Good morning, and welcome to the Jack Henry Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead.

Thank you, Laura. Good morning, and thank you for joining us for the Jack Henry Second Quarter 2024 Earnings Call. Joining me on the call today is David Foss, Board Chair and CEO; and Mimi Carsley, CFO and Treasurer; and Greg Adelson, President and COO. After my opening remarks, I will turn the call over to Dave for his comments on our business and industry outlook. After Dave concludes his comments, Greg will discuss his transition to CEO, provide commentary on our operations, including updates on our technology modernization strategy and other key initiatives at Jack Henry. Mimi will then provide commentary around the financial results and updated guidance included in the press release issued yesterday that is available from the Investor Relations section of the Jack Henry website. We will then open the lines for Q&A. As a reminder, this call includes certain forward-looking statements, including remarks or responses to questions concerning future expectations, events, objectives, strategies, trends or results. Like any statement about the future, these are subject to multiple factors that could cause actual results or events to differ materially from those which we anticipate due to multiple risks and uncertainties. The company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our 10-K entitled Risk Factors and Forward-Looking Statements. On this call, we will discuss certain non-GAAP financial measures, including non-GAAP revenue and non-GAAP operating income. The reconciliations for non-GAAP financial measures are in yesterday's press release. I will now turn the call over to Dave.

Thank you, Vance. Good morning, everyone. We're pleased to report another strong quarter of revenue and operating income growth. As always, I'd like to begin today by thanking our associates for all the hard work and commitment that went into producing those results for the quarter. For the second quarter of fiscal 2024, total revenue increased by 8% on both a GAAP and non-GAAP basis. Operating income increased 11% for the quarter and increased 14% on a non-GAAP basis. Turning to the segments. We again had a solid quarter in the core segment of our business. Revenue was up by 8% for the quarter on both a GAAP and non-GAAP basis. Our payments segment also performed well, posting a 6% increase in revenue this quarter on both a GAAP and non-GAAP basis. We had another strong quarter in our complementary solutions businesses, with a 7% increase in revenue this quarter and a 9% increase on a non-GAAP basis. As I mentioned in the press release, our sales teams again had an outstanding quarter with a number of notable wins. In fact, this was the best second quarter ever for sales bookings and second highest sales quarter in our history, trailing only our June quarter last year. In the second quarter, we inked 14 competitive core takeaways with four of them being multibillion-dollar institutions. Additionally, we signed 12 deals to move existing in-house core clients to our private cloud environment. We continue to see success with our card processing solutions, signing 12 new card processing clients this quarter. We also continue to see strong success signing clients to our Banno digital suite with 135 new contracts in Q2, including 56 contracts for our new Banno business offering. We also surpassed 11 million registered users on the Banno platform, which is a…

Thank you, Dave. I'm honored and humbled to become the next CEO of this great company in July. I do want to take a moment to acknowledge the outstanding job that Dave has done as CEO the past eight years. Since Dave became CEO at the start of fiscal year 2017, and Jack Henry has experienced outstanding growth with revenue and net income both up approximately 50%. In addition to driving organic growth, Dave has led 26 acquisitions during his 25 years with the company. The legacy Dave is leaving will be remembered for many years to come. On a personal level, I want to thank Dave for his mentorship and guidance for the past 13 years. He has prepared me well for this role, and I will continue to lead this company with an unwavering focus on our employees, clients and shareholders. As the next CEO, I will continue the strategic journey that we are on today and we'll execute our strategic priorities, which include continuing to enhance our exceptional culture continuing to advance our tradition of customer service excellence, cultivate a one Jack Henry mindset in all we do, drive technology innovation and execution at the speed and scale foster an open ecosystem, evaluate strategic acquisitions that will provide additional value to our clients and shareholders. Jack Henry has maintained a philosophy for over 47 years that starts with treating our associates as our first priority. Happy associates are more invested in ensuring we have happy clients and happy clients ensure we reward our shareholders. In short, you can expect continued focus on growing our company and delivering outstanding value to all of our stakeholders. Dave and I will continue to work closely to ensure a smooth transition in July, and I look forward to collaborating with him…

