Jack Henry & Associates Inc (JKHY) Q2 2025 Earnings Call Transcript

Jack Henry & Associates Inc (NASDAQ: JKHY) Q2 2025 Earnings Call dated Feb. 05, 2025

Corporate Participants:

Vance Sherard — Vice President, Investor Relations

Gregory R. Adelson — President and Chief Executive Officer

Mimi Carsley — Chief Financial Officer and Treasurer

Analysts:

Rayna Kumar — Analyst

Kartik Mehta — Analyst

John Davis — Analyst

Cristopher Kennedy — Analyst

Peter Heckmann — Analyst

Jason Kupferberg — Analyst

James Faucette — Analyst

Dominick Gabriele — Analyst

Andrew Schmidt — Analyst

Kenneth Suchoski — Analyst

David Koning — Analyst

Presentation:

Operator

Good morning, and welcome to the Jack Henry’s Second Quarter 2025 Earnings Conference Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead.

Vance Sherard — Vice President, Investor Relations

Thank you, Michael. Good morning, and thank you for joining the Jack Henry’s second quarter fiscal 2025 earnings call. Today, I’m joined by President and CEO, Greg Adelson, and CFO and Treasurer, Mimi Carsley. Following my opening remarks, Greg will share his insights on the first half of our fiscal year and provide observations on our financial results, operational metrics, and outlook. Mimi will then discuss the financial results in yesterday’s press release, which is available in the Investor Relations section of the Jack Henry website. Afterward, we will open the lines for a Q&A session.

Please note that this call includes forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday’s press release and the risk factors and forward-looking statements 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.

Gregory R. Adelson — President and Chief Executive Officer

Thank you, Vance. Good morning. I appreciate each of you joining this morning’s call. I’m pleased to report overall solid financial performance results in the second quarter of our fiscal year 2025. I’d like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes and doing the right thing for our clients. Our focus on a people-first culture, service excellence, technology innovation, and a well-defined strategy, supported by consistent execution continues to set us apart in the market.

I will share three main takeaways from the quarter and then we’ll provide additional detail about our overall business. First, our financial performance. We exceeded our second quarter outlook. We had non-GAAP revenue growth of 6.1% in Q2, slightly ahead of the 6% anticipated on the November call. Our non-GAAP operating margin of 21.5% was also slightly better-than-expected. We continue to expect results in the second half of our fiscal year that are consistent with full year guidance provided in August.

Second, our sales performance. After record sales attainment in Q1, we continued our positive momentum by setting the sales record in Q2 for the second consecutive year. During the quarter, we had 11 competitive core wins, and of the 11, three were financial institutions over $1 billion in assets, including one $7.5 billion asset win. We also closed 13 deals to move existing clients from in-house processing to our private cloud.

Third, it may be as impressive as anything this quarter was our success with client renewals. We typically don’t spend much time talking about renewals on these calls, but I am making an exception this quarter because of the volume and size of our renewals. In Q2, we closed 28 core renewals, bringing our total for the fiscal year to 46. That is up 21% over the first six months of last year.

Among those renewals are multiple banks with over $10 billion in assets, including a $17 billion bank that provided a termination notice several years ago, but never deconverted to our competitor. They recently determined that the best choice for their go-forward technology strategy is Jack Henry and resigned for seven years as well as moved from in-house to outsourced processing.

We also resigned our third-largest bank and won several mergers of equals that brought us two more banks between $10 billion and $20 billion in assets. This success reflects clients’ continued confidence in Jack Henry, our service quality, and our ability to deliver innovation that helps our clients grow and meet the evolving needs of their account holders. Our core retention rate, excluding M&A, remains over 99%.

Now for more detail on our overall business, starting with some recognition for the team. We are pleased that for the seventh consecutive year, our Symitar core platform ranked as the largest platform for credit unions in Callahan’s annual ranking. Symitar also remains the most utilized core service platform for credit unions with over $1 billion in assets with nearly 50% of the total market share.

In addition, we are proud to recently received two prestigious national workplace awards Forbes’ Most Trusted Companies in America and Newsweek’s Greatest Workplaces for Diversity. These honors reaffirm our steadfast commitment to doing the right thing for both our employees and our clients.

Now turning to specific products on our technology modernization progress. In our payments segment, we signed 14 new debit processing clients and two new credit clients in the quarter. We now have 338 clients on the Zelle platform, 357 clients using RTP, representing about 42% of the live RTP clients and 339 clients using FedNow, representing approximately 28% of the live FedNow clients.

In our complementary segment, we signed 17 new Financial Crimes Defender contracts in the quarter. In addition, we signed 30 new contracts for the Financial Crimes Defender faster payment fraud module, a real-time solution designed to help mitigate fraud in Zelle, FedNow, and RTP transactions. As of the end of December, we have installed 104 Financial Crimes Defender customers and have another 80 in various stages of implementation. We also have 54 faster payment modules installed, and 162 in various stages of implementation.

Our Banno digital platform continues to see very nice growth through competitive wins. For the quarter, we signed 18 new clients to the Banno retail platform as well as 33 new Banno business deals. At the end of the quarter, we had nearly 1,000 Banno retail clients, including 212 live with Banno Business. We finished the quarter with 13.2 million registered users on the Banno platform. At the end of Q2 last year, we had 11 million registered users, a 20% increase over the past 12 months.

