Good morning everyone and welcome to the Jack Henry & Associates Fourth Quarter and Fiscal Year End 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Kevin Williams, Chief Financial Officer and Treasurer. Sir, please go ahead.

Good morning. Thank you for joining us today for the Jack Henry & Associates fourth quarter and fiscal year end 2022 earnings call. I'm Kevin Williams, CFO and Treasurer and on the call with me today is David Foss, Board Chair and CEO. In a minute, I'll turn the call over to Dave to provide some of his thoughts about the state of our business, financial and sales performance for the quarter and year, comments regarding the industry in general, and some key initiatives that we have in place. Then after Dave concludes his comments, I will provide some additional thoughts and comments regarding the press release we put out yesterday after market close and provide comments regarding our guidance for fiscal year 2023 which was also provided in the press release. We will then open the lines up for Q&A. First, I need to remind you that this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results. Like any statement about the future, these are subject to a number of factors that could cause actual results or events to differ materially from those which we anticipate due to a number of risks and uncertainties. The company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled Risk Factors and Forward-Looking Statements. On this call, we will also discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for historical non-GAAP financial measures can be found in yesterday's press release. With that, I'll now turn the call over to Dave.

Thank you, Kevin and good morning everyone. Today we are very pleased to share details with you for a quarter there produced record revenue and operating income as well as record sales bookings. As always, I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for our fourth quarter and for the entire fiscal year. For the fourth quarter of fiscal 2022 total revenue increased 7% for the quarter and increased 8% on a non-GAAP basis. Deconversion fees were down about 37% as compared to the prior year quarter. As a reminder, although a reduction in deconversion fees impacts the quarter negatively, it is a long-term positive for our business. Turning to the segments, we had a solid quarter in the core segment of our business. Revenue increased by 8% for the quarter and increased by 9% on a non-GAAP basis. Our Payments segment performed well, posting a 5% increase in revenue this quarter, and a 5% increase on a non-GAAP basis. We also had a very robust quarter in our complimentary solutions businesses with a 9% increase in revenue this quarter, and a 10% increase on a non-GAAP basis. As I highlighted in our press release, the fourth quarter was the strongest sales quarter in the history of the company. Those of you who follow us closely will know that in the fourth quarter of 2021, we set an all-time sales record. We broke that record in the second quarter of fiscal '22, and now we've broken that new record in the fourth quarter. Additionally, in the third quarter of this year, we exceeded our highest ever Q3 sales attainment by around 40%. All-in-all this has been a remarkable year for the sales teams. To provide a…

Our new brand is the outcome of the work we are doing to modernize our technology, streamline operations and operate as one company, which we believe will result in a better client experience. We now have a platform to speak from a single, consistent voice as we continue to help community and regional financial institutions strengthen connections with account holders by offering a full array of solutions and access to a wide network of FinTech partners. As many of you know, Jack Henry is regularly named as the best place to work in various publications around the country. Recently, we were thrilled to be named by LinkedIn as a top-10 best place to work in financial services. Our consistent placement on best place to work lists is a testament to the workplace culture we have at Jack Henry and our employee engagement scores reflect that strong culture. Additionally, we began a continuous listening strategy this year to gather feedback from our associates and I'm pleased to share that overall, our participation rate was greater than 65%. We achieved an engagement capital score of 79% and 87% of our employees say that they believe in Jack Henry's values all well above industry benchmarks. As we shared at the beginning of August, we have now completed a comprehensive search and have named a new CFO effective on September 1. Mimi Carsley joined our finance team on July 1st and has been busy coming up to speed on the Jack Henry story and financials for the past several weeks. As we stated in the press release, she comes to us with more than 30 years of financial industry experience, but also has a strong technology background. Mimi will be traveling with our Director of Investor Relations Vance Sherard in September to meet with…