Thank you, Greg, and good morning. Our continued focus on serving our community and regional financial institution clients, investing in our joint future and delivering shareholder value led to another quarter of solid revenue and earnings growth. I'll begin with the details driving our as expected strong second quarter and year-to-date results, then conclude with our full-year guidance update. Second quarter GAAP and non-GAAP revenue increased 8%, a continuation of the strong start to our year and keeping us on track for a tremendous fiscal 2024 as year-to-date growth was 8% on both a GAAP and non-GAAP basis. Deconversion revenue of $4.9 million, which we pre-released last week, was down approximately $1.5 million, reflecting minimal financial institution consolidation. Year-to-date, deconversion revenue is $9 million, $1.9 million less than the prior period. As a reminder, effective September 1 onward, Payroll's results are included in both GAAP and non-GAAP figures. Now let's look more closely the details. Cap services and support revenue increased a healthy 7%, while non-GAAP increased a more robust 8%. The first half increased 7% for GAAP and 8% for non-GAAP basis. Services and support growth during the quarter was the result of increases in data processing and hosting and the timing of user group revenues. We continue to experience robust growth in our private and public cloud offerings which again increased 10% in the quarter and for year-to-date. This reoccurring revenue contributor has long been a double-digit growth engine. Shifting to processing revenue. We saw consistently positive performance with 9% growth on both a GAAP and non-GAAP basis for the quarter and first half from this reoccurring revenue source. Similar to recent results, drivers included a combination of higher card and other payment processing with strong digital demand. Next, moving to expenses. Beginning with cost of revenue, which…

[Operator Instructions]. And our first question will come from John Davis of Raymond James. Please go ahead.

Maybe just wanted to follow up on the free cash flow comments that you just made. Getting back to historical levels, I'm assuming you mean kind of right around 100%. So that would imply kind of 40 points of headwinds that will get reversed. I thought before it was maybe 25 points or 30 points. So just, a, I just want to make sure when you say historical levels, you're talking in and around 100%. And is it kind of 40 points of headwind this year?

Great question. I think premature to see the timing and the impact as to when to whether that hits 2024 or 2025. that I would say certainly, our historical norm range of 80% to 100% is where we believe we would revert back to. It just depends on the timing.

Okay. No, that's helpful. And then just on second half margins, I think the guide implies margins will be down year-over-year after being up over 100% in the first half of the year. So maybe just talk a little bit about some of the headwinds that you do face kind of in the back half of fiscal '24.

Yes. So, we manage the business on a full year basis, JD. And so, as we think about it, we're pleased to have the additional margin expansion in the guide that we provided yesterday and today. Just in terms of the actual timing and seasonality of it, it just depends on when certain events like personnel-related costs, licensing costs in any particular quarter from a climb over perspective. As you know, our first quarter is usually the highest margin of our year. And then typically, the endpoints are less or so. So, I wouldn't say read anything more into the seasonality, and we're just basing it on a full year guide.

Okay. Great. And then, Dave, one for you, but also congrats on your retirement, your move to Executive Chair. And Greg, congrats on the CEO role. But Dave, you talked a lot about the competitive environment being fairly favorable. We continue to break records on the sales front, pipeline is robust. Maybe you can talk a little bit about what specific products or is there a segment of the market that you're having outside of success the top line results and the sales have been very, very good over the last 12 months. And just maybe a little bit more color on what exactly is driving that.

Sure. Thanks, JD. So, as I've said previously, it's amazing. We're 47 years into our run as a core provider and yet core continues to be a really strong driver. I just quoted to you 14 wins in the quarter. four of them, multibillion-dollar banks. That definitely leads the industry by far as compared to anybody else in the industry. So, core is still a key driver for us. But then oftentimes tied to the core, but sometimes not, and we have these other best-of-breed solutions, and we talked about many of them on the call before Banno. The retail Banno solution has been a key driver for us. Well, now we have Banno business in the equation. And you heard me quote the 56 contracts that were just signed in this quarter for Banno business, there is a real demand for a solution like that modern digital brand-new digital banking solution like that for small and leading business clients. I've talked in the past about our treasury solution. Again, a modern digital treasury solution for large commercial clients. So of course, it's not the bank that uses that. They're a large commercial customer that uses that hasn't been a brand-new ground-up treasury solution and certainly no digital-first treasury solution written in many, many years. So that continues to be a driver for us. Fraud, Financial Crimes Defender, Greg just quoted the numbers to you as far as Financial Crimes Defender. We have seven live, but we have a whole bunch of them now in the backlog because it's a brand-new ground-up developed fraud solution to deal with fraud in today's environment. And so, it's many of those things. And the thing -- the correlation, I think you need to make is every one of those that I just talked about has been written brand new in the last two years, five years by Jack Henry. So, these are not things that we acquired that we had to try and figure out how to make them modern. These are things that Jack Henry has innovated we paid a lot to do the development work. But when you get done with that, you have something that is a best-of-breed solution centered around digital, many of them centered around a public cloud, and there is a huge demand today for those types of offerings. And so, I don't see this slowing down at all. We're really well positioned today, and we're continuing to innovate as a key technology provider in our space.

