Good day and thank you for standing by. Welcome to the Jack Henry & Associates Fourth Quarter Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Kevin Williams, Chief Financial Officer.

Thanks, Liz. Good morning. And thank you for joining us for the Jack Henry and Associates Fourth Quarter and Fiscal 2021 year-end earnings call. I'm Kevin Williams, CFO, and Treasurer. On the call with me today is David Foss, our Board Chair, President, and CEO. In just a minute, I will turn the call over to Dave to provide some of his thoughts about the Sabre business, financial and sales performance for the quarter, some comments regarding the industry in general, and then some other key initiatives that we have in place. Then after Dave concludes his comments, I will provide some additional positive comments regarding the earnings press release we put out yesterday after market close. I will also provide comments regarding our guidance for our fiscal year of 2022 provided in the release, and then we will 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. Also on this call, we will be discussing 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're very pleased to share details with you of a quarter that 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, particularly in light of the challenges posed by conducting business while dealing with the ongoing effects of the pandemic. For the fourth quarter of fiscal 2021, total revenue increased 10% for the quarter and increased 10% on a non-GAAP basis. Deconversion fees were essentially flat as compared to the prior-year quarter. Turning to the segments, we had a solid quarter in the core segment of our business. Revenue increased by 4% for the quarter and increased by 6% on a non-GAAP basis. Our payments segment performed extremely well, posting a 16% increase in revenue this quarter and a 17% increase on a non-GAAP basis. We also had a strong quarter in our complementary solutions businesses with a 7% increase in revenue this quarter and a 7% 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. June was also the strongest sales month ever, and it propelled all three sales groups to exceed their quota for the quarter. While they were signing all those contracts in the fourth quarter, the sales team also did an outstanding job of refilling the pipeline with new opportunities to set us up for success going forward. I think this is a good sign of the health of our market and bodes well for the start of the new sales year. In the fourth fiscal quarter, we booked 13 competitive core takeaways and 14 deals to move existing on-premise customers through our private cloud environment. Several of our complementary offerings also saw very strong demand in the quarter, with our digital suite leading the pack. We signed 87 new clients to our Banno digital platform in the quarter, 10 new treasury management clients, and 22 new clients to our card processing solution. For the full year, we signed 41 competitive core takeaways, with 8 of them greater than 1 billion in assets. Additionally, we signed 35 contracts to move on-prem core clients to our private cloud, 219 new Banno digital customers, and 55 new clients for our card processing solution. Of course, we signed a variety of other contracts for many of our other solutions as well, but it's important to note that almost all of these contracts represent long-term recurring revenue commitments to Jack Henry for a wide variety of our solutions. At our analyst conference in May, I shared with the attendees that we had just surpassed 5 million registered users on our Banno digital banking platform. As of the end of the fiscal year, we were at roughly 5.6 million registered users. As a point of reference, on July 1st of 2020, we had about 3.2 million registered users. So in one year, we saw an increase of approximately 75% in our user count. This is significant because, as I've stressed in the past, most of the revenue for a business like this is tied to the number of users on the platform. We continued to onboard clients and their users at a pace of about 30 financial institutions added to the platform each month. In addition to our ongoing success with Banno, we have delivered many new and innovative solutions during the fiscal year. A few examples include, our Symitar team delivered an automated database migration to almost all of our EPS clients, which allowed them to move to the new database structure with no effort or client impact. Our lending team delivered the Jack Henry loan marketplace, which allows banks and credit unions to easily engage through a digital experience in the buying, selling, and participation of loans. Our digital team delivered the Banno digital toolkit, which provides a complete set of application programming interfaces to enable easy plug-ins to