Thanks, Dave. Our service and support revenue increased 7% in the fourth quarter of fiscal 2022, compared to the same quarter year ago. With deconversion revenue being down $3 million in the quarter, compared to last year's quarter, it was slightly higher than what we thought it would be, but still down 37% from a year ago. License, hardware, and implementation revenue combined were actually up $5 million or 12% compared to the prior quarter. Our data processing, hosting fees and our private and public cloud offerings, which continue to show strong growth in the quarter compared to the previous year, growing by 11% for the quarter. On a non-GAAP basis, total support and service revenue grew 8% for the quarter compared to the prior year. Our processing revenue increased 8% in the fourth quarter of fiscal 2022, compared to the same quarter last year on both a GAAP and non-GAAP basis. The increase was primarily driven by slightly higher card volumes and digital revenue continues show strong growth as demand for Banno Digital platform continues to be very strong. Total revenue is up 7% for the quarter on a GAAP basis and increased 8% on a non-GAAP basis. Our cost of revenue was up 4% compared to last year's third quarter. This increased primarily due to higher costs associated with customer maintenance and license costs, card processing and higher personnel costs compared to a year ago. Our research and development expense increased 18% for the fourth quarter of fiscal 2022, compared to the same prior year quarter. The increase was primarily due to personnel and consulting costs. And SG&A expense increased 16% in the fourth quarter and this increase was primarily again due to increased personnel costs, which includes commissions and travel related costs compared to last year. Our…

Our first question today comes from Vasundhara Govil from KBW. Please go ahead with your question.

Hi, thanks for taking my question. I guess first congratulations on another really strong sales quarter. And David, I was sort of interested in learning if, to what extent your tech modernization strategy is sort of contributing to the discussions as you go in to meet with new clients now?

Yes, good morning, Vasu. So it's a good point. It certainly is a topic, but as I've stressed on prior calls, we're not talking with customers about delivering the tech modernization technology in the next year or so. But I think this has given a lot of prospects, the comfort in knowing that Jack Henry is leading the way as far as a true public cloud, native technology strategy for the future. And so that has definitely created opportunities for us to be engaged with customers, whether or not that's directly contributing to closed deals, I don't know whether I can say that with any comfort, but I just absolutely opened the doors with a lot of prospective customers because they see the future with Jack Henry.

Got it. Thanks for the color. And then Kevin for you, I mean, thanks for all the color on the sort of change in the margin guide. You sort of said at the end that you were still sort of looking to be conservative, so what are the areas where you think your guide might be conservative in terms of margins? And then for revenue growth, any change in trend by a segment that we should expect relative to what we saw last year?

Yes, so I think if there's concern anywhere, it's probably in our payments area and then obviously in our private cloud. As Dave mentioned, we signed a whole bunch of customers in Q4 to move over from our on-prem to our private cloud. And if we continue to move those over, obviously that is a nice margin lift when we move those customers over. So those would be the two areas, then obviously the continued growth Banno digital because that's also nice margins. Those are probably the three areas that if we're conservative, it's probably in one of those three areas. As far as segments, core should continue to be strong because of the continued, not only movement from on-prem to private cloud, but also just the new customers that we signed in Q4, the backlog that we have in install. So I'm pretty sure that our install backlog is out at least 12 months now for all of our core, well, for our flagship core solutions. And as, as complimentary, I mean, that's going to continue to be driven by Banno digital and also the new fraud solution that we're rolling out and treasury and other things. So there's just a huge demand for a lot of our products out there. And then payments will just continue to grow as we close the deal in August that should help move our bill pay solution a little bit. But our EPS and CPS are most still showing strong signs of growth.

Great. Thank you for the color.

You bet.

Good morning. It's actually UBS. Thanks for taking my question. You mentioned 56 prospects are attending your conference later this month. I'm just curious to know how that number compares to previous conferences that you've had and if the prospects are using in-house or outsourced core solutions right now and then finally just a potential timeline of conversion? Thank you.

