2027. We are positive on the early outlook for fiscal '27, which is expected to be similar to the healthy results delivered last year. As you're aware, yesterday's press release included fiscal '27 full year GAAP and non-GAAP guidance. Full year GAAP revenue growth guidance is a range of 5.5% to 6.5%. Revenue on a non-GAAP basis is expected to be within a range of 6.3% to 7.3%. Deconversion revenue guidance will continue to follow the conservative methodology introduced in fiscal '24 with initial fiscal '27 deconversion revenue guidance of $23 million. First quarter is forecasted at $11 million with the remaining $12 million being evenly spread across the remaining 3 quarters. Full year non-GAAP margin is projected to expand 20 to 40 basis points, consistent with the last 3 fiscal years, but we are cautiously optimistic that we can increase that range as the year progresses. Full year, we expect tougher non-GAAP revenue and non-GAAP margin comps in the first half, reversing in the second half to allow us to achieve our full year non-GAAP guidance target. Expense comps in the first half of fiscal '27 will reflect pressure from self-insured medical costs returning to historical levels. In addition, increasing cyber and infrastructure investments related to frontier models, AI innovation and our data center consolidation project, EC2030, will pressure margins in fiscal '27. And for additional modeling assistance, please recall that our annual client conference, Connect will be in our fiscal second quarter compared to the first quarter in fiscal '26. We expect Q1 non-GAAP revenue growth to come in modestly below the low end of our full year guidance range, driven primarily by a 1% impact from the shift in our client conference along with the timing of certain onetime revenue items. As a reminder, we see fluctuations in quarterly results relating to software usage license components along with the timing of implementations. Therefore, the correct performance indicator for our business is the consistency, strong fiscal year financial results. All presented results and guidance metrics were indicative that our business operation remains robust with growth opportunities across all 4 operating segments. The full year GAAP tax rate for fiscal '27 is 23%. The discussed guidance metrics produce a stronger full-year outlook for GAAP EPS of $7.33 to $7.38 per share, a growth of 5% to 6%. As a reminder, conservative deconversion guidance potentially understates GAAP EPS growth. Full year free cash flow conversion outlook is for 85% to 100% in fiscal '27. In conclusion, our fiscal 2026 results reflect another fantastic year. We're pleased by the continued performance momentum and upbeat fiscal 2027 year outlook. We appreciate the contributions of our dedicated associates that produce these superior results and our investors for their ongoing confidence. Drew, could you please open the line for questions?

[Operator Instructions] Our first question comes from Nik Cremo with Barclays.

First, I just wanted to start on all the momentum you've had with record core wins in FY 2026, which is really impressive. So first, can we just get an update on how the pipeline is looking today? And as we look into FY '27 and FY '28, do we see potential for you guys to continue to accelerate that number as you capitalize on the well-known ongoing disruption at one of your competitors? So I guess it's like 10 to 12 months to win a deal. So I think we have yet to see any benefits from that disruption.

Yes. Thanks, Nick, for the question. Yes, I mean, we're seeing benefits of the disruption, but it isn't just coming from one provider. We're taking share really from everybody right now. And so I would say that from a momentum standpoint, I can tell you that we are already -- we've already exceeded what we had done in the first quarter of last year already in the first month of the quarter, so for core wins. So I can tell you, we are tracking really well. We're continuing to have momentum. The one thing that will be a little bit different this year is that there seems to be lesser credit union opportunities becoming available this year as compared to the year previous and the year previous to that. So we'll see how that kind of plays into the overall. But I can tell you, and I'm sure this is going to be a question from somebody, so I'll go ahead and answer it. We're anticipating to do as good or better this year, somewhere in the 58 to 65 range is kind of where we think our core win total will be this year. So somewhere in that range, we think is a very legitimate and reasonable number based on not only the amount of opportunities we have in play, but the momentum that we have in those opportunities in play.