And the next question will come from Nik Cremo of UBS.

Thank you for taking my question. Congrats, Greg and Dave. First, I just wanted to follow up on the Payment segment. When can this segment get back into the 8% to 9% growth range? I know there was a few puts and takes called out, which is lower card production, but we also have Payrailz, which supposed to double this year. I'm not sure if that is still on the table, but just be curious to hear your thoughts there.

Thanks, Nick, for the question. So, I would really point to you on the card within card within payments, the processing related. So that's the reoccurring nature of within that segment, and that grew strongly at 8%. And so that is an indicator of the overall success of that segment and our ability to get back to what we view from the growth algorithm, the prospects for that segment. So, I would say some of the non-processing related, the pass-through of the card production is more temporary and expect that the processing engine will continue to drive the strong growth

Thank you. And then for my follow-up, maybe a more medium-term question, but you just discussed the opportunity you see for generative AI on the revenue side, but also, more importantly, on the cost side, just relating to any of the benefits that you could see from increased software engineer productivity with these AI tools and call center automation.

So, do you want me to start with that one or do you want to? So, I'll start and then Greg will chime in here because this has been a -- as I'm sure you can imagine, a big topic of conversation for months around Jack Henry and lots of opportunities for us -- so on the per site. So. One thing I should be clear about. So traditional AI, it's a machine learning and robotic cross automation, Jack Henry has been in that business for years. So traditionally, we've been doing that for a long time. Generative AI, which is specific to your question, Nick, lots of opportunities there on the development side. The trick on the development side is our primary value is through our IP, right, our intellectual property. And so, when you're using generative AI to write code, you have to be really, really careful that nothing that you're doing becomes part of the public domain. And so, we're being very careful about what are we doing and how are we doing it, but we are active today with our development teams using generative AI, you pointed out customer service offering. So that is an area that we're focused on internally, and I'll let Greg touch on that. But we also rolled out at our client conference in October, a generative AI offering for our customers to serve their customers and that was well received at our client conference here in the fall. And then if you think about all the processes that we do within Jack Henry that have are not customer service and are not software development, just automating things we do within the company is another big area of focus. And I'll let Greg add his thoughts.

Yes. No, I think -- I mean, I think the other thing I would add is that we're also making sure we have strong governance around what we do. And so, we're taking a lot of time to make sure that we're evaluating. We're partnering with Google and a couple of other folks that we have some solutions with to kind of test some models. We're using opportunities here, not only in the contact center, as David mentioned, but also in a couple of other products. I did mention the AI assist kind of module that we would use in some of our data analysis that we call executive dashboard for the C-suite folks. And so, there are several opportunities that we're still evaluating. But again, we want to make sure that we get this right and that we're building it with the right guardrails and things along that line. But you'll continue to hear more about where we're going with that in the coming months.

Our next question will come from Jason Kupferberg of Bank of America Merrill Lynch.

I wanted to come back to some of the pipeline comments, certainly seems encouraging that you've got some real solid stability in the pipeline despite having a really strong quarter of bookings. So, can you talk about how the composition of the pipeline has changed in recent quarters in terms of, say, customer size, product mix and if there's any numbers you want to share around that, just in terms of helping us understand the composition of the pipeline, that would be great.