Sure, thanks Rayna. So it is -- I don't have an exact number for what would be the most we've ever had, but we are all confident. This is a record to have 56 show up and you know, what that, I guess the thing that you can intuit from that is, not all prospects come to our client conference. So that means we have a whole bunch more of core prospects that we're talking to that are not coming to the client conference. The reason I stress that is, these are people who are investing their time to come and spend with us. They're looking at a move to Jack Henry. The other thing that I would correlate there is that normally what I say on these calls is, if we can do 50 to 55 new core customers in a year, that's a really good year. We have 56 that are signed up to come to the client conference to join us there. So a great sign as far as we're concerned. When they sign, I mean, some of them are at the beginning of their process. This is kind of the final step in their due diligence to come and spend a little time with us. So it all depends on when they sign. But as far as core conversions are concerned, still a good measure for a core conversion is to think in terms of nine to 12 months for a core conversion. And that's not because we can't slot them in and we don't have the staff or anything like that, it's because when you do a core conversion and you've used that phrase a lot of times you're doing heart and lung surgery all at the same time on a bank or credit union, and they need time to get ready for that. They have a lot of prep work to do, a lot of training to do and so just a normal core conversion, regardless of who the provider is, you normally talk in terms of nine to 12 months after they sign. So there's not a good way to try and apply this 56 number into what are the projections for the next fiscal year. My point of bringing it up was more to tell you, there is a tremendous amount of interest in Jack Henry as a technology provider right now and that's a good objective indicator of the level of interest.

That's very helpful. And then as a follow up, David, are you starting to see financial institutions more open to switching to a public cloud infrastructure? And are there any regulatory changes in the FI space that we should be aware of where FIs would be more open to going on to Amazon Web Services or Microsoft Azure?

Yes, that's a great follow up Rayna. So the answer is no. There's no great demand today. And I've said this on other calls, no demand right now for a full stack public cloud solution. There's nobody out there clamoring for that today and there are no providers today that are doing everything in the public cloud. Our whole point with this strategy announcement was to make sure that prospective customers and our existing customers know where we're going and when we expect to get there. We believe, and I've done lots of meetings in the last few months with CEOs, both bank and credit union and there's almost no demand today, but there will be in the future and we believe that the regulatory environment is going to shift along with that. So as the regulators become kind of comfortable with the idea of the full stack being processed on the public cloud, you'll see more and more banks and credit unions starting to talk about they are ready to make that move. So, but it's an evolution and something that the regulators need to evolve forward and then of course, customer demand will evolve in that same direction.

Thank you.

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

Hey, good morning guys. Kevin, just on free cash flow conversion for 2023, is there a chance we're above a 100% given some of the timing items you called out in the fourth quarter or just any kind of color on free cash flow conversion expected this year?

Yes, I would say JD, I mean, obviously the things that we had this year with the huge increase in commissions in the prepaid because of the strong contract that we had especially in the fourth quarter, but some of that's actually build up from the strong contract we had in Q2 and Q3. So obviously that should level out next year as we continue to move forward. However, I will say that obviously we have to grow every year, so our cores are going up. So it just depends on the timing and what actually gets sold. But so I would say that we'll get, we should be right back at a 100% conversion next year given those working capital things work out, just to change in receivables should be a positive for next year because we collected more of our annual maintenance billings now in FY '23 than we did in FY '22. So all those things being said, we should be back to 100%. Are we going to be above 100%? I mean, it's too early for me to make that prediction JD.

Okay. No, no, fair enough. And then just on payments, obviously 5% deceleration a little bit, but you had a really tough comp on a year-over-year basis. So have you seen kind of any impact from debit and credit mix normalization, is this on a two-year stack basis you're still kind of low double digits? Is that the right way to think about '23 in the payments segment specifically?

Are you asking about revenue growth JD or are you talking about payment volume?

Yes, yes, sorry, revenue growth in payments.

Well, I think our revenue growth is going to be in the high single digits for FY '23 compared to FY '22. Obviously the big drivers of that are EPS and CPS. Our online bill pay is going to grow a little because it's the slowest grower of the three buckets in our payments. But what we're seeing with EPS and CPS and the demand we're seeing, we should still be able to see very high single digit, maybe even low double digit if everything goes, if all the moons align we could get there JD.

Okay. And then last one from me just on capital allocation, obviously you announced the Payrailz acquisition which closes later this month, or slated to, can you help us at all size wise, revenue, earnings impact is immaterial, I know you didn't disclose the price when you announced it. But then you also didn't buy back any stock in the quarter. So should we expect kind of more deals in the pipe? Any color there on capital allocation would be helpful?