third-party solutions in our digital platform. Our payments team continued the expansion of functionality and adoption of the PayCenter platform and delivered the Zelle digital toolkit to enable clients not using our digital platform to connect to the PayCenter hub for Zelle transactions. And, of course, the payments group completed the three and a half year project to upgrade our card payments platform. Almost all of these new deliverables are built on entirely new technology stacks and are designed to make it easier for our customers to leverage our open architecture tools and philosophy to deliver cutting-edge solutions for their account holders. As you may know, we have a number of active projects at Jack Henry centered on the topic of corporate responsibility. We continue to advance our environmental stewardship commitment and recently announced that on risk day, our associates launched a new business innovation group called Go Green. Our business innovation groups are company-sponsored, associate-driven groups that provide a collaborative platform for people, ideas, and thoughts to intersect and help address business challenges. Our associates decided that a business innovation group focused on our planet was appropriate and necessary for us to make meaningful progress on this initiative. As the labor market continues to heat up, we're focused more than ever on attracting and retaining talented associates. To that end, we have recently implemented new technology to expand our remote recruiting efforts and broaden our pool of qualified and diverse talent. Our hope is that this approach will only serve to improve our reputation as a great place to work, which we currently enjoy in cities across the country. Our consistent placement on the Best Places to Work list is a testament to the workplace culture we have at Jack Henry. And our employee engagement scores reflect that strong culture. I'm pleased to share that nearly two-thirds of our associates participated in our most recent engagement survey, and our average engagement score was 83%, well above the industry benchmark. Like most employers, we have spent a good bit of time in the past few weeks wrestling with decisions around the right timing and approach to move employees back to work in our Company facilities. We worked with our leadership teams earlier in the calendar year and determined that more than half of our workforce would continue to work remotely indefinitely. We had targeted July 1st as our return to office date for those who would be returning on a full-time or hybrid basis. But as the Delta variant surged, we reverted to our previous operating model with only essential employees in our offices every day. We have proven that we can operate effectively in a remote posture, and we will continue in that mode until we determine it is safe to make a change. As I referenced on the last earnings call, our long-time Chairman, Jack Prim, has retired as of the end of June. Jack had been with our Company for many years in various leadership roles, and as a Board Member and Chairman. As a result of Jack's retirement, we have announced two changes to the board. Curtis Campbell has joined the Board effective July 1st to fill the seat left vacant by Jack's departure. Curtis is President of Software for Blucora in Dallas. He brings extensive experience in infrastructure and cloud computing, as well as digital development and a keen focus on customer experience. I'm very excited to see what new perspectives Curtis brings to our Board in discussions. Also effective July 1st, I was elected to be the new Board Chair. I was humbled and honored by the confidence expressed by the other board members, and I look forward to leading the Jack Henry Board to even greater success. As I reflect back on fiscal 2021, I can confidently say it was a very good year for our Company. Our employee engagement scores remain very high, and we've made great strides with our diversity and inclusion initiatives. Our levels of customer engagement and customer satisfaction scores are also very high. We have successfully completed several leadership and board-level retirements and replacements. Our sales teams are performing extremely well and have positioned us for another successful year of selling. Overall demand for Jack Henry Technology Solutions remains high in all segments of our business. We have a commitment to doing the right thing for our constituents that we believe will continue to serve us well. We will continue with our disciplined approach to running the Company and expect that approach to help provide stability for our employees, customers, and shareholders. As we begin the new fiscal year, I continue to be very optimistic about the future. With that, I'll turn it over to Kevin for some detail on the numbers.