On Monday, we posted a press release and update on our SMB strategy. We collaborated with Visa to provide Visa Direct through Jack Henry Rapid Transfers, which is the first phase of our partnership with Moov. Visa Direct will enable the delivery of funds to eligible cards, bank accounts, and digital wallets. For example, in individuals — individuals and SMBs can make real-time transfers between linked external accounts to cover same-day transaction needs.

In parallel, we are working with Mastercard to facilitate similar transactions using Mastercard Send, part of the Mastercard Moov platform. We will begin testing Jack Henry Rapid Transfers with a small number of clients later this month. The Rapid Transfer service will be closely followed by our unique merchant acquiring solution with Moov. We are on track to deliver that solution to Banno early adopter clients in May 2025. It will be provided exclusively through financial institutions and will include key features for the merchant.

Instant decisioning, tap to pay for both iOS and Android devices, option to receive settlement funds up to eight times per day and continuous account reconciliation to the accounting solution of their choice. Together with Moov, we will enable banks and credit unions to offer innovative digital payment solutions, attract and deepen relationships, and grow deposits, which remains a top priority.

I know we have talked a lot on these calls about our technology modernization strategy and the development of our cloud-native API-first Jack Henry Platform. It’s important to point out that none of the work with modern fintechs like Moov or the integration of services such as Visa Direct would be possible without the cloud-native infrastructure we have built over the past several years.

We continue to execute very well on the Jack Henry Platform. We are live with domestic wires, international wires, data broker, which serves as our centralized data hub for reporting and analysis, and entitlements, which manages permissions and access rights for users and systems. We are in beta testing with both exception processing and general ledger. We remain on track to deliver the retail and commercial deposit core functionality of the Jack Henry Platform in the first half of calendar year 2026.

Some of you may have seen Cornerstone’s annual survey of bank and credit union executives published in late January. According to that study, 73% of banks and 79% of credit unions expect to increase their technology spending in 2025. This correlates with information we’ve seen from other sources, including an American banker survey fielded last fall in which 83% of the respondents said they plan to increase their technology spending in 2025. We are in the midst of conducting the annual Jack Henry Strategy Benchmark study with our clients and will share those results on our May earnings call.

In closing, we are laser-focused on second half performance and remain optimistic about our full fiscal year outlook. The demand environment, our sales pipeline, and the competitive wins we have seen this year provide confidence for the future. Our customer and prospect conversations continue to validate that Jack Henry’s key differentiator — sorry, key differentiators of culture, service, innovation, strategy, and execution have positioned us well for future success.

With that, I’ll turn it over to Mimi for more detail on the financials.

Mimi Carsley — Chief Financial Officer and Treasurer

Thank you, Greg, and good morning, everyone. The Jack Henry team’s continued focus on execution and supporting our community and regional financial institution clients resulted in another quarter of solid revenue and earnings growth. I will discuss the details behind our second quarter and year-to-date results, then conclude with commentary on our fiscal ’25 guidance.

Q2 GAAP and non-GAAP revenue increased 5% and 6%, respectively, consistent with our expectations and providing the base for achieving our full year guidance. Quarterly deconversion revenue of approximately $100,000, which we released prior to full earnings, was down $5 million compared to the same period last year, reflecting minimal consolidation of our clients. We remain confident in our $16 million full year guidance. While we see indicators for increasing industry consolidation, this activity will have minimal impact in fiscal ’25, but potential for greater impact in fiscal ’26.

Now taking a closer look at the details. In the quarter and for the year, GAAP and non-GAAP services and support revenue increased 4% and 5%, respectively. Data processing and hosting continued to dominate services and support revenue growth for both the quarter and year-to-date. Hardware revenue was down $2 million for the quarter and $7 million year-to-date, creating headwinds for services and support revenue. As a reminder, hardware revenue is both non-reoccurring and low visibility. Our private and public cloud offerings increased 11% in the quarter and year-to-date, reflecting strong persistent growth trends. This reoccurring revenue contributor is 33% of our total revenue and continues to be a key double-digit growth engine.

Moving to processing revenue, which is 44% of total quarterly revenue and is another significant contributor to our long-term growth model. We saw a strong performance with 7% growth on both a GAAP and non-GAAP basis for the quarter and year-to-date. Continuing long-term trends, quarterly and year-to-date drivers include increased card, digital and payments processing revenues.

Completing commentary on revenue, I would highlight quarterly total reoccurring revenue, excluding deconversion revenue, was 92%. We focus on key revenue, a non-GAAP measure. Key revenue is comprised of our cloud and processing revenue. Non-key revenue includes product delivery support, on-premise annual maintenance, and other revenue. Quarterly key revenue was 70% — 76% of total revenue and grew at 9%. For year-to-date, key revenue was 74% of total revenue, growing at 9%. Excluding hardware, quarterly non-key revenue decreased 1%, while year-to-date it increased 1%.