Well, so JD, I mean, per the definitive agreement we have in place, we are not allowed to disclose any financial impacts until after we actually close the end of this month. So it will be after that before we can give any guidance towards the magnitude of the acquisition. But you know, I mean, really the reason we didn't buy any stock back this quarter is because our stock performed so extremely well in the quarter. I mean, you think about how much our stock went up from July 1st to now and the fact that we are blacked out from buying our stock back, just like Dave and I are blacked out until we announce earnings from the end of a quarter until we actually announce earnings. So during that time, our stock jumped up 10% up above $200. So would it be a smart buy for us to jump in with both feet right in when we're already have a draw on our revolver when we've got an acquisition out there, and we obviously want to keep some dry powder as we continue to look at other potential targets out there. And that's -- let me jump in on the second part of your question, JD, about other deals in the pipeline. So obviously we wouldn't go on an earnings call and talk specifically about anything, but I've stressed over and over and over again, we always have deals in the pipeline. We've historically been known as a serial acquirer. These past couple, three years have been the anomaly for us. But now that things are getting a little more, we'll say normal when it comes to evaluation expectations, we are absolutely looking at deals today and we'll continue to look for deals that make sense with our strategy. But if you know, well enough, we are a disciplined acquirer. We don't chase the shiny object, but we're always looking.

Okay. I appreciate all the color. Thanks guys.

Yep.

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

Thanks for taking my questions. So is it possible on Payrailz, I know you can't disclose any specifics, but is it possible to talk about whether you assume it would be dilutive to your current net income guidance or accretive or neutral?

For FY '23 Peter it will probably be slightly dilutive. We haven't totally finalized that yet, because obviously we haven't closed yet, but it will be slightly diluted to FY '23, but it should be accretive in FY '24 and grow nicely from that point on.

Okay, that's helpful. And then when you think about your guidance, any material level of buyback incorporated in your '23 guidance?

There is no buyback incorporated into my guidance fee.

Got it and I assume not…

Two things just to be clear on. So I mean, anytime I've given guidance past has never assumed buybacks and it's never assumed an acquisition.

Correct, correct. And then as you're thinking about M&A what would be the ceiling for net leverage that the management would be comfortable with, would you go to three times on pro forma EBITDA for the right deal?

Yes, for the right deal, Pete, I mean, I think we would go three times and we've actually, I would say, I mean over the years, and obviously as Dave said, I mean, we've been kind of out of the market the last three years because valuations have been so ridiculous, but I will tell you in the past, I mean, I've had approved financing for deals that would have been three times leveraged. So the boards would be very comfortable that if it's the right deal for the company to move us forward. I mean, as Dave said, we're not going to out and chase the shiny objects, but if it's something that will help us with our laser focus on the FI industry and it was something that our customers need and will drive the company further, then absolutely we'd go three times.

Okay, that's helpful. Well, Kevin, have a great time in your retirement and I appreciate all your help over the years.

You bet Pete.

Our next question comes from Dave Koning from Baird. Please go ahead with your question.

Oh yes. Hey guys. And thanks Kevin for all the detail on the margins kind of for the guidance. Is there anything to think about in this year, in this base that would change kind of the long-term outlook, like basically, can we kind of take the little bit of downdraft in 2023 margin and then just kind of grow it more normally off of that base going forward? Like there's nothing new and incremental that would change kind of the longer term progression, right?

No, there's nothing there, Pete. I mean, as everybody on this call knows, I mean, we have seen some ridiculous inflation in the last four or five months. I mean if you don't think I'm serious distracting McDonald's and buy your kid a quarter pound of cheese and fries and see what you pay for that. I mean, just that. So, I mean, once inflation gets under control and we can grow over that, then absolutely FY '24 we should go right back to our typical margin expansion once we can get over these hurdles.

Yes, that makes sense. I bought a biscuit at McDonald's yesterday and had that same experience. So, thank you for that.

This earnings call is going in a totally different direction.

And then I guess the second question I just had, I know you're paid on number of transactions and I just went back and looked at the Visa debit transactions and they had a really tough comp in the year ago too. But they had a pretty stable growth in the last two quarters. I think they were at like 5% both quarters, but I know you decelerated this quarter and I know there's all sorts of different things you have in them and stuff, but I guess, why else did growth decelerate in the payments business?

I don't know of anything specific to call out Dave.

Well, I will tell you that if you remember last year in '21, we had a huge growth in core. And so we had a tough comp in our payments segment this year compared to last year.

Okay. So it really just is that, yes that makes sense.