Thanks, Dave. Our service and support revenue line increased 6% in the fourth quarter of fiscal 2021 compared to the same quarter a year ago. As Dave mentioned, our deconversion fees for the quarter were pretty flat with last year's fourth quarter. However, for the full year, our deconversion fees were down 33.3 million for the full fiscal year compared to the prior year, which is actually the guidance that we provided a year ago on this call. Our service revenue's primary driver was our data processing hosting fees and our private cloud and public cloud offerings, which continued to show strong growth in the quarter compared to the previous year, growing by 7% for the quarter. However, the growth in this line slowed significantly due to product delivery in service revenue, which includes deconversion fees, license, hardware, implementation, and convert merge revenue, which only grew 2% compared to the prior-year quarter, which was obviously somewhat impacted by COVID. Our processing revenue increased 15% in the fourth quarter of fiscal 2021 compared to the same quarter last fiscal year. The increase was primarily driven by our higher card volumes from new customers installed last year and increased debit card and credit card usage from existing customers. Our Jack Henry digital revenue continues to show very strong growth as demand for our Banno digital platform continues to be strong, as Dave highlighted. Our total revenue was up 10% for the quarter compared to last year on both a GAAP and non-GAAP basis. So, excluding deconversion fees and divestitures, our non-GAAP grew 10% as well. For the full fiscal year, revenue was up 4% on a GAAP basis and 6% on a non-GAAP basis, again excluding deconversion fees and revenues from divestitures. Our cost of revenue was up 8% compared to last year's fourth quarter. The increase is primarily due to higher costs associated with our card processing and higher personnel costs compared to a year ago. Our research and development expense decreased 4% for the quarter of fiscal '21 over the prior-year quarter. The decrease was due primarily to a slightly higher percentage of costs being capitalized for product development this quarter compared to a year ago. Our SG&A expense increased 3% in the fourth quarter of fiscal '21 compared to the same quarter in the prior fiscal year. The increase is due primarily to increased personnel and professional services costs. Our reported consolidated operating margins increased nicely from 18.7 last year to 21.4 in the current year quarter. And on a non-GAAP basis, our operating margins expanded from 17.8% last year to 20.1% this year. Our Payments segment saw the nicest margin expansion in the quarter. After completing the payment platform migration in Q3, margins grew from 43% last year to 45% this year on a fourth-quarter on a GAAP basis, and on a non-GAAP basis, our Payments segment margins grew from 42.3 to 44.5, so over 200 basis points of margin expansion. Our core segment operating margin decreased slightly during the quarter compared to last year on both the GAAP and non-GAAP basis, while our Company's segment margins increased slightly on both a GAAP and non-GAAP basis. The effective tax rate for the fourth quarter of Fiscal '21 was down slightly to 19.7%, compared to 20% in the same quarter the year ago, primarily due to some state tax deductibility timing. Our net income grew 25% to 76.9 million for the fourth fiscal quarter, compared to 61.3 million last year, with earnings per share of $1.04 for the current quarter, compared to $0.80 last year, a $0.24 or 30% increase over the prior year. Our cash flow total amortization increased 3% for the fiscal year compared to last year, primarily due to capitalized projects being placed into service last year, including the total amortization and the amortization of intangibles related to acquisitions, which decreased to 17.7 million this fiscal year compared to 20.3 million last fiscal year. Depreciation is up slightly at less than 1% for the year compared to the prior fiscal year. During the year, we purchased 2.8 million shares of our Jack Henry stock to the treasury for 431.5 million. And we paid dividends of 133.8 million for a total return to shareholders of 565.3 million for the year. Our operating cash flow was 462.1 million for the year, which is down from 510.5 million last fiscal year. This decrease was primarily due to the timing of various operating assets and liabilities and timing. We invested 157.8 million back into our Company through Capex and capitalized software. Our free cash flow, which is operating cash flow less Capex and capital software, and adding magnetic proceeds from the disposal of assets, was 310.5 million for the year, which represents a 99.7% net income to free cash flow conversion. Yesterday's press release inadvertently omitted the proceeds from dispositions line of net cash from investing activities within the cash flow summary. The omission has been corrected in the version of the earnings press release filed yesterday on Form 8-K, and the version located on our website. A couple of comments on our balance sheet: our cash position of 51 million compared to 213 million a year ago, primarily down due to the significant stock repurchase we did. You may remember at the end of Q3, we had 200 million drawn down on a revolver. During Q4, we paid down 100 million of that balance. So at 06/30, we had $100 million on a revolver. We had no other long-term debt on our balance sheet other than operating leases. For the year, our return on average assets for the fiscal year was 13.1%. Our return on invested capital for the fiscal year was 21%. And our return on equity for the year was 21.7%. Yesterday, we provided both GAAP and non-GAAP revenue guidance in the press release for fiscal 2022. We also provided a reconciliation of GAAP and non-GAAP revenue guidance in the release following the segment information in the press release. Just to be clear, this guidance continues to assume that the country continues to open and the economy continues to improve, but if things were to go differently than this, then guidance will be revised. For GAAP revenue growth for fiscal '22, based on the amounts that were released yesterday, our revenue guidance is a range of 8.2% to 8.7% growth over fiscal '21 due to higher anticipated deconversion fees compared to FY '21. For non-GAAP revenue growth, we're guiding to an initial range of 7.5% to 8% growth for the fiscal year. These will obviously be updated during the year on future earnings calls. We do anticipate GAAP and non-GAAP operating margins to improve a little in FY '22 compared to last year as we should see nice margin expansion in our payments segment and anticipate higher deconversion fees. I am somewhat cautious on guiding to too much of an improvement in operating margin, as we will continue to have headwinds on the license revenue, as we continue to move core customers from on-prem to our private cloud. Also, travel costs continued to increase significantly compared to last year. At this time, we are still planning to host our Jack Henry Annual Conference and our Symitar Edu Conference in person this year. Thereafter, there will be some large costs returning this year compared to last year when there was very little travel. However, we do think that we will get at least 50 basis points of margin expansion in the fiscal year. Our effective tax rate for FY '22 is projected to be slightly higher at approximately 22.5% to 23% compared to our actual rate this year of 21.7. This is primarily due to the significant impact from equity awards that were deductible in FY '21. Our initial FY '22 GAAP EPS guidance is a range of 453 to 460, which is a 10% plus increase over our FY '21 finish. This concludes our opening comments. We're now ready to take questions.