Next, moving to expenses. Starting with cost of revenue, which increased 4% on both a GAAP and non-GAAP basis for the quarter. The quarterly increase was due to higher direct costs and increased personnel costs. For clarification and to assist with models, the amortization of acquisition-related intangibles was $6 million in the quarter.

Next, R&D expense increased 16% on both a GAAP and non-GAAP basis for the quarter. The quarterly increase was primarily related to personnel costs. And ending with SG&A expense, it increased 9% for the quarter on both a GAAP and non-GAAP basis. This is also related to increase in net personnel costs.

We remain focused on generating annually compounding margin expansion. The quarter delivered 25 basis points increase in non-GAAP margin to 22% and this offsets the year-to-date to a 34-basis-point decrease in non-GAAP margin to 23%. We remain confident in our ability to deliver margin expansion in-line with our full year guide. These solid quarterly operating results produced a fully-diluted GAAP earnings per share of $1.34, up 6%.

Reviewing the three operating segments, we’re pleased by both positive top and bottom line performance across the board. Core segment revenue increased 6% for the quarter on a non-GAAP basis against a tough comp. The performance primarily came from organic growth in data processing and hosting, partly offset by lower software usage revenue and lower maintenance fees, the result of our core customers continuing to shift from on-premise to private cloud. Non-GAAP operating margin for the core segment increased 139 basis points from improved operating leverage.

Payments segment quarterly revenue increased 6% on a non-GAAP basis. The segment had impressive non-GAAP operating margin growth of 177 basis points. The performance was due to continued higher card revenue from volumes, increased payment processing revenues, including FedNow, RTP, Zelle, and elevated ETF [Phonetic] payments. Margins in the payments segment also benefited from ongoing improvements to operating leverage.

And finally, complementary segment quarterly non-GAAP revenue increased 6% from strong product mix with hosting and digital driving consistent growth. Segment margin expanded 207 basis points.

Now let’s turn to a review of cash flow and capital allocation. Second quarter operating cash flow was $90 million, an $8 million increase over the prior year period. Strong cash flow reflected higher profitability, increased receivables collection, lower prepays, partly offset by tax payments.

Trailing 12-month free cash flow was $296 million, resulting in a 73% conversion in line with full year guidance range. Our dedication to value-creation resulted in a trailing 12-month return on invested capital of 20%. And for the quarter, we repurchased $17 million of Jack Henry shares aligned with our intent to offset dilution from stock comp.

As we move into the back half of fiscal ’25, I will conclude with comments on full year guidance metrics. Yesterday’s press release included fiscal 2025 full year GAAP guidance along with a reconciliation to our non-GAAP guidance metrics, all of which we are reiterating. And while the press release also includes the fiscal ’25 non-GAAP EPS metric, this is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers and it should be noted that a 24% tax rate is used.

All of the current fiscal year guidance metrics are aligned with our near-term targets as the business operations remain healthy and on track. Our outlook for the financial performance remains positive with continued expectations for a strong second half that will be more pronounced than typical. The appropriate performance indicator for our business is the full fiscal year financial results.

In conclusion, the positive first half of fiscal ’25 was consistent with our expectations and provides a base for a full year aligned to our stated long-term target. Our focus remains on delivering long-term profitability growth at scale through compounding revenue growth and margin expansion. In pursuing these goals, we appreciate the achievements of our more than 7,200 dedicated associates and our investors for their ongoing confidence.

Michael, please open the line for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] First question comes from Rayna Kumar with Oppenheimer. Please go ahead.

Rayna Kumar

Good morning. Thanks for taking my question. Could you just talk a little bit about what gives you confidence on the back half of revenue acceleration and what the key drivers will be?

Mimi Carsley

Good morning, Rayna. The confidence we have comes from two things. One is the confidence we have in the results for the — that we’ve just delivered through the first half. And then through the metrics and drivers we’ve previously talked about, which are consistent. And those are the ones we mentioned on last quarter’s call. That we see cloud continuing to grow. We see card ramping-up in the back half. We see the installation of new products and consulting for things like Financial Crimes Defender and we see digital continuing to be strong.

On top of that, we’re now past some of the headwinds, like the hardware headwinds we saw. And I will mention that cloud growth, now we’re over in the back half, we’re going to grow over a lower comp. So the combination of those factors gives us confidence in addition to seeing the execution on the operational side of our business.

Rayna Kumar

Thanks, Mimi. That’s very helpful. And as a follow-up, are you seeing any increased competition at the low-end of the market from a large competitor that’s been calling out these wins? And like specifically, are you seeing any pricing pressure?

Gregory R. Adelson

Hey, Raina, this is Greg. Thanks for the question. So, yeah, I mean we’re not seeing anything different than we had before. I know that those have been called out. We haven’t really seen much on our side unless they’re taking them from somebody else. But from our — from the part that we have seen a little bit of a difference is their approach on some of the clients that they’re trying to keep less than what we’re seeing in the clients that they’re trying to win. And so I think part of the question would be is, are some of the references to clients that they’ve actually maintained from a renewal standpoint, or not.

So I talked about renewals today, but of course, they’re not in the 11 competitive wins that we talk about. I just wanted to reference the fact that we had a lot of large institutions that renewed with us as well as institutions that were winning in — winning mergers now related to what I would call mergers of equals. By the way, some of those mergers of equals are coming from that same competitor. So it’s interesting to see some of the comments, but we’re not seeing anything different than what we’ve seen in years past.