Yes.

All right, thank you.

You bet. Thanks, Dave.

Our next question comes from Charles Nabhan from Stephens. Please go ahead with your question.

Hey, good morning guys. I wanted to get a little color around the timing of margins over the course of '23. I know some of, I know there's a lot of variables right now, but some of the factors you mentioned Kevin, like the conference and the license headwind are weighted towards the front end of the year. So that being the case, is it fair to assume that the bulk of the headwind would be in the front half of the year for '23, and then we could potentially see something above a flattish margin in the back end, all things equal?

Well, yes Charles, you're absolutely right. I mean, the user group meeting is education conference is in Q1 so that is going to have a big impact on margins in Q1. So it -- you're right. I mean, the comps should be a little easier once we get past that. The license revenue, I mean, that's spread out over the year because that's based on delivery of the license, so that's lumpy. It always has been. So you don't -- really don't know which quarters that's really going to hit, but on a year-over-year basis, so I'm absolutely sure that license revenue is going to be down. And then the other things that are in there is just cost to retain talent is a challenge. And then just that's not going to get any easier in the short term. So that's going to be a challenge for the entire year the way we're seeing it right now. So I think you're right. I think the biggest headwind will be in Q1, but I think there's other challenges that I think we're going to have to deal with and get over the balance of the year. But you're right; the margins should be a little better after we get through Q1.

All right, I appreciate that. And as a follow up, I wanted to drill on the Banno a little bit, specifically if you could give us some color around how much of the new customer wins are coming from the existing base versus outside the base? And then secondly, Banno business was a topic at the Analyst Day and I was wondering if we could get an update on that in terms of your ability to cross sell and just sort of how that's -- how that's positioned you for new wins?

Yes, thanks Chuck. So first off, 100% of the Banno wins are happening inside the Jack Henry core base and we've talked about this in the past, the fact that the great resignation did have an impact on the Banno business as far as developers. It's been commonly reported in the news that high tech developers have been moving around a lot and been commanding very high salaries and we like a lot of companies were impacted by that. So we've been very transparent with our customers, sharing the fact that, and our prospects sharing the fact that we've had to move back our release date as far as Banno outside the base. We also had to move back the release date for Banno business into calendar 2023. And so we believe, we're hearing it from customers and prospects that once we get Banno business out there, that's really going to light a new fire under the Banno platform. But, we're having tremendous success as it is. So we're just excited to get Banno business out there, and we're excited to be able to sell outside the base, but in full transparency. That is the line of business that was probably most impacted by the great resignation here over the past year or so.

The other thing I'd add is almost a 100% of our new core wins takes Banno. And in fact, Banno is probably and I've been in this industry for a long time, Banno is probably the only solution that I have ever known that actually closed a core deal, because we've actually won some core deals because we have Banno. So it is the top of the line solution out there and so Dave is right, we're selling a 100% inside the base, but that's -- that also includes all those new core customers that were taken away from our competitors.

Got it. Thank you very much. And Kevin, thank you for all your help over the years and best of luck in the future.

Thank you.

Our next question comes from Dominick Gabriele from Oppenheimer. Please go ahead with your question.

Hey, great. Thanks so much. I just wanted to talk about, why would it be possible let's say medium and small asset size versus large asset size financial institutions might be willing to take on the public cloud solutions that you're developing sooner and is that and then maybe it moves upmarket from there, does that sound correct? Does that make sense that it would start in the smaller FIs first and they might be more willing to do that? And then I just have a follow up, thanks.

No, I think Dominick, I mean, it's possible if it could happen that way, I don't expect that to happen. I think it's going to be a larger, it will be the larger financial institutions that will make that move because for them there's more potential benefit to move into the public cloud, right? What they're paying is more than a smaller institution. The demands of their customers generally are greater as far as flexibility and new functionality and new releases. The expectations of our customers are higher. So I think it's more likely that it will be, kind of mid-size regional banks that will adopt the public, the full stack public cloud offering first. And I think smaller institutions will follow on. Now we got to wait and see. It's never been done before, so we got to wait and see what happens. But that's my expectation is that it will be a -- the $1 billion to $5 billion, $1 billion to $10 billion banks that are probably going to be first to adopt, and then you'll see smaller banks and the really large regional banks kind of follow along after that, as far as moving everything to public cloud. Now I keep saying everything because we're moving different pieces to public cloud today. I mean, Banno is a public cloud solution. So there are pieces that are already public cloud, but when we're talking about full stack, I think that's the way you're going to see the progression, but we just got to see when we get there.