Sure, Jason. I wouldn't say that there's a significant notable change in the composition of the pipeline. It's -- we have a number of core deals. So again, we just signed 14 -- or announced 14 deals here. That is not slowing down. I would say that the size of those core opportunities, meaning the size of the institution, has gone up and is continuing to go up. So, we're being recognized among the larger community and regional bank space as being a real player. And so, I think the overall size of the institutions bank and credit union has gone up. But then if you look at the rest of the mix, most of it are the things that I highlighted when I was kind of going through with JD, the hot topics today, what's driving that success. It's this all this brand-new technology that we have -- that we're offering today. So, two years ago, almost nothing of those except Banno was on the list. But now all these things have been rolled out in the last couple of years, and they are dominating the sales process today because they're brand-new technology, people have been hungry for these things, a Banno fraud solution that uses AI, I mean everybody is dying for that type of technology. And so here we are, we've just gone live with Financial Crimes Defender. And so much of it is because of these brand-new things that have been rolled out in the last year or two or three that's what's dominating a lot of the sales conversations today, and that's what's driving a lot of the strength in the pipeline because you look at what's happening with our competitors in the space, there's really nothing innovative that's been coming out in the last couple of years. And here, Jack Henry has a long list of brand-new innovative solutions.

And then on competitive landscape in core, are you guys seeing a broader range of competitors as you continue to move a little bit further up market? Maybe others are trying to move a little bit more down market? Just how are competitive dynamics in core evolving?

Yes, I'd say no change at all. There's we compete against the traditional players. We've competed against the traditional players forever. There have been upstarts, trying to either come into the U.S. internationally or start from scratch, and none of those are really even showing up in RFPs with the exception of once or twice a year. So, I wouldn't say there's any change of any kind on the core side as far as the competitive landscape.

Okay. Just a housekeeping one for Mimi on free cash flow. I know you're maintaining the guide. I'm assuming no changes in legislation. But fair to say that Q3 would be fairly subdued and then followed by a stronger Q4 just based on typical seasonality.

Yes, I think that's fair to say. And I think if anything, we're reiterating the guide, but there's probably a little bit of upside there, even without legislative change.

And next, we have a question from David Togut of Evercore ISI.

Thank you. Good morning, and congratulations to you both, Dave and Greg. Dave, I know when you initially became CEO eight years ago, one of your major priorities was the card migration platform, moving your kind of back-office processing of debit cards over to the back office of what was then First Data now Fiserv First Data and then obviously, adding the capability to do credit card processing on top of that. Where do we stand overall in this initiative in terms of the cost savings that's delivered to Jack Henry? And then where are you in terms of the uptake of the credit card processing offering?

Yes. So, I'll start, but I'll ask Greg is a lot closer to the details as far as where we are today. So, from my perspective, this has been a wildly successful initiative for Jack Henry. And at the time, I've been in this business a long time. And the idea of bringing three companies together to deliver a solution that's going to replace two different platforms all to one platform was a very, very big daunting project. But now looking back on it, it's been incredibly successful for our company as far as hitting the targets that we expected to hit financially for Jack Henry as far as the sales opportunities that it's created, which have been very significant over the past few years. So, I look back on that project as a really significant success. Now the thing I will emphasize before I ask Greg to chime in here, I said all along, you are not going to see the credit card side of this business become anywhere close to what the debit cards had side is we were doing. We were focused on the credit card side because we had certain customers who said, we want to process both debit and credit with the same provider, and we want to make sure that we have that option for them. And so, I'll ask Greg just kind of talk about where we are today.

Yes, specifically on the credit card. So, we -- roughly between full-service card, agent card in-house card. We have roughly over institutions. And so -- and I think part of the challenge is some of the smaller institutions which is why we came out with an agent program was they really didn't want to go in with the full service just based on resources and some of the risk and things like that. So, I think we have done -- the team continues to sell it. We continue to have the number of deals come in just not to the same level as debit continues to grow. But also, we're continuing to add feature functionality to the services. As Dave mentioned, it is a tri-party relationship, and we continue to work with the other two parties to make sure that we stay innovative and ahead of the game. So, the relationship has actually gone well, which has actually contributed to the fact that the growth has been significant as well. So, both from a service side and a transaction processing side.

And just as a follow-up, Jack Henry outperformed on gross margin versus our model. And I know you initiated a media program a few quarters ago, which Mimi, I think you described. To what extent did VEDIP uptake actually helped gross margin in the quarter? So, like stripping out any onetime charge benefit focusing more on like sustainable reductions in cost of labor.

Yes. I wanted to say that it had a significant impact. That was a one-time charge related to kind of severance and the program. As we said, we didn't do it for kind of in-year savings. This wasn't a sneaky kind of design risk plan. This was a very talent-focused plan to ensure that we had the type of talent for the future needs of the organization. And in fact, the majority of those roles have been backfilled with rising talent in the organization, some at lower levels in the organization as we zero-base budget every position the majority of those roles have been filled. So, I wouldn't say it was a significant reason for the margin expansion or the expense savings this quarter.