Rayna Kumar

Very helpful. Appreciate the color.

Gregory R. Adelson

Sure.

Operator

The next question comes from Kartik Mehta with Northcoast Research. Please go ahead.

Kartik Mehta

Hey, good morning. Greg, in the past, we’ve talked about — when we’ve talked about market share, you usually reference there are usually on average 200 deals and maybe 100 come to market and that Jack Henry usually wins is their fair share, if not more. Is there a difference in that environment at all in terms of number of deals coming to market and also maybe the number of deals you’re winning?

Gregory R. Adelson

Yeah. It’s a great question, Kartik. Thanks. But I don’t think there’s anything that’s changed significantly yet. I do believe that some of the numbers could change based on M&A and we are seeing an increase based on our customers. And as I mentioned before, several of these mergers that have already occurred. So that may lower the overall number, but we are still tracking to our traditional 50-ish wins. We still feel very confident about that.

The good news is also we’re continuing to win larger deals for the second quarter in a row, I referenced an almost $8 billion win for us. And again, we have seven over $1 billion already this year. So we’re tracking very nicely there. I just think the only thing that is yet to-be-determined is some of the decisions that could have been made, do they get wrapped up in an M&A?

Kartik Mehta

And then just moving over to your partnership with Moov, I know you were very excited about that. It seems like that’s moving in the right direction, especially with the recent announcement with Visa Direct. I’m wondering when you would expect revenue from that partnership to have an impact on Jack Henry growth?

Gregory R. Adelson

Yeah, I would expect that in fiscal year ’26. We might see some small pieces of that still in fiscal year ’25 depending on how things go. But the reality is I would expect anything meaningful to happen in 2026.

Kartik Mehta

Perfect. Thank you very much. Appreciate it.

Gregory R. Adelson

Yeah. Thank you.

Operator

The next question comes from John Davis with Raymond James. Please go ahead.

John Davis

Good morning, guys. Greg, I wanted to touch on the renewals for a minute. You called out the outsized number. Maybe talk a little bit about the pricing dynamics. On one hand, you usually get — they get better price as they grow. But on the other hand, you get the opportunity to sell them and bundle more product. So on average, maybe talk a little bit about do you expect more revenue from those customers going forward or is that a potential headwind in the back half of this year and then in ’26?

Gregory R. Adelson

Yes. Good question, JD. Thanks. I don’t think there’s anything that is — we haven’t already planned into the forecast that we are giving for the guidance. So we knew exactly who was going to renew and when. But yes, to your — to answer your question directly, there’s always some potential for early some level of price compression that happens. But what we typically do is we offset that with additional product sets that we have.

So some of it’s the timing of when those products actually come on. Do they come on at the exact same time as any level of price compression or do they happen in a year or two later based on, let’s just say it’s a card deal and they have a couple more years left on their card contract and you have to wait for that to expire. But all of that is factored into what we are planning to do for the back half of the year. But what I wanted to call out really was the point of, yes, there was a significant number, but again, just showing the strength of what we are doing to be able to in a time when a lot of our competition is talking about things that they are doing to win deals and they haven’t been winning them from us.

John Davis

Okay, great. And then, Mimi, just on the shape of the back half of the year, are we expecting you need about 300 basis points or so of acceleration, one half to two half, but is that more 4Q weighted or any color that you can give us there on the cadence in the back half?

Mimi Carsley

Thanks, JD, for the question. I would say at this point, we continue to expect an acceleration throughout the year, but we’re not going to give specific color on any particular quarter. Some things, whether it be installation dates or other things, can switch from quarter-to-quarter, we feel good about the full year, and I would continue to point people in the direction of full year guidance.

John Davis

And when you say acceleration, i.e., 4Q should be higher than 3Q?

Mimi Carsley

Correct.

John Davis

Great. Thanks, guys.

Operator

The next question comes from Cris Kennedy with William Blair. Please go ahead.

Cristopher Kennedy

Good morning. Thanks for taking the question. Can you just talk about the current operating environment for your customers? You do have a new Head of the FDIC who has made some comments. Just broad comments would be great.

Gregory R. Adelson

Yeah. I mean, I think at this point, based on — I was just with two clients last week, I mean, everybody still remains very optimistic. I think the biggest thing that we’ve seen is, will there be any lessening of some level of regulatory scrutiny? We — at least for us and in some cases, our institutions, folks like the CFPB and others have been involved. But there hasn’t been anybody that’s raised any concern. And honestly, anybody that I’ve been with so far this year has been nothing but optimistic about the environment, the demand environment for us remains really strong and their willingness and need to continue to buy the products that we are focused on to help them increase deposits and their loans and build efficiency. All of those things remain top of top of mind.

Cristopher Kennedy

Great. Thank you for that. And then any update on your efforts to rationalize the number of products that you guys service? Thank you.

Gregory R. Adelson

Thank you. Yeah, thanks for that, Cris. Yes, so absolutely. Right now, I would say that we are in progress of all three things that I’ve mentioned. We have things that we are considering divesting. We have things that we are looking at sunsetting and we have things that we are looking at cash cowing. So all three of those are in progress right now.