So start from the middle and kind of expand out from there as far as out…?

That's what I think.

Okay. Interesting, very interesting. I was just curious, thank you. And I just -- you listed off of, there's a multi-pronged question in here, so forgive me up front. You've listed a bunch of the different kind of cost pressures that you're seeing from just normalization. You listed a whole bunch of them. Is there any way for us to think about the sizing on the various ones, just from largest to smallest? And then just a follow on to that, but sort of separate, how are your customers adjusting to this kind of similar environment where they're probably also seeing some of the various factors as well, and how do you think that could shift the demand for your products as they think about investing in further technology enhancements? Thanks guys.

Yes, so that's a good question. And as far as sizing the impact, I don't know that there's any one thing that jumps out at me. I mean, probably personnel cost to attract and retain talent is probably, would probably be the biggest one. The other ones are, insurance. I mean, it's just, it's a hard insurance market out there for E&O and Cyber. I'm sure everybody's experiencing that. I mean, our premiums went up significantly last year and they're going to go up again this year, and then probably right behind that or maybe ahead of that would be our travel expenses because not only are travel expenses going up, but we have more people traveling. So for example, we have over 300, I believe, 300 employees going to the education conference next week in San Diego to take care of our, 2,500 plus customers that are going to be there. So there's -- the travel costs are just going to be up significantly this year compared to last year and I don't see any end in that. And so the second happier question there, Dominick so I think, the thing to keep in mind with our customers is, our customers are in the business of lending money, right? So we've all know that rates are going up. Our customers are continuing to see a net interest margin spread growth. And so, although their costs are going up and we've talked about it previously, we've done CPI increases, and they're certainly seeing that in other areas, their opportunity to make money has also gone up fairly significantly. And they are highly motivated as evidenced by our sales success. They're highly motivated to find technology solutions that can increase their efficiency as an organization and provide opportunities to grab new customers, whether it's on the deposit side or the loan side. So there is no slowing down at all in customer demand for new technology, but you know they do have that benefit of the lending side of their business and the increased net interest margins that they're seeing.

Great. Thank you.

Sure.

Our next question comes from Nik Cremo from Credit Suisse. Please go ahead with your question.

Good morning, and thanks for taking my question and congrats to Kevin. I was hoping just to dig into the 2023 non-GAAP margin expectations and see if we can get some color across the segments?

Oh, across the segments. Well, I don't, when I say margins are going to be flat, I think they're probably going to be, I mean, we're going to see some margin improvement probably in core and payments, complimentary. I don't know because obviously we're getting the big pressure in our R&D and SG&A lines and cost of sales. So, some of that margin is not impacting the segments directly because we don't have SG&A and R&D in those segments. So the margins for the segments themselves should be solid with some slight expansion. But it's below the line that we don't allocate the R&D and SG&A that's going to really make it be flat for the year.

Got it. Thanks for that, extra color. And then for my follow up, I wanted just to ask what you're seeing from your customer base, just in terms of the M&A environment, are you seeing like a big step down in M&A activity relative to 2022 or is like the term fee guidance just more conservative?

Yes. So Nik, we absolutely are seeing a slowdown on that, and one of the things we've stressed on these calls in the past is, we have a lot of visibility into when customers are acquiring other customers and we're one of the first calls they make if they're looking at acquiring another institution, because they want to get a conversion slot lined up well in advance. And so we have a lot of visibility. We don't necessarily know when one of our customers is going to be acquired. We have a lot of visibility, regarding the overall movement in the market. And that's why we have projected the conversion revenue to be down next year, because we expect M&A overall activity to be down in the coming year. Now that's reading tea leaves and just trying to, understand what's happening in the space, but that's our current expectation is that overall M&A among banks and credit unions will be down in the coming year.