Understood. Thank you.

The next question will come from Vasu Govil of KBW.

Hi, thanks for taking my question. I want to add my congratulations to Dave and Greg. My first question is on Banno. It seems to have had an outstanding quarter in a number of new wins. And I caught that Banno business was a contributor there. But even without that, it seems like the number of wins were significantly higher than the quarterly average. Any call-outs on that? And apologies if I missed it, but did you give us the number of customers in millions that you usually give every quarter?

The number of customers that we signed. Is that what you're asking, Vasu?

Within Banno, I would just [indiscernible].

Yes, 11 million. Yes, we surpassed 11 million at the end of the quarter, so I quoted that 11 million. And so no, there's nothing -- I think part of what happened here is I quoted the number for the Banno business wins. And then beyond Banno business with the regular Banno platform, that number was up. I think the reason for that is because there were people out there waiting for Banno business before they would also sign to go at the regular Banno platform, which includes retail. And so that's the significant point now that Banno business is in market generally available, we had customers who said, "Okay, I've been holding off because I want to do both at the same time, both Banno business and regular Banno." That would be the only callout that I would have as far as the size of the wins.

And just in terms of relative revenue opportunity, if you're just selling Banno regular versus Banno business? Is it a 2x opportunity? Is it greater on the Banno business side?

Yes. So, I think one thing that just to make sure that we clarify. So, you have to have Banno Retail to have Banno business. So, one of the things that Dave was just alluding to is that some of the folks who are waiting to get Banno business -- or Banno retail is because they're waiting on Banno business and they wanted them at the same time. You can buy Banno retail without buying Banno business, but you have to have retail to get the business side. So back to the 2x comment, I don't think it's a 2x component. It is an additive component to ensuring that, one, that we get the retail and we continue to add fee structures to that based on how we model that. But I wouldn't call it a 2x.

Understood. That's helpful. And then a quick one for you, Mimi. I appreciate that the midpoint of the revenue guide didn't change, but it does look like you took off the top end just a little bit. And I know you called out the card production slow down. Was that the bigger driver or any sort of other callouts on how you see that evolving?

Good question, Vasu. I think generally, the tightening was more so based on our confidence as we're now halfway through the year with strong results in already banked in the ability to really center around that guide. So, I think it's more that than thinking about the top end coming down, just feeling more and more confident about that midpoint. We still have a second half to do here and a decent amount of growth that we have anticipated in our plans, especially in Q3 and Q4 around processing around card, around our payments business. So too early yet to say it's going to be higher than that, but very confident in our ability to deliver.

The next question is from Kartik Mehta of Northcoast Research.

Steve, you've commented a lot on core and obviously, Jack Henry is doing well. But as you look at the market, what would you anticipate in terms of a number of core deals? I know when COVID happened, it’s kind of flipped and then we went back to kind of normal. So, as you look at 2024, what would you anticipate the number of deals that might show up in the marketplace?

Well, it's a pretty predictable number. Every year, it's somewhere around 100 deals in total that happened per year as far as somebody leaving whoever is their current provider and going to a different provider. That's not, hey, I'm staying with my same provider and switching to another system. It is going to a different provider. Normally, about 100 deals a year is a good number to use on average.

Perfect. And you've talked about, obviously, the sales pipeline being very strong. I think Greg talked about maybe hiring more people. And as you look at your sales pipeline kind of look out forward, how much confidence can you look at that revenue that's going to come up in terms of the number of quarters you feel good that as that revenue converts that you'll be able to put up kind of this high single-digit revenue growth?

Yes. On the core side, we have very accurate predictability. We have -- we go through this monthly the chart as far as the core conversions that are slotted, whether it's a new core customer coming in, it's a customer moving from in-house to our private cloud environment. Or if it's a customer who's acquiring another institution, and we're merging them in. We have all those things. We have great dashboard tools that we use at Jack Henry. So, it's very predictable for us.

Kartik, if I can add on. The only add-on I would say, is we look at that on an annual basis. So, in any one quarter, depending on prior year, the comp of the size of the organization that was being implemented or migrated versus this year, the size of an organization still feels confident in that number, but it can vary quarter-to-quarter depending on just the roster of slots and the profile of those customers. So that's the only color I would add.