Really appreciate it. And just for my follow-up, I wanted to ask on how your conversations with customers are going as it relates to these increasing cyber threats from all the frontier models such as Mythos? So what products is this driving incremental demand for on the Jack Henry side? And do you see benefits from this being an incremental catalyst to drive the customers that aren't on Jack Henry private cloud to the private cloud in the future?

Yes, Nik, that's great insight, and we agree. We are having more significant conversations. And as you can even tell by the numbers that we talked about in Q4, where we had 7 multibillion, and we had 13 of the 36 were multibillion. We're getting larger institutions to kind of start to come around. We're doing our best to inform them about the frontier models and some concerns that they should have, the expense that they should have, concerns about with running those. And so candidly, we're having much more success. So I don't know -- we have less -- obviously, less deals to bring over into the private cloud, but the reality is we're continuing to have momentum there. We expect to have momentum. And so we'll see how that plays out this year. The other thing you mentioned it was around other Jack Henry products. I do believe our Gladiator solution set, we believe will have -- could have a really good year based on some of the interest level that we've had in early -- later parts of Q4 and the early parts of Q1 of this fiscal year. So we'll continue to watch that and report on it, but that product set definitely will play into this -- the frontier model and concerns in that space.

The next question comes from Rayna Kumar with Oppenheimer.

This is Anthony Cyganovich filling in for Rayna. You've had a lot of success selling Banno to existing core users. Could you talk about how close you think you are to selling Banno outside of the core and what you believe the revenue opportunity is?

Yes. Thanks, Anthony. The revenue opportunity is still really early to talk about, but I'll give you some updates on kind of where we are. So 2 significant things have actually happened. If you all recall, we really started to build out the sales traction and things along that line in January, so really the last 7, 8 months. So since we're reporting on this quarter and this year, I can tell you that 2 things have happened. One, we're very close and probably we will be announcing in the next -- the signing of a Banno outside the base deal with a pretty decent-sized opportunity for us, again, not using any of the Jack Henry products. But the other thing that we've done, and this is all part of the overarching innovation strategy that we have with the Jack Henry platform, which is, we have sold a client that is going to use Banno and the Jack Henry platform that currently -- and they're going to do it for a digital-only core, and they're going to use it and they're not connected with any of the Jack Henry cores today. So both the platform and the Banno application will be used in this particular client. And that contract has been signed. So things are -- honestly, it takes some time to build some momentum in that space. The momentum is starting to happen. But the thing that you're going to see that we're able to do that I think a lot of our -- well, not I think, I know a lot of our competitors can't do is we're going to be able to leverage both the platform and our digital offering as a combined solution set, which should make that even more attractive. So more to come on that, but that's where we are right now.

Great. And just as my follow-up, maybe, I mean, you had 3 straight years of at least 50 basis points or more of non-GAAP operating margin expansion. Can you walk us through some of the puts and takes that might prevent that kind of margin expansion for FY '27? And maybe touch on what came in better than expected in FY '26 versus your original guide?

Sure, Anthony. Happy to. First of all, we're quite pleased, as I mentioned in my prepared remarks, the consistency -- being able to do what we said we were going to do. We were very focused on the compounding nature of margin expansion versus the 1-year kind of one-off. It's important, as you well know, that compounding effect and the consistency of that as a value driver. So we have been very focused at Jack Henry for a long time on efforts around consistent improvement, whether that be AI efficiency, automation, just general workflow, very thoughtful around headcount growth. So doing all the things that we have the skill sets and experience on doing that just manage the overall expense base of our organization. So we will continue those efforts. The '26 results, as we talked about, have the windfall of some benefits that we don't expect to continue in '27. There were some things in the first half, in particular, around lower-than-normal cost expenses related to medical expenses, commissions that were more second-half-weighted and a little lower overall that led to that really strong 90-plus kind of number that we don't expect is a year-in, year-out type of delivery. Part of that is also some of the projects we've talked about that will be a slight headwind around infrastructure, around security, around the frontier model, that type of work that -- some of that started in late '26, but most of that is a '27 number. So we think the prudent thing is to start with a number that we think very strongly in our ability to execute on it. And then as we continue to see the year, we see the product mix, et cetera, that will drive that margin component, we hope to overperform.