Our first question comes from Vasu Govil with KBW.

Hi. Thanks for taking my question. And I wanted to congratulate David on becoming Chairman of the Board.

Thank you, Vasu.

I guess, just the first question to follow up on the margin commentary that you have provided, Kevin. I know that previously you had indicated about 100 basis points of margin expansion in fiscal '22 and potentially even some upside to that. Now, you seem to be indicating 50 basis points. So I guess, just wanted to understand what changed in your outlook versus what you were expecting before?

Well, I will tell you that the biggest change is the impact of COVID because, obviously, we had some really nice margin expansion this year with no travel-related costs. Obviously, there was also a decrease in revenue from converted merge revenue and other things. So there are a lot of offsetting things out there. And just to be clear, I feel like both our revenue GAAP or non-GAAP revenue grows from 7.5% to 8%. And our margin expansion of 50 basis points is both conservative.

Got it. Understood. And I guess the second question I had, I was just hoping if you could provide some color on growth expectations by segment for fiscal '22, particularly what you're expecting for the core and payments segment. I know with the core segment, do you expect sort of this improvement that we've seen on a non-GAAP basis to kind of continue into next year, and then payment segment everybody been quite strong and then is there room for further acceleration as some of the new wins on the card payments side start to flow in?

Yeah. So I mean, we saw some really nice margin expansion in the payments segment in Q4, we will see more in FY '22. There are still additional costs that will be coming out by the end of the first half of fiscal '22 in the payments segment. So I think there will still be some really nice margin expansion. And as we added additional customers, that will also expand the margins. And obviously, cards are still 60% of the payments segment.

Thank you very much.

Thank you.

Our next question comes from Peter Heckmann with D.A. Davidson.

Good morning, everyone.

Good morning, Pete.

In terms of thinking about the record sales in the fourth quarter, is there a way of thinking about total bookings on like TCV or ACV basis? In terms of thinking about a year-over-year increase, I think in the prior year, you had 43 competitive core takeaways. Of course, not all financial institutions are equal; they're quite variant in sizes. But given some of the difficulties over the last fiscal year, either way, thinking about the kind of percentage increase in overall bookings that might help us think about the outlook?