Just one last question, maybe for you. You talked a little bit about free cash flow and let's assume that the legislation doesn't pass, but you still seem confident that maybe there's upside to the original guide on free cash flow conversion. And I'm wondering maybe what's behind that or what's changed since the original guide to give you confidence that maybe it will be better.

Yes. I think a couple of things that are coming in. One is just the certainty of the results that we have year-to-date. The other is, as we lowered the tax rate as part of the guide, that helps from a cash flow as well. So, there's just a couple of small components as we fine-tune the free cash flow forecast for the remainder of the year that makes me feel comfortable about there being upside there.

The next question comes from Cris Kennedy of William Blair.

Good morning, and thanks for taking my question. Congratulations to Greg and David. Regarding the technology initiatives, is there a way to think about the revenue opportunity associated with that? And if you could maybe frame it against the private cloud transition that you guys have been going through for the last 10 years or so.

Yes, I think it's -- you have to think about it differently than the private cloud transition because that was truly pulling, as Dave has alluded to many times, pulling a customer out and it was typically a 2x kind of thing. I don't think that when you look at the tech modernization because depending on the number of components that are purchased and really the advent of the timing of some of that, it isn't a take everything we have today and move it over. So, it isn't that same level of, I think, revenue growth. But the part that is exciting for us is the ability to take these components drive again, an additional wedge into the relationship and create that opportunity for larger customers or smaller customers to dip their toe into the public cloud. And as Dave has said many, many times, I mean, there's a lot of our customers that aren't ready to do this. There are some that are already and part of our beta process today. So that's going to be a constant evaluation of the timing of when that big hit comes. But we do know that it's coming based on the feedback that we're getting from some of the larger institutions that we've been speaking to because they're more apt to do this sooner than later. And so just continued growth in that path. But there's still some time to be taken before we can give much certainty or what I would say, certainty on some of the revenue parts of this.

The other thing I'll add to this, Cris, it's important to keep in mind, there are components that will be offered now. This is not an apples-to-apples comparison of the old core versus new core. The way we used to think of core and now it's just the same thing, it's not a different platform. There are components that we'll be offering with this that nobody has ever offered before. And Greg alluded earlier to Data Broker. That has not been an offering. That has not been a thing as far as the industry is concerned. That's brand-new opportunity, brand-new revenue. It's part of the core offering, if you will, in the future, but there are several other examples like that, that create revenue upside opportunity, but it's not -- you just have to think about it differently than the way we've thought previously about converting a core from one platform to another.

Yes. And I think 1 thing I do want to add is that we'll get to a point where we talk about platform as really the driver of what sits on that platform. So, data broker or executive dashboard or open banking solutions, other things, like we already mentioned, Defender, Banno, all those components are all going to sit on the platform and will drive additional revenue.

Understood. And then just following up on -- in the press release, you talked about 28.5% growth of digital revenue in the first half of the year. Is there a way to think about the contribution from digital within the services and support revenue?

Yes. Let me get back with you on that detail.

The next question comes from Andrew Schmidt of Citi.

Dave, Greg, Mimi, thanks for having me on the call. So, a quick question on just the core win side of things. You mentioned the funnel, the number of RFPs being relatively consistent. But I'm curious if there's been any changes in win rates just given what you're seeing in the competitive environment? It seems clearly advantageous from a competitive perspective. So, I'm curious if there's any changes on the win rate front.

Yes, Andrew, I don't think there's anything notable. Again, with only 100 deals happening per year, we're in the 50 to 55 or have been down for a while, 50 to 55. So, we're winning more than half of those opportunities per year. I don't know that there's anything -- getting to 60 is a big deal for us. But from a percentage basis, that doesn't look real huge. So, I don't think I would call out anything as being significant. Our challenge and our job is to make sure we maintain that rate because, as I said before, we are by far leading the industry. And as long as we maintain that rate, that bodes well for us as far as our algorithm -- forward-looking algorithm of revenue growth and so on. So, nothing significantly notable there.

Got it. Makes a ton of sense. And then if you talk about just the views on acceptance of the public cloud, you're hearing that it's slow, but obviously, attitudes are changing towards more comfort with having things like the general ledger in the cloud. Maybe you could just talk through the process that FIs have to work through for themselves to be comfortable with hosting things like general ledger in broader core components in the cloud, that would be great.