Yes. I mean, that's like, Nik year before last, I mean, we did not predict the deconversion revenue would be down $33 million at the beginning of the year because M&A appeared to be fairly solid. But we knew it was going to be up this year, but we never dreamt that it was going to be up $33 million this year. So it was basically up in 2022, what it was down in 2021. So it's kind of flat for the two years. But based on what we're seeing in the pipeline right now it looks like M&A is slowing down a little bit. Could that be because the rising interest rates, could it be due to inflation? I mean, I think there's so many different factors that you could point to, that's having an impact on the M&A environment.

Understood, very helpful. Thank you.

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

Hi, good morning, David and Kevin. Thanks for taking my questions this morning. I wanted to follow up on those comments on Banno. Can you just talk about how much opportunity is left to go with those core customers? And then what does the opportunity look like with those non-core customers? How do we try to quantify that opportunity?

Yes, that's a kind of a how big is big question, Ken, I'll do my best to answer that. So, first off inside the base, we have hundreds of customers who are not running Banno inside the base today. I would guess it's close to a thousand, probably existing core customers that are not running Banno today, so lots and lots of opportunity inside the core base. And then when we get outside the core base, so think about the success that we've had with overall, what we used to refer to as Profit Stars, of course, we don't use that brand anymore, but the whole goal there was to sell to non-Jack Henry core customers. And we have roughly 7,000 banks and credit unions that we've sold variety of different non-core solutions to, customers who are not running a Jack Henry core, but they're running other things. So we have that base of 7,000 banks and credit unions that are already doing something with Jack Henry that's non-core that we can go and mine. They already know us. We have a relationship with them. We can go and mine that base with new sales opportunities once we have Banno regs to go outside the base. So there's a tremendous opportunity. The other thing I'll stress is, I've said on the call over and over, almost any bank or credit union in the United States today is running a mobile banking solution and internet banking solution and they look totally different. They function totally different. They are not the same system. Banno eliminates that concern. Banno is a single platform, so that the user experience is consistent, whether you're on your phone or your laptop, and banks and credit unions want to move in that direction. So there's a motivator there for them to want to go in that direction. We just need to get that delivered outside the base.

Okay, great. And then I wanted to ask about consolidating the brands and the opportunity there, David, I believe you mentioned that you’re going to operate as one company. And I think your comments for it, it leads to a better client experience. Can you just talk about how you think that might impact your sales performance, your revenue growth, and I guess, retention rates across your customer base?

Sure, yes. So we're very excited about this adjustment. We made the announcement on August 1, so just a couple of weeks ago and it ties in, so a few key points to this. Number one, we now can eliminate any of the marketing expense associated with supporting several different brands. So there's a logical expense cost savings there, when you move to one brand. But more importantly, I think we've had this initiative that we call One Jack Henry in play for about a year or two now. Greg Adelson, our President talked about it at the May Investor Conference. And it's been at this push that we've had toward delivering a more consistent experience for our customers. In the past with the three different brands, there was kind of this natural thought that the different brands are almost like different companies. And so moving toward one brand, one company, consistent processes, consistent experience for our customers and certainly for our prospects, we believe will aid us not only in -- on the expense side, but on the sales side will help when it comes to customer perception of our company and making sure that any existing customer gives a really positive referral to a prospective customer around doing business with Jack Henry. So I would say, some of you published studies on our customer sat ratings. We report them regularly. Jack Henry has the highest customer satisfaction ratings in our industry. The one thing that we get knocked on once in a while had been, well, you kind of operate like separate companies. Well, with this project, we hope to eliminate that concern and then overall we'll have the highest customer sat ratings by far.

Great. Thank you very much, David. I appreciate the thoughts as always and Kevin congrats on your retirement.

Thanks, Ken.

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

Hey, good morning everybody and thanks for all the commentary. I wanted to go back to Banno and you talked about like how you -- the great resignation is impacting a bit the release states, but also found your commentary around the market and where you think you'll see early traction and how that will evolve, interesting. How about from a feature and feature development perspective, how much feature development do you think needs to evolve to address the different market opportunities that you're looking at for that platform and capabilities? And how does kind of staffing and those kinds of things impact adding those features and maturing them?