Cristopher Kennedy

Thank you.

Operator

The next question comes from Peter Heckmann with D.A. Davidson. Please go ahead.

Peter Heckmann

Hey, good morning, everyone. Maybe just one quick more housekeeping question. But in terms of getting to the $16 million of deconversion fees for the year, would you — at this point, should we just kind of think about that as equally weighted between the third quarter and the fourth quarter or should we expect a bigger step-up in the fourth quarter.

Mimi Carsley

First of all, I would just reiterate, we are affirming the full year $16 million and that may look a little odd given the low number in Q2, but we feel comfortable based on the calendar we see, the slots that are already taken. So the line of sight we have gives us confidence for the $16 million. I think it’s fair to assume kind of an evenish weighting, but you never know kind of some date movement between things that are on the calendar. But I think pretty safe to say even across two remaining quarters.

Peter Heckmann

Okay. Thanks. And then, Greg, can you talk a little bit about real-time payment volumes? I know Jack Henry’s done a real good job of bringing financial institutions live on the different platforms. But what are you seeing in terms of volumes? And then can you tell where those volumes are coming from? Are they primarily coming from ACH, same-day ACH? Are you seeing maybe some migration from card volumes? Can you just talk about the kind of the composition of payments and what’s really working in real-time?

Gregory R. Adelson

Yeah. Thanks for the question. I think the biggest thing is that we’re not seeing anything moving at this point really from card to real-time. There are some things that we’re actually doing with the Moov partnership that will help facilitate the replacement of ACH and the ability to move funds to the SMBs in a real-time fashion that’s using the eight settlement windows. So there’s some components of that, that will be utilized in our faster payments group, what we call PayCenter. We’ve seen very meaningful growth in that group over the last quarter. A lot of that’s attributed to some of the work that we’re doing with a few of our banks on some send transactions that we’re now utilizing. So we did a pretty large number of send transactions in the quarter, which provide a little bit more meaningful revenue growth for us.

The use cases still are really the key and the amount of fraud that people are still concerned about. So that’s why we’re excited to get our faster payments fraud module out from financial crimes because we’re already seeing that the customers that are installing that are having less fraud on the faster payment networks. So I think that will continue to evolve. But candidly, I really don’t think there is anything in the near-term that you’ll see that’s truly taken away from card volume, that’s anything that’s meaningful. It’s going to be really more about some of the edge use cases that we can use both with the small businesses and with some retail consumers as well.

Mimi Carsley

And if I may add-on to that, Greg, just in terms of — I would highlight that in the release yesterday under processing and one of the drivers we did call out and it’s kind of the first time noted that processing — the payment processing area, which it falls under remittance for those just for clarity, was one of the drivers of that strong processing being up 7%. So that is PayCenter kind of related to some of these use cases we’re starting to release volumes on related to faster payments.

Gregory R. Adelson

Yeah. And Pete, we’re really focused with driving a lot of these use cases. We work very regularly with the Fed and the clearinghouse and have conversations about things that we could be out in the forefront and doing.

Peter Heckmann

Okay. That’s helpful. Thanks.

Gregory R. Adelson

Thank you.

Operator

The next question comes from Jason Kupferberg with Bank of America. Please go ahead.

Jason Kupferberg

Good morning, guys. Good to speak with you again. I wanted to ask about free cash flow conversion, just visibility on the full year target. Mimi, any thoughts on how the back half may trend there and just the visibility on it? Thanks.

Mimi Carsley

Yeah. Thanks for the question, Jason. It’s been nice to have two solid quarters of free cash flow returning to more of a normalized type of range. We think there’s further to go in the out years. But for this year, we are in line with guidance, full year guidance. So I think the back half will continue to see some strength in the range that we’ve kind of been operating thus far this year. So I feel pretty confident in our ability to hit the range for free cash flow conversion, which we said was 65% to 75%.

Jason Kupferberg

Okay. Understood. And then I wanted to ask about the trend of private cloud within core. I think you guys talked about a bunch of FIs moving from in-house to private cloud. Curious to get an update on where do we stand now? How many core clients are on private cloud? And do you see that trend accelerating through the back half of this year? And just anything we should be thinking about in terms of whether or not that impacts the margin profile of your business at all?

Gregory R. Adelson

Yeah. Thanks, Jason. This is Greg. I’ll take that one. So we’re at 75% right now at the private cloud number. So we continue to grow. We are on pace to hit the targets that we thought we’d hit. We’ve been averaging between 40 and 45 a year. We’re on pace to do that this year and expect to do that. So no changes in this fiscal year at all. And we continue to drive towards what we’ve talked about in other settings where when you look at the folks that at the very end, we may not get 100%, right? Do we get about 90%, 95% of folks that end up moving? There’s going to be some holdouts to wait to move directly to the public cloud.

And as I mentioned earlier, we’re on pace to deliver our retail deposit commercial and consumer core in the first half of 2026. So we’ll start to see some movement there of folks that want to just wait. So — but we’ve got several more years, as we’ve said, of room to go do what we need to do. In fact, I was with a very large customer this week who said they plan to move in 2026 and they’ve been a long-term holdout of ours to move to private cloud. So we’re still moving on moving them at the pace that we have been.