The next question comes from Dan Perlin with RBC Capital Markets.

Greg, I wanted to just kind of tie a couple of things together. So clearly, the backdrop right now is incredibly strong for you guys and it's very evident in the core wins and your ability to pull this together with these trifecta deals. But you also mentioned your new sales process that you put in place this year, and that's driving 60% new sales versus 45% in the prior year. So I guess part of it is maybe a reminder of what that new sales process was and how important that is? And then how does that dovetail into the trifecta opportunities? Because those also are stepping up pretty meaningfully here.

Yes. Thanks, Dan. I will say that the 2 things really don't necessarily go hand in hand. The trifecta opportunities are really more about the work that we've done in those products to get the products on par or better than our competition, which again was something we promised at our investor meeting 2 years ago, especially around Banno and our card solutions. So those 2 don't necessarily go hand in hand. The emphasis on the new versus renewal is this, that in years prior, there was the ability for our sales team to pull in a renewal if it was going to help potentially benefit quota attainment. And so benefiting quota attainment doesn't necessarily help the company. And so we made significant changes to how that could occur, what would happen if it did occur, things along that line. And thanks to our Head of Sales and his team of leaders, they listened, they adhered to it. And what I'm the most proud of is that, that team killed the numbers this year and did it by winning a bunch of new deals and not by pulling in renewals. So that's really the benefactor. So if you think about that, we're just going to have more and more new revenue versus revenue that could have some level of compromise -- not what the word I'm thinking of is we're -- I can't think of the word I'm thinking of, but... No, no. Anyway, we're having some lost revenue tied to that. So the reality is we have been really heavily focused on that. And honestly, the team has done a good job. Now part of it is also a byproduct of how many renewals are in "the pipeline." So you have to kind of work through that as well. So do I expect to hit 60% again this year? It will be tough, but I do expect it to still be north of 55% on the new side. And again, we got a lot of great processes we put in place to ensure that, that doesn't happen going back and forth. So that's really the driver of that is our ability to manage it better, which ultimately becomes more future revenue for Jack Henry.

Yes. No, that's super helpful. And just quickly, Mimi, would you mind just kind of double-clicking a little bit on the commentary around revenues modestly below in Q1 and what the drivers and timing shift there was? I know you said the conference, obviously, going back to Q2, but just making sure I understood the magnitude and then any of the key components to that.

Sure, Dan. So we expect the first quarter non-GAAP revenue growth to come in modestly below the low end of our full year guidance range, primarily driven from that 1% impact from the shift in the timing of Connect Conference to second quarter this year versus first quarter. And then there's just some onetime revenues. But just for also modeling clarity, just to give folks a little bit more detail, the Connect conference typically runs around $6 million in revenue and about $10 million of expense.

The next question comes from Jason Kupferberg with Wells Fargo.

So I wanted to hone in on the theme of moving upmarket. We've seen that playing out for a while now. And I was hoping you could talk about what the average asset size of the 58 new wins in fiscal '26 look like versus fiscal '25. And then as you consider the 58 to 65 target new wins this current fiscal year, would you expect the average asset size to be up again versus fiscal '26?