Yes, it's an interesting question, James. When you're in this business, the request for new features never stops, right? As soon as you get to where you think you've got everybody beat, somebody comes up with another idea and sure it would be nice if you would do X. So that's an ongoing project. The good news for us is, we know on the consumer side with what we have in market today, we know that we have a tremendous solution that beats pretty much any competitor on the consumer side. The only missing piece has been for commercial customers with Banno business. So we're very confident that once we get Banno business in market, we're going to have a terrific solution to compete with anybody. But you can't ever expect that you're going to stop developing new features, adding new features, adding enhancements to a solution like that, because not only does our customer demand increased, but their customers are demanding more functionality through a platform like that. They want to be able to do more things through a platform like that. So that's an ongoing commitment for us for, I won't say forever, but forever is a long time, but it will go on for a very long time. The really good news is, the whole tech modernization strategy that we've been talking about is built on that same platform that Banno is on. And so anything that we do in the future with Banno and adds to the overall story of the tech modernization offering that we'll have from Jack Henry, and so it just continues to bolster what we've been talking about as the future of technology for financial institutions.

And then what is your sense. I mean, it's an interesting period and one that a lot of us aren't familiar with in terms of like prices, price changes and increases and general inflation, how does that impact or how are you expecting that will impact the pricing discussions in that part of the selling promotion, even for your products and obviously what's the competitive environment associated with that look like?

Yes, the competitive environment has not changed. And, we've talked about it before, pretty much any large purchase in our space today, customers, banks and credit unions will involve a consultant and the consultant's role in that engagement is not only to do the comparison of one product to another, but it is to negotiate price. And so, regardless of what's happening in the economy, the consultant is there to try and make sure that they squeeze every, every opportunity out of the engagement that they can. So I can't say that anything dramatic has changed as a result of what's happening in the general economy when it comes to customer expectation or consultant expectation and I don't think anything is going to change. The opportunity for us when it comes to pricing is by offering an enhanced solution, a differentiated solution, kind of back to your first question, right? The more, the more we add to these platforms that are differentiated from our competitors, that's where the opportunity is to charge more. Because then we're not, then it's not just table stakes. It's not just, which solution looks better. It's which one really functions better. And today Banno has that reputation and so that's our opportunity and our challenge is to make sure that we continue to stay ahead of the pack as far as future function, because that's where customers will pay you more.

And our next question is a follow up from Dominick Gabriele from Oppenheimer. Please go ahead with your follow up.

Hey, great, thanks. I just wanted to talk to you about the guidance on the revenue growth and how we should, how investors should think about, in the Investor Day. I think there was a slide that said, the long term revenue grows expectation between 8.5% and 9%. And then we're kind of, maybe roughly 50 basis points below that for 2023. Is there any way you could help us walk between those two points, new customer sales and all those various waterfall features, that is creating the Delta? Thanks so much.

Well, I mean, you're absolutely right. I mean, at the Analyst Day, I’ve said 8.5% to 9% and we're right at the 8.5%. So yes, we're on the low end of that. But considering the year that we're coming off of with the huge growth we had of almost 9% in 2022, I mean, it makes for pretty tough comp. So I mean, if we can grow 8.5% in 2023 compared to 2022, I mean, I'm thinking for a company that's 90% plus recurring revenue, that's a pretty good feat to grow at that pace. Obviously can we grow -- get back to 9% in 2024? I would hope so, but my crystal ball is a little foggy going out that far.

Sure. Now that makes sense. And congrats on all the wins this quarter too.

You bet. Thank you.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Kevin Williams for any closing remarks.

Thanks, Jamie. Obviously we're very pleased with results of our ongoing operations and we are excited for the future with everything that, all the new deals that we've signed in the previous quarter. I want to thank all of our associates for the way they have handled these challenges by taking care of themselves and our customers, and continue to work hard to improve our company, to continue moving forward for the future. All of us at Jack Henry continue to focus on what is best for our customers and our shareholders. I want to thank you again for joining us today. And Jamie with that, would you please provide the replay number?

And ladies and gentlemen, with that, we will conclude the conference call today to access the digital replay of this conference. You may dial 1 (877) 344-7529 or (412) 317-0088, beginning approximately one hour after the conclusion of today's event. You'll be prompted to enter a conference number which will be 279-20-74. Please record your name and company when joining. The conference has now concluded. We do thank you for attending the presentation and you may now disconnect your lines.