Mimi Carsley

And what we’ve said previously is some of the catalysts to those decisions tends to be internal to the FI is around their ability to recruit talent, the need for their hardware refresher. So it’s kind of an individual choice that kind of brings them over the line, if you will. But it’s a multi-year trend that we’ve seen continue at a nice healthy pace.

Jason Kupferberg

Excellent. Thank you, guys.

Gregory R. Adelson

Thank you.

Operator

The next question comes from James Faucette with Morgan Stanley. Please go ahead.

James Faucette

Good morning. Thanks, guys. I want to follow-up on the cloud discussion. And Greg, I guess maybe this question for you, but some of the investor concern that we’ve heard regarding technology modernization, especially as we take the next step to public cloud is that maybe your development initiatives with the origin strategy or ahead of where regulators are likely to be in the next few years or at least that’s been the thought.

With the change in administration, do you think that within the timeframe, regulators will be more comfortable with broad-based financial PII in the cloud such that the investments in your — such that the investments you’re making in your origin platform better lines up with likely regulatory timeframes. Just wondering if you think that we could bring those forward and see that move to public cloud start to accelerate.

Gregory R. Adelson

Yeah. Yeah. Hey, James, good to hear from you. I think the short answer is, I would believe it’s way more of a possibility than it would have been two months ago. And so I don’t know what, I don’t know. But I would say based on our conversations with regulators, which I think we’ve said on this call and other meetings that we literally meet with the FDA on a monthly basis here just because of the number of products. So we have a chance to have a lot of conversations on what we’re doing with not only the public cloud core, but also what we’ve done with other public cloud products.

And so we’ve been able to educate them. Just as a reminder, Banno was the very first digital platform to be public cloud native. So we’ve been educating them for six years on what we’ve done around here. So I think we have as good a chance as anybody to get them comfortable just because we have so much experience doing it. But the rest of it, I can’t answer definitively other than I think you’re right that we’re going to — with Trump in office and other changes that are being made, I think we have a better chance of making that happen.

James Faucette

Great. And then wanted to — you touched on Banno there. Just get a sense from you given your strategic and how the strategy may be evolving, how we should be thinking about the mix between Banno retail and Banno Business and how that’s likely to evolve over the next few years? Thanks.

Gregory R. Adelson

Okay. Yeah. I think obviously, right now, we’re about 20% penetrated. As I mentioned earlier, we have roughly 1,000 Banno retail clients and 212 Banno Business clients. And we continue to see just based on the install queue, which is about 115 in the install queue right now. I mentioned, I think it was Dave’s last call, he and I talked about this and kind of joked. I still think there’ll be 65% to 70% penetration potentially higher, but that’s kind of what we think there’ll be from Banno Business into the retail platform.

But one thing that could really drive those numbers up is what we’re doing with Moov and the SMB because of how we’re rolling that out and we’re kind of pushing that offering out to all of our Banno clients at one time. So if they have — they don’t have to have Banno Business to actually have this application, which is something to note. But as we continue to build-out feature parity and though nobody brought that up yet, I’m going to go ahead and bring it up because it was something I talked about at the Investor Day.

We are on track to do what I said we were going to do back in September to have feature parity with our largest digital competitors by this summer. And we’re actually ahead already on some things that I’ve seen, especially as it goes to open banking fintech integration, native apps, our back-office applications and of course, now what we’re doing in the SMB space. So all of those are going to continue to be huge drivers for us with Banno and applications like Banno Business.

James Faucette

That’s great. Thanks, guys.

Gregory R. Adelson

Yeah. Thanks, James.

Operator

The next question comes from Dominick Gabriele with Compass Point. Please go-ahead.

Dominick Gabriele

Hey, good morning, everybody. Thanks for taking the questions. Just first, what are some of the underlying factors at your partners that could accelerate the demand for your products? And is there a shift in where your clients are putting incremental dollars to work expanding their solutions that you provide? Thanks. I just have a follow-up.

Gregory R. Adelson

So Dominick, just to make sure I’m clear on the question, when you said partners, do you mean third-party partners?

Dominick Gabriele

I’m sorry, the banks and credit unions. So what could accelerate the demand for your products among the banks and credit unions?

Gregory R. Adelson

Yeah. I mean, I think the demand is there. I mean, some of it is, as you can imagine, some of its resources to implement on their side because there’s a lot of reeducation and there’s timing of things, there’s contract timing of actually, like I said, I mentioned two customers I was with last week. One of them doesn’t have our digital product and we had a really long conversation about that. And I think they’re more interested than they’ve ever been, but it’s a timing thing, right, because they’re already in a contract and they got to get out of it.

But some of it is our ability to show the level of innovation and the level of execution and some of it is just timing on contracts and resources on their end and things like that. But there isn’t anything inhibiting us from being successful on other than timing. And so — but the things we are doing and the messaging that we are getting from our clients and consultants candidly continues to be very, very positive. So we’re just putting the pedal to the metal, continuing to work on our level of execution and continuing to have that as a big differentiator.