Yeah. When you have a sales organization or a sales quota, the size of our sales quota, a percentage increase of more than 5% per year is a very significant increase. And if I remember correctly, I don't think I have it exactly in front of me, but I think it was year-over-year. It was about 7% or 8%, somewhere in that range, year-over-year as far as sales bookings. Now, we know you know this well; we don't publish TCV numbers or anything like that, but that's a good way to think about how we measure quota and how quotas are assigned. So you can kind of use that logic in making some assumptions. So if we're talking about a 7% or 8%ish increase over the prior year as far as sales performance, that's a good way to think about it. Now the other thing I'll point out is when we assign quotas for the next year, meaning for the year we are in now, fiscal '22, our starting point is last year's performance, and then we normally apply somewhere between 3% and 5% quota increase over the top of what the performance was last year. So that's where the sales team is starting out this year is with a sales quota that is somewhere in the 3% to 5% range larger than it was their actual attainment for the prior year.

Got it. That is helpful. And then just thinking about the cadence of term fees, the guide for term fees, and the surprise with some of the uptick we've seen in M&A in the mid-tier space. But in terms of the cadence, Kevin, would you specifically call out some level for the first quarter or when you might think those might hit just in terms of trying to get the quarterly forecast correct?

Well, I mean, Peter, obviously, we've been hearing a lot about M&A activity, which obviously drives deconversion fees is. But we have not seen a lot of actual activity yet, so I think that's going to grow over the year. So I have a feeling that the bulk of the deconversion fees are probably going to be in the second half of the year.

Got it. Okay. Thank you.

Our next question comes from Dave Koning with Baird.

Hey, guys. Thank you, and nice job. And my first question, just when we think of kind of the wallet providers, that space, there are a lot of investors that are just concerned that that group is just going to take over the world and all bank accounts will move to that over time. But I guess a couple of things, are you seeing growth in your number of accounts? I don't know if you have some metrics on that, your total accounts. But also, is there any reason that the banks can't do exactly the same thing and provide all the same services, plus have FDIC insurance and all those things that make most consumers rather just have a bank account over time?

That's a great question, Dave. I’m actually speaking at a conference in February next year about this topic because bankers are starting to understand that with a solid digital platform and by leveraging open infrastructure like we have at Jack Henry, they can provide the same services as traditional banks while attracting customers, backed by FDIC insurance. There's a significant opportunity for bankers to meet the current consumer demand for these types of solutions. We're currently working with several banks on this, and part of my role is to educate them on what they can do and how to compete effectively. There are numerous opportunities for our clients and for Jack Henry, all based on an exceptional digital platform that integrates functionalities of Fintech. We have all these capabilities operational right now at Jack Henry, not something we're hoping for in the future. Regarding your question about customer growth, we can track it quite effectively, whether it's credit union members or banking customers. We're not only adding new customers but also increasing our share, which has led to a net gain in the number of customers we serve. Additionally, we're seeing same-store sales growth, particularly strong on the credit side, and this is true for both banking and credit union sectors.

Thank you for that update. It's encouraging to hear. Regarding the growth in payments, it seems to be quite strong. I assume the growth in debit transactions is coming from a relatively low starting point. How do you anticipate that growing throughout the year? I believe Q1 might still show a high growth rate due to easier comparisons, but do you expect the growth rate for the remainder of the year to be somewhat below double digits? Do you have any insights on that progression?

I think that's a good expectation. The other thing I'll highlight is we talk and Kevin emphasizes that 60% of our payments business is on the cards platform, but don't forget about the business we refer to as EPS, enterprise payment solutions. That's our merchant capturing and mobile capture business. That business has been growing nicely as well. So it's a much smaller piece of the segment, but it's growing rapidly. And I think you're going to continue to hear more about that business at Jack Henry as well. So both of those too. And I've said it on many earnings calls, the bill pay business is relatively flat for everybody. There's not a whole lot of new stuff happening in traditional bill pay. The card growth that you've seen, I think, in the high single-digits is a good expectation for the card growth, but it will be greater than that for the EPS business as far as what we're seeing right now because of the strength of that platform.