Yes. It's an interesting question, an interesting topic, frankly. I've been doing this for a long time and kind of listening to and talking to all the financial institutions that we talk to, they all want to get there. They're all trying to figure out how do we get there. They just -- many of them are not quite sure how to get there. And with the regulatory environment that we live in, regulators are not saying, "Hey, we think you should go do this." So, there's a lot of walk before you run happening where people -- and that's part of where our Jack Henry platform strategy really, really positions us well because our strategy allows people to do is adopt a modularized approach. I'm going to do wires in the public cloud and kind of see how that goes and make sure I don't have a regulator knock on my door and say, "What are you guys doing?" So, they can kind of ease into the public cloud environment. But we have several of our noncore solutions today, fully public cloud. Savanna was there, Financial Crimes Defender, some that we've talked about today. But as far as the core functionality, this whole strategy allows people to walk before they run, and that is appealing to a lot of folks that we're talking to. And so, we think that's going to help with the question that you're asking.

And our next question comes from James Faucette of Morgan Stanley.

Great. Greg and Dave extend my congratulations to both of you. I want to ask just in terms of the implementation resources. I think you've talked about 150-plus clients in implementation for Financial Crimes Defender and another 70 for Banno business. I'm just wondering if there's any benefit or should we think about potentially increasing committee increasing resources to accelerate those implementations a bit? Or do you feel pretty comfortable with the pacing that you've got right now?

No, that's a great insightful question. So, we do that on a regular basis. So, we meet with the team on a monthly basis based on installation queues. So, we do look at what the time is to do an implementation for a particular product. Can we add resources that will add value in getting those -- that revenue on the -- into the company faster? So, to your point, we do that on a regular basis for all of our products.

Got it. Got it.

Some of it, James, is also tied to just the timing of the -- like Dave just mentioned a lot of sales. So, some of it is the timing of that as well.

Okay. Got it. Got it. But for now, we should think about you feeling like that you're in pretty good shape from what you're spending off from an implementation standpoint, et cetera.

That's correct.

Okay. And then just thinking about -- I know this topic that's been talked about for a long time, but any change in the overall environment around M&A? And it seems like there continues to be at least pull down of private valuations, et cetera. But I'm just wondering what you're seeing in that market and if their potential assets that are particularly attractive, especially from a technology perspective. Just taking your temperature on potential for M&A?

So, you know well, you followed us for a long time, James. You know well, how much we love to love to be involved in deals and we love to do deals. I will just tell you, we don't have a single deal sitting for review right now at Jack Henry. It's there's still a slow, slow time. There are certainly companies out there that we'd be interested in, but not a single deal on the table right now.

The next question comes from Dave Koning of Baird.

Just a couple of quick ones. First of all, EPS guide, at the midpoint, it was raised by about $0.10. And it looks like maybe $0.01 to $0.02 on EBIT is higher, a few cents on tax, but it seems like there's about $0.05 I can't reconcile, where might that be?

So, on the EPS, I would say it's about $0.01 or $0.02 for operational. And then the remaining split is about 50-50 is the difference in the tax rate plus interest -- net interest income that we're earning based on higher interest rates.

Got you. I'm sure you know of many banks that will pay good rates. So -- and then I guess, secondly, just on January payments volumes, many kinds of competitors and the industry participants called out the first two or three weeks being pretty slow. It sounds like maybe the back part of January got better, but what have you seen kind of through January and maybe even into early February, just in payments volumes.

Yes. I would say, overall, our volume transaction nears Visa and Mastercard domestic, pretty similarly, we did see the same experiences that they have talked about publicly about January weather and who knows right now is all the rains in California of that. But what we saw typically by the end of January with some rebounding from those very temporary lows.

The next question is from Dominick Gabriele of Oppenheimer.

Thanks for everything, Dave, and looking forward to working with you, Greg. I guess we've been talking to investors in your quarter since the management team change announcement. And Greg, talk about what you've learned under Dave and being a part of the Jack Henry team over the years that should give investors’ confidence that the new management team, including Mimi, who's done a great job, obviously, since her start, we'll continue executing with the same consistency in the years to come.