Yes. So thanks, Jason. So a couple of things there. So the average asset size this year was basically on par from last year. And the reason why is that in the credit union wins, they were significantly lower in asset size than they were the year previous. So there was -- several institutions were in the $400 million to $500 million range. And -- but the important part was that those $400 million to $500 million credit unions bought all 3 of the key products to make them trifectas. And so some of those deals were -- if we're not selling all 3 of those products, we may not spend as much time on them. But as long as we sell them, they become revenue opportunities that are worth chasing. So from a year-over-year, not as significant, right almost on par. But the part I do want to go back and reemphasize is that in the last 3 years, we've won 45 multibillion worth close to $100 billion in assets versus the 2 years prior to that, which the reason why it's only 2 years is because that's when we started to really focus on this for $26 billion. So that's really where I think you ought to see when we look at the number of $3 billion and $5 billion and $7 billion and now a $9.2 billion opportunity, we're starting to win more and more of those deals in that range. We now have over 52 -- over 50, I think it's exactly 52, over $5 billion in assets at the company now. And again, significantly more than it was several years ago.

Understood. Okay. That's helpful. And just as we think about -- I mean, you talked about the fact that you feel like Jack Henry is taking share, not just from a single competitor, but more broadly, as we think about the elevated number of new wins that have started to trickle in and it sounds like we will accelerate in fiscal '27. Any way to start thinking about incremental revenue contribution from those as we look ahead to fiscal '28? Obviously, there'll be a lag there between when you book them and when you start recognizing revenue.

Yes. I think, Jason, you'll see some good insights into that at Investor Day. That's one of the things that we're going to do differently this year. We're going to give more insights into a future year. And I think if you go back to some things that we've been saying on the road as well as these calls where '27 was going to look very similar to this year, maybe some upside we'll see. But there are a few things that we got to continue to overcome. But we remain very bullish on '28.

The next question comes from Kartik Mehta with Northcoast Research.

Greg, obviously, you talked about the 58 wins, which is a record and the 14 institutions that are over $1 billion. Does the number of wins or the size of the institution have any impact on implementation timing and therefore, revenue timing?

It really is more about the timing left on the contract itself. So when we win a deal, it really depends on how much time that particular institution is left on their existing contract to when we go live. Like our large win that we just had, they're going to go live in early '27, where a lot of institutions could be anywhere. As you've heard us say this before, it's usually anywhere from 15 to 24 months. Sometimes it's less, but very rarely it is less than that timeframe, especially on a new core win. If it's a merger or something like that, especially a merger of Jack Henry to Jack Henry, I mean, we've done those in 6 months or less. So it really depends. But on a new core win, it's usually around that time. But the size itself, honestly, is less impactful than what it is, the 2 main things, contract term left on the contract, as well as their willingness to get engaged on the education and reeducation of the things that their staff needs to do. Those are the 2 longest poles in the tent on everything that we do.

And then you said, obviously, you're anticipating fewer credit union wins, sorry about that. I'm wondering if there is a reason for that, if something is changing in the industry or this is just a year that fewer credit unions go to market.

Yes. And let me rephrase. I'm not saying we're going to have fewer credit union wins. I think actually we're going to have more credit union wins this year than we had last year. I do think -- because I think we're going to win more of the market share than we have. But there are fewer credit union RFPs, and it is a cyclical thing. That's really more of what it is. Now there is one provider that could open up a lot of credit union opportunities depending on what happens there. But the reality is based on what we -- our conversations with the consultants and our conversations with our sales team. We do see fewer quote bites at the apple. But I am bullish that we will actually win more credit unions this year than we did last year.

The next question comes from Will Nance with Goldman Sachs.

I wanted to follow up on the earlier comments on the margin outlook for the year. Mimi, I think you called out a couple of different things that you guys are overcoming this year, including the big investment initiative that kicked off late last year as well as some of the comps around employee health claims, et cetera. So I guess coming off a really strong year, absorbing some of those headwinds and you're still guiding to the long-term margin outlook seems to suggest like a stronger rate of underlying margin expansion or expense control and kind of carrying the trend over the last couple of years, especially if you're able to potentially outperform that over the year. So can you talk just a little bit about maybe stripping away some of the tough comps, how you guys are feeling about operating leverage over time? And are we at sort of a new normal for operating leverage looking at the last couple of years?