Mimi Carsley

And I would say, right, there’s opportunities for additional kind of demand, we’ve seen stabilization over the last three years from our survey results of what are the priorities of our FI and that continues to be getting deposit, loans, efficiencies. So all of our solutions certainly meet the sweet spot of those needs. But as we learn more about the administration where they’re focused, could we see even an increased need for digital and PayCenter if the administration continues to kind of push in this direction?

Dominick Gabriele

Yeah, perfect. And then just lastly, just talk about the pace of innovation in this space of you and your peers and then what products are seeing the most investment dollars to stay ahead of competition at Jack Henry. Thanks so much.

Gregory R. Adelson

Yeah, thank you for the question. I can’t really speak for the competition. So I mean, just they’ll have to speak to whatever innovation that they’re focused on. And what we continue to see is that the things that we have spent our time and money on, we talked earlier about the public cloud and the work that we’re doing with that. But the real part that we’ve seen big differentiators in the level of innovation is in our digital platform, is in our account opening platform in our PayCenter or our payments — our faster payments module. What we’re doing in lending and our loan vantage solution.

And one other note of that, we are actually launching the first phase of our enterprise account origination solution this month, something that we’ve been working on for the last two-and-a-half years. So that’s where a lot of this innovation is happening fraud, obviously in financial crimes. But when you think about digital lending, fraud, payments, that really are the big drivers of things that everybody is looking to do. And usually, it starts with payments because payments — and we’ve actually been educating our customers a lot on payment strategy and allowing them to see what payments can really do for them, especially non-interest fee income type opportunities. So that’s really where the focus has been for Jack Henry and will continue to be driving things through those solutions, much like the Moov application will.

Mimi Carsley

And Greg, if I may add on, one of the areas I think around its innovation and differentiation for Jack Henry is not something one would traditionally think about around innovation, but the continued work around the one Jack Henry, the experience driving a better experience for RFIs and our partners, just the seamlessness and the efficiency that we’re getting as an organization that will enhance the service quality is a real differentiation from an experience relative to our competitors and we’re seeing even more and more the focus on that as one of the key determinants of vendor selection.

Gregory R. Adelson

Yeah, that’s a great point. We had a recent meeting with both the ICBA and the ABA and they both commented that service has been much more valued than in years past because there’s a little bit more of a level-playing field they view in APIs and things like that. So it’s a really good point. And our one Jack Henry initiative has really changed the dynamic of that. I would also throw in AI just while we’re on the subject and the things that we’re doing internally with AI and in some of our products.

Dominick Gabriele

Thank you, both.

Operator

The next question comes from Andrew Schmidt with Citi. Please go ahead.

Andrew Schmidt

Hi, Greg. Hi, Mimi. Good morning. Thank you for taking my questions. I wanted to just dig into M&A for a second. I guess first in end market M&A. I guess first, is there any convert, merge revenue in the back half outlook? And then I think when we think about just ongoing revenues, maybe you could talk about what you’re seeing just from your customer base, how convert, merge balances deconversion? There’s a lot of questions around the benefits, the pros and cons of end market consolidation. If you could speak to those things, that’d be helpful. Thanks so much.

Mimi Carsley

Sure. Good morning, Andrew. So we do have a modest amount of convert, merge. We’ve seen a little bit of convert, merge and consulting this year and helping some of our clients ready around their strategy and prepare for what we believe will be an increased pace of consolidation within our industry. I think more you’ll see the impact in FY ’26 than FY ’25, just based on the timing of our fiscal year and when we think things will really start to get ramped. It will be interesting to see over the next quarter the pace of approvals from the administration and the regulatory bodies. And I think that will be more of a telling sign of the pace to come.

Gregory R. Adelson

Yeah. And again, I referenced meeting with some customers, but one of the customers I met with was a winner merger that we had that is now a $20 billion institution after the merger. And they told me point blank that they plan to do three more acquisitions in the next two years. And so those are opportunities that as we win the winner merger, we’re in the catbird seat, obviously, to continue to add-on to that. So we think there will continue to be a fairly significant amount of M&A in the banking and credit union space for the next couple of years. Again, as we always do, we’re gearing up for that and have conversations with our customers. And we actually get a lot of notifications before those happen, not necessarily who the institution is they’re acquiring, but the kind of the profile of that institution?

Andrew Schmidt

Got it. Super helpful. Thank you for that. And then maybe go back to your — just your wins, the move-up market. I know we’ve talked about this in the past, but if you talk about just the conversations with those large banks and credit units that you’re winning. What’s driving those wins? Have the conversations evolved a little more recently? I know, obviously business banking and treasury when you move-up market is a bigger component, but are there larger factors in terms of what’s driving those conversations? Thanks a lot.

Gregory R. Adelson

Yeah, thank you. I think you’re right on the product mix, but it really is back to what we’ve been talking about. And I keep saying it, but I want to make sure that you understand it. There is a level of the fact that we are winning these deals based on culture service, innovation, strategy and execution. Those five factors, it just isn’t happening in the industry right now. And so people when they see what we are building and what we’ve been able to show from a level of execution with our roadmap execution, which is close to 90% now on our roadmap execution, there just isn’t anybody in the industry that’s doing what they say they’re going to do. And then — so there’s others that are getting there or trying to get there with strategies, but we’re executing on those strategies very well.