And Dave, remember it's not just debit. We now offer full-service credit as well because we could not offer that before we got moved over to the new platform. So our full-service credit is growing, basically, from a base of 0.

Yeah. Gotcha. Thanks, guys. Nice job.

Thanks.

Our next question comes from Kartik Mehta with Northcoast Research.

Hey. Good morning. Kevin, I just wanted to ask a little bit about the credit card platform conversion. Looks like that's going well. And you talked about a little bit more cost coming out of the payments business. I'm wondering in relation to what you anticipated for cost savings out of that platform, would you have achieved that or exceeded that? How would you characterize the cost savings from your platform?

Okay. So, Kartik, we completed the migration in Q3.

Right.

So we had all customers on the new platform, and sometime in April, we started decommissioning the four mainframes that supported the two platforms that we used to have. And I think those got completely decommissioned, I believe, by mid-July, if I remember right. But there are some other things that are going on here, Kartik. So there were some other tools that we have to keep the talent on to rewrite and get some additional tools in place, which will be done by the end of Q2. And so you'll see some additional costs coming out by then. So by Q3 of this year, we will see the full benefit of the cost takeout that we guided to three years ago.

Perfect. And Dave, I think you've talked about maybe core demand now increasing as people realize that COVID is still going on and some of the decisions they didn't make, they're making. How would you characterize core demand today? Is it increasing or is it back to normal?

I would say that it's back to normal. So normal for Jack Henry. So pre-pandemic, we were running at about one new competitive replacement per week. We're back to that level now. We did 15 last quarter; we did 13 this quarter. Everything that I'm seeing now would indicate that that's a pace that we can run at for a while. It's definitely leading the industry by far as new quarter replacements, and that's - that looks sustainable for us now.

And just one last question there. Have you seen any change in the competitive nature for these core renewals, maybe as the market gets back to a little bit normal?

For core renewals, what we've talked about in the past is that consultants are now engaged every time there's a renewal. So 10 years ago, it was rare to have a consultant involved in the renewals. Today, every single one of them has a consultant, and that's not just Jack Henry; it's in the industry. And how does the consultant justify their role? It's by ensuring that it's a very competitive process. So that's been going on. It started before the pandemic. It is definitely in place today, where every single renewal for all of us has a consultant engaged. They are encouraging a diligent review of pricing and all that kind of stuff. And so we know how to operate in that model and we're comfortable with what's happening.

Perfect. Thanks, Dave. I appreciate it.

You're welcome.

Our next question comes from John Davis with Raymond James.

Hey. Good morning, guys. Kevin, just a quick clarification around the margin. So you said 50 basis points. Just want to clarify, that's on a non-GAAP basis of expansion. And then to the follow-up there, I think our math suggests that the payments cut for migration would be about a 50 basis point benefit this year. So the right way to think about it is that incremental travel and other expenses kind of offset normal operating leverage with maybe a little bit of upside during the conservative comments.

And then, John, I noticed your comments about the EPS and your calculations on margins. Please keep in mind that our effective tax rate will increase from 21.7% to between 22.5% and 23%. So if you're only considering EPS, that will also have a slight negative effect, but we're still projecting EPS growth of over 10%.

Okay. And then you guys are guiding deconversion fees up about 70% year-over-year. Is that the right way to think about the increase in convert merge revenue? And then, anyway, you guys can give us an idea of what percentage of a normal year convert merge revenue is a percentage of your core segment revenue? Just trying to understand because I think that was one of the areas that were a little bit weaker than you expected this year. And just how we should think about that bounce back coming in '22.

There was a significant challenge due to a decline in convert merge revenue because there hasn't been any M&A activity. You're correct in noting that if deconversion revenue increases as we anticipate, our customers will purchase at a rate similar to those being acquired. This would not only boost convert merge revenue but also increase billed travel since we'll have more people traveling for these convert merges. In terms of total revenue, I can't recall the exact percentage, but it's not a large figure. However, we are talking about several million dollars in missing convert merge