And I think it just starts with a culture that we've built for 47 years here, and it's a very collaborative approach. We work very tightly together. And between my time with Dave, I've done a lot of -- I was heavily involved in the card work that happened years ago. Obviously, if some of the M&A that we've done in the Payments group when I led the payments group. And just I think from a philosophy standpoint, Dave and I are very much aligned on how we look at things, how we evaluate what we do for our three pillars of success that we always talk about our associates, clients and shareholders. And so, I don't think you're going to see very much change at all. A lot of the same level of consistency on how we think and operate there'll be some nuances and opportunities where some things that I have in my background and what Dave had in his background, so I'm hoping that those will all be things that we can add to. But the reality is that I spent 13 years at this company, and all 13 have been working for Dave directly. So, I would say there's a lot of consistency that you should look forward to.

Greg is a snappier dresser than I am.

And then if maybe if we could just dive in a little bit deeper on the guidance, I was just looking at the slides from this quarter to last quarter. And it looked like there was a rise in the non-GAAP revenue expectation, but a lowering of the high end of GAAP revenue. I was just curious on what would cause that debt deviation since the deconversion fees are versus stable?

So, I just want to make sure I understand your question, Dom. You're saying you're seeing a greater change in non-GAAP? Or you're saying you're seeing a greater change in GAAP?

It looks like from what I saw that the range was a little higher in -- on the growth in non-GAAP revenue, but then you took down the high end of the GAAP revenue, maybe I don't have that right, but I.

Yes. Let me look further into it, but I have nothing that comes to mind. It should be more of a flow-through because we're keeping the deconversion guide for the full year at 16%. So, there's not much that's changing there. So, you should see a similar pattern non-GAAP and GAAP.

Excellent. That's what I would have thought. Okay. Perfect. And then maybe just one last one. If you guys could just talk to us about your business investment strategy in terms of expense dollar allocation as you look forward. We've obviously -- at least versus my model, the expenses were much better than what I was expecting for the quarter. And I know there's some seasonality, but talk about the expense investment versus accelerating revenue strategy.

So, Dom, I would say a couple of things this quarter and that will also impact the full year and therefore, the guide. 2 things. One is the -- not just the timing of the Connect conference, but the Connect conference was even more successful than last year. So, from a profitability perspective, that helped for margins and expenses being lower. The other is the decision we made around a onetime change in the change in timing of our merit for our associate population. And so that also helps from a straight through to the bottom line from an expense perspective. But as always, and with consistency, we not only zero-based budget, but we look and think about the investments, the amount of spend going to our top projects and top products, the amount from a capitalization in R&D. You saw the consistency of the 14% of R&D spend. So, we're always thinking about how to invest for our future, thinking about what those business plans look like and what that ROI looks like and the bandwidth of the organization. So, I think there'll be more consistency from a spending towards future that you've seen in the past. And I think some of the margin expansion was just due to a heightened focus on cost control, and that some of the changes that we've made from the merit timing.

And next, we have a question from Ben Varga of Autonomous Research.

I just wanted to echo everyone else's congratulations on the leadership transition. My first question is about Banno business. It's great to see the initial client interest, I guess. In terms of the implementations that you have in the Q, how long does it typically take until those opportunities start contributing to revenue?

Yes, it's really a timing thing based on the client themselves. Honestly, an implementation of Banno business is less than 60 days. So, some of those are tied to core deals. Some of those are tied to other product implementations. So really, it's dependent more on the client than it is on Jack Henry. And kind of back to the question earlier, that James had related to that. So, some of that is really -- we try to push the clients along, but it's not necessarily a Jack Henry lag as it is waiting for the client. So -- but it's 60 days or less if they're ready to go.

Got it. That makes perfect sense. And then as we think about the growth opportunity for Banno Retail, are these wins coming from greenfield opportunities for the most part? Or are you also kind of bumping up against some of the other digital banking providers?

Yes, absolutely. No. We have a lot of competitive takeaways from the other providers. There are some opportunities within both the core base. We've talked about taking it outside of the Jack Henry core base and where we're going with that. But right now, there's probably an equal mix of opportunities from a handful of the larger digital banking providers today that we're winning some deals from and as well as our existing core base.

And I think it's fair to say there is no such thing as a greenfield opportunity at any point. So, everybody has something. We're displacing something every single time.

Yes. That's a fair point.

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

Thank you, Laura. We look forward to speaking further with many of you at investor events in the coming weeks. On behalf of the management team, I would like to express our appreciation to all the Jack Henry associates whose efforts produce these outstanding financial results. Thank you for joining us today. And Laura, will you please provide the replay number?

The replay number for today's call is (877) 344-7529 and the access code is 9025867. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.