I think the other big thing is when you look at the level of innovation in the complementary and payment products, core isn’t always the driver of a core win. It’s usually the things that go around the core that ultimately become the driver. And so that’s why I think we’ve been very successful over the last several years as those products have developed and really started to get ahead of our competition.

Andrew Schmidt

Absolutely. I know that our product roadmap means a lot. So thank you very much. Appreciate the comments.

Gregory R. Adelson

Sure. Thank you.

Operator

The next question comes from Ken Suchoski with Autonomous Research. Please go ahead.

Kenneth Suchoski

Hey, good morning, Greg. Thanks for taking the question. I just wanted to circle back on the back half of revenue growth guidance. I think the implied growth is somewhere around 9%, which I think is the strongest sort of fiscal second half growth rate that we’ve seen over the last handful of years. So is there anything different that stands out this year versus prior years that drives that stronger growth in the second half? And then I guess from a modeling perspective, any sense of which segments are going to see the most acceleration? Thank you.

Mimi Carsley

Sure, Ken. So as we said, there’s a couple of things that are just relative to comps. So if we think about cloud, for example, back half, we’re growing over the prior year. Just the way the year is playing out, I wouldn’t read too much into changing the color and pattern of the years going forward. This year, we just continue to see a back half acceleration. We think things like card, we’ve seen volumes tick up. We think the pace of and health of the US consumer will continue to be healthy, not exuberant, but healthy and that will lead to increased payment volumes.

And then just some of it is around the installation timing of some of our newer products. So you have things like Financial Crimes Defender, the consulting and installations that go on around that, the continued success around digital, that Greg talked about the number of wins and the pipeline that’s kind of in progress, particularly around Banno and Banno Business. So I think all of that together makes us feel very comfortable about affirming the guidance. I know on paper, it looks like a very large number kind of in the back half, but we feel comfortable.

Kenneth Suchoski

Okay, great. That’s really helpful, Mimi. And then maybe just a question on the payments business because we’re getting some questions on it. When you look at the network volumes in some of the large banks, they showed a couple of hundred basis points of accelerating volume growth in the US in 4Q — calendar 4Q versus calendar 3Q. Just looking at the payments segment, I think it accelerated about 30 basis points on a non-GAAP revenue growth basis over that same period. So I guess, should we think about that line maybe being less correlated with overall market and network volume growth or maybe that ticks higher in the back half of the year? Any detail on that would be super helpful. Thank you.

Mimi Carsley

Sure. Ken, I would just remind everyone on the call that card is just one and three components of payments. And so while it is almost 60%, it’s still only one of three. So the volumes we’re seeing in card are certainly consistent with US debit trends. We’ve also seen strong related solutions that complement the card transaction itself. So we continue to expect that in the back half of the year.

PayCenter that we’ve already talked about a little bit on this call and the payment processing. Through the acceleration of the new rails and innovation networks, we’re continuing to see strong progress. Now it’s a meaningful but on a smaller number basis. And then you have things like bill pay that are doing fine at 15% of the total segment, but are not kind of a huge grower kind of from a mature business perspective. So I would just remind people from a, it’s not just all card transaction value.

Kenneth Suchoski

Okay, thanks, Mimi.

Operator

[Operator Instructions] Our next question comes from Dave Koning with Baird. Please go ahead.

David Koning

Yeah. Hey, guys. Thank you. And I guess my question, I guess it’s along some of the same lines. When I look at payments, historically, Q3 has been flat to down. I think in the COVID year, it was up, but almost every quarter in Q3, it’s flat to down sequentially. And then Q4 is up a decent amount, maybe 3%, 4%, whatever. It seems like this year you’re talking about a little more acceleration than normal.

Is there something different about this year sequentially? Like are — normally Q3 would be flat to down just because retail debits just down a little bit in calendar Q1. But is there something different about the products being added or different things that are kind of differently affecting the sequentials this year?

Gregory R. Adelson

Yeah, Dave, this is Greg. So good observation. And I think the part that I would emphasize is really where Mimi was leading on the last question. Is card is going to — there’s nothing substantial about card being different in Q3. It’s probably fairly on pace to what we typically see. It really is the other products that are driving a lot of that opportunity. And so PayCenter is getting — is getting to the point to be very meaningful for us.

As I mentioned before about what we’re doing not only with the rollout of clients, but also what we’re doing on the send side of transactions. And we have a couple of very large clients that were doing a large number of send transactions now. So I would just really more look at the balance of what’s happening or maybe the shift of the balance of what’s happening in our payments segment.

David Koning

Got you. All right. No, thank you. That’s helpful.

Gregory R. Adelson

Okay. Thank you.

Operator

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

Vance Sherard

Thank you, Michael. In the upcoming weeks, management will attend six investor events, including availability at those events for in-person meetings. We would like to thank all Jack Henry associates for their efforts and dedication, which have contributed to our solid results. Thank you for joining us today. Michael, please provide the replay number.

Operator

The replay number for today’s call is 877-344-7529 and the access code is 4886307. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.