Great question, Will. I think if you think about '26, had we not had some of that onetime benefit in nature, '26 probably would have looked similar to the historical range that we start on. Similarly, '27, if we didn't have the headwinds that we anticipate, we would expect it to be higher. So I think they kind of offset each other a little bit. Your point in terms of the track record pointing to an elevated -- I think at this point, we're going to be consistent without the starting gate. Now that doesn't say our ambition is to not produce more. Certainly, it is. And I do think that over the near term, there are a number of tailwinds that should lead to higher margin expansion, whether that be AI efficiency, whether that be once we're complete in the transition of the data center business, the way our FinOps team is managing AI compute cost, the third-party arrangements we have with a number of partners, et cetera, and just the overall product mix. And as we have the new and emerging segments start to represent a larger percentage of the total revenue, those are at very attractive margins as well. So I think there's a number of catalysts that could increase that margin on a sustained basis at a higher level. We'll go over some of that at Investor Day. I think it's a little premature. I don't think that '27 is the year you're going to start to see it though.

Got it. That's very helpful. And then if I could just maybe follow up on the payments segment growth algorithm. I think there have been a couple of quarters where I think specifically the card revenue growth within payments has come in a little bit lighter than it has historically. A little bit stronger this quarter, obviously, a good spending backdrop. How are you thinking about the growth algorithm and payments going forward and the contribution of card versus some of the other products in the segment?

Yes. I think it's a fair observation, Will. Certainly, the last couple of years, payments, while being strong and reflecting the resiliency of the U.S. consumer spending and some really attractive new sources of revenue has been a little shy of the historical growth algorithm. I think if we think about the underlying components of that, we've seen a great resurgence in our bill pay, still a bit lower numbers relative to our total growth profile, but coming off a very mature base and being resuscitated through the Payrailz acquisition. So that's been a really nice end to see. The card business is in line with the industry and U.S. debit numbers. I think we've all been pleased over the last 2 years to see the resiliency of the U.S. consumer despite geopolitical inflationary and other kind of macro factors, we expect that spend rate to remain modestly strong. The other thing that we're starting to see, whether it be the small business efforts or faster payments as a whole, Greg talked about stable coins and tokenized deposits and Open USD and other sources. As we start to see the use cases for that continue to rise, I think that could be an attractive percentage of the business within the payment segment. So we're seeing not only a healthy adoption in those, but increasing the dollar volume of those transactions, which is a great indicator for the future growth rate that, that could be a contributor of.

The next question comes from Timothy Chiodo with UBS.

Great. This question is probably mainly for Mimi. It's about the '27 guide. You did a really nice job calling out a couple of the headwinds to Q1 and really the first half, but what that kind of implies is that the second half is going to be much stronger and specifically the Q4 exit rate, really both on revenue growth and margin expansion. And I was hoping that given a business like yours that has a reasonable amount of visibility that you could talk a little bit about what's implied in your planning and then the guidance for the exit rate for both revenue growth and margin expansion, at least directionally and what that kind of spits out for the earnings growth exiting the year and heading into '28?

Yes. Happy to, Tim. I would say, on a reported basis, we expect a gradual ramp throughout the year. You have some of the first half tightening issues between Q1 and Q2. We talked about due to the conference timing and other onetime revenues. We expect it to improve over the course of the year, not a dramatically Q4-dependent year, but just a gradual upslope as the year goes on. That should leave us exiting '27 with great momentum. One of the things we have highlighted that is a talking point for our Investor Day is that '28 and beyond outlook. And '27 is an important year as we continue in some of the new and emerging space. And so as we continue to see volumes and adoption in '27, that will give us greater confidence for that '28 and beyond kind of run rate. But I think it's still very much fair to say that the accurate metric for our business is still full year versus kind of an annualized exit rate or any particular quarter.

The next question comes from Dominick Gabriele with Loop Capital.

If you look at complementary, the growth there, I think it's growing on a 2-year stacked basis almost 10% still, which is actually really strong, especially with the commentary out there that some banks or credit unions or everybody that could build a software solution themselves is going to build -- is going to try to do that. But here you are growing on a 2-year stack 10%. So I'm just curious if you could talk about the strength of complementary and what you envision is going to drive that business moving forward.

Yes. The beauty and the challenge of complementary is that it's a full portfolio of products. And so there's some products in there that are beautiful anchor tenants, as I like to think about that are just mature growers but at lower levels. And then you have some exciting areas. Greg talked about tremendous growth in treasury management, for example that is within digital. Digital itself continues to be a tremendous grower for us. We are continuing to add new product functionality within our digital product suite. You have areas like Financial Crimes Defender, that's very hot from a spend perspective of cyber and fraud prevention. So I think the complementary portfolio as it's designed as it's intended is to meet the more fulsome needs of the credit union or bank. And I think that's reflective of the overall IT spend. I think your comment on the current environment and a lot of start-ups and a lot of fear of do-it-yourself, I think, has a lot more cost than people maybe would have envisioned a year ago with AI compute costs going up. And also the robustness, the scalability and the compliance of known execution that Jack Henry delivers an institution. I think there's some things that they're going to do themselves, but I think it's much more on the customization side than it is a full-scale end-to-end solution.

Right. And then just for my follow-up, I guess, when you're thinking about partnering or outsourcing potentially different products to AI companies to help augment your own products. Talk about the build yourself, partner with an AI company or fully outsource that, a potential new service to one of those AI companies and what the kind of competitive dynamics and moat that you have depends on which kind of path you choose there.

Yes, Dominick, this is Greg. I'll take that. So I think there's a couple ways. We do look at buy partner, build in really everything that we do. And so we actually have a team a fintech biz dev team that works on building relationships and some of those relationships end up being just pure integrations into our product set. They may integrate into our digital or our core, our payments offerings. And I think as you know, we have over 1,000 fintechs that are integrated with us today. Some of those end up being relationships that could end up growing into a variety of different modes. So whether it's a reseller mode or a referral mode, and then some of them could end up being potential acquisitions. And some of the acquisitions we've done through the years have come through that way, including Victor, our most recent one. So all of those are taken into account. From an AI-specific, candidly, we have been working and talking with several AI companies, people that we believe potentially could accelerate. But I will tell you -- and I say this, hopefully, in a humble fashion, our team is really talented and the people that we brought on to build out our AI and the things that we're doing, we're finding are really advanced. And so there's very little that we're using from the outside versus the -- what we're able and capable to do on the inside. So if we do find something that we think would accelerate that, of course, we're partnering in those various tools that would allow us to do that. But from a product set, it's been -- honestly, it's been infrequent at this point. But that doesn't mean it won't change, and it doesn't mean that we're not constantly looking. We have seen of people that are truly on the phone every week talking to -- as you can imagine, we get a lot of inbound calls with people that want to partner or whatever with Jack Henry. So we evaluate that and continue. But it is 100% on every one of these opportunities. It's a build partner buy mindset.

And Greg, if I could add on, if I may. Our clients are looking for our help in this kind of chaos and noise to help them think about what solves their needs and who those vendors might be. And it's -- AI is on a built-in, not a bolt-on. So it's around how do we help them with their data find the right partner, find the right solution and make that seamless. So it's not just a bolt-on experience.

Yes, I'd like to add one other point, just because we're talking about this. We have actually started to engage in consulting engagements with our clients to help them build out governance, help them build out a variety of things that allow them to utilize AI within their environment. You can imagine a lot of our customers based on their sheer size don't have the wherewithal to do that or the talent. And so we have started to do engagements, consulting engagements to help with that. So not only bring fintechs and AI people to them that we know, but also help them build that out themselves.

Looking forward to 2028 and beyond. Great quarter.

The next question comes from Brett Huff with Stephens Inc.

Two questions from me. One, a little bit bigger picture on the platform. Greg, I think you mentioned this both in terms of kind of future-proofing all size FIs as they buy from you, but also particularly on the moving upmarket. It seems like you all have a really good solution. I know it's modularized. I know things are rolling out over time. And it seems like people aren't just going to buy the full Monty all at once. It's designed to be kind of a progressive thing. Can you give us any new anecdotes on how that's working, new GAs that might be coming out, particularly strong adoption of a particular feature function?

Yes. Sure, Brett. So a couple of things. So while you were out, we did progress that platform. So we roughly have about 25 modules that have been created that are kind of core specific, things like general ledger, exception item processing, authorization management. There's a whole host of things that would fit into the core in deposit functionality that we built out. So we now do have a full deposit-only core. We have several clients that are in what we call closed beta testing that right now. We're working on the lending to finish out that. We actually hope to have some announcements at Investor Day on some of that as well. But the reality is, to your point, there's very few people that are buying -- they're not buying the actual solution set today, they're buying for the future, and they're making sure like the $9.2 billion win that we had with Woodforest, they exited from one of our large competitors modern platform after several years of not being able to do what they wanted to do. They saw what we have done. We were able to show it. Again, it's all -- this isn't -- there isn't a PowerPoint being shown. It's all live demonstrations and an actual ability to utilize the solution set. So they're interweaving some of the modules in with our SilverLake platform, which is the way we built it. So it's all integrated. So some of the higher mover modules today right now are domestic wires. We just finished our international wires. We had -- got that all done. We have the general ledger out. We have a lot of the things that we were talking about earlier with exception item processing. And the other part of this, Brett, that's important is that it isn't just about the monetization of what Jack Henry is doing out in public. It's our ability to end up utilizing those services inside the company. So part of our ability to move more quickly and honestly, more quickly than anybody is our ability to build things once now, where each of the individual groups may go build exception item processing and their own specific product set. Now it's built once in the platform and they all utilize the APIs to access that. And so it just makes everything we do faster and more efficient and longer term. So we have several large institutions, ones I can't name yet, but big ones, much bigger than what we've been talking about that are talking to us about future solution sets on how they could either use components or maybe it being kind of their core of the future. But right now, the deposit-only full solution is available, and that is an amalgamation of a bunch of components. So you can buy it in a bundle or in an individual component.

And then, Mimi, I think this is more for you. I know there's been a couple of questions on AI, but we concluded to try and kind of suss out additional spend, particularly on the COGS line for supporting AI efforts. And as you know, everybody is really worried about token costs and things like that and paying close attention to gross margins. Can you just walk us through -- I know you mentioned there's some additional spend on AI development and things like that? Can you -- any more specifics on that for us to just give us a sense.

Sure. So while we are encouraging usage, we're also being very thoughtful and fiscally responsible. So access to the tools that Greg mentioned, over 100 tools we're currently internally using, those come at a cost. And so we're managing some of that to where is the best return. Who are the creators, for example, do all of developers, internal audit, marketing, so what is the benefit depending on what the tool is, what is their greatest returns. So we are managing that spend. We're also managing the spend in the ever arms race that is LLM models, we are staying -- we have partnerships with all 3 cloud providers. We do have a strong partnership with Google, but we're also staying LLM model agnostic. So that allows us to think about when we use external models, when we might use local models so that our FinOps team can manage that AI compute cost and optimize the routing for AI. We also have, depending on whether it's internal use or within a product. There's also clauses within our contracts if it pertains to kind of pass-through capabilities of certain cost arrangements. So there's a number of levers. It starts with oversight. It starts with dashboards and monitoring and making decisions to inherently offer flexibility for the future given the dynamic pace of that industry. But also making sure that some of our arrangements with different vendors or partners allow for both growth of our organization, but also taking advantage of hopefully what will be price declines and certain elements of that cost basis.

And due to time constraints, the last question comes from James Faucette with Morgan Stanley.

I just wanted to follow up a little bit on the AI opportunities and initiatives and maybe how that -- we should expect that will flow through to earnings and margins in particular. I think you talked about how some of the token costs or -- you're having to spend there and some of the development you're doing, and I think more specifically, you cited roughly 90% developer productivity improvement in the organization, which is amazing and 70% to 80% reduction in exception processing time, but yet we still have these R&D expense increases and SG&A. Help us think through like the benefits that you think you'll get from the AI spend in '27? And maybe more importantly, into '28 and beyond?

Yes, James, this is Greg. I'll start and let Mimi kind of bring it home with some of the margin components. But -- so there's a couple of ways to look at this. So first of all, from a revenue standpoint, some of the solution sets that we have created have less about immediate monetization as they do about increasing the penetration of the existing product into our client base, meaning we're adding AI capabilities, which we think will benefit the product and allow us to sell more of them versus less about adding some AI particular cost to it. So using Banno conversations and the things that we're doing in there as an example. Even the SAR development we've done in financial crimes, those are not additive costs, they're just going to help the penetration because it makes it a better solution set. So there's some of those that balance both a level of monetization and a level that don't. So that is from a revenue standpoint. From a cost standpoint, you're exactly right. We're seeing significant advancements. Now some of our groups, honestly, are further along than others. So there is a balance of that. But where we're seeing great utilization, we track the utilization by associate. So we know who's using it, who's not. We'll pull their license if they're not using it to the point that we think we're getting a benefit. We have 9 AI coaches that we have hired that actually go around the organization and train our associates. We've trained over 2,000 of our associates already directly on AI to continue. So that will continue to get better. And so some of the advancements that we've seen in certain groups or a byproduct of that. So you'll see even from a headcount standpoint, we've been very light on headcount over the last 5 or 6 years. We've always been very disciplined on that. But even the headcount we're hiring this year is really more about certain projects that we have where we're still hiring less than we would have based on that, but we are still have to hire people, right? So there's still some additional components that have to hit. And then the flow-through of that, I'll let Mimi kind of talk about where we see, but this is where she emphasized where we were in the 20 to 40 to start and our continued focus on improving that.

Yes. So just adding on to what Greg said. I think some of the rewards you see are a little harder because they have visibility into because they span across multiple fiscal years. So one of the things we talked about in this year's budget process, for example, is a -- for a given project you may not see a cost reduction in 1 given year, but instead of taking 3 years to develop, it may now only take 2 years or 1.5 years. So that acceleration that velocity of development isn't necessarily an in-year cost savings but over the life of that project, you're going to accelerate the opportunity to monetize that sooner. You're going to lower the total cost of development of that project. The other thing I would call out is to make a distinction between AI for security enhancements, for example, the Project Glasswing efforts we're doing, the other around frontier model, security protection and vulnerability assessment in general, that spend versus the spend we're doing for both internal AI usage and product usage. So I would just make that distinction. I view the securitization efforts to be more of a short-term headwind. Obviously, we always spend on cyber. I don't see that declining anytime soon, but the fortification of our networks and products is of critical importance for our clients and ourselves. And over time, I see a declining rate of growth, hopefully, once we kind of get over the hump. But then as Greg mentioned, the product usage, how we are tracking, how it's driving general adoption, it may not be specific monetization in each modular usage of the product, but how it's driving ancillary adoption of the products and the product family.

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

Thank you, Drew. Management will be participating in multiple investor events over the next 1.5 months, and we look forward to those conversations with our investors. As we mentioned many times on this call, we will be having our Investor Day on the afternoon of September 15 at our office in Dallas. Please contact Steve Fine, if you would like more information about attending in-person. In conclusion, we extend our appreciation to all Jack Henry associates for their continuous exceptional efforts, which resulted in a strong fiscal 2026 and sets us up for a successful fiscal 2027. Thank you for joining us today. Drew, please provide the replay number.

Thank you. The replay number for today's call is (855) 669-9658, and the access code is 8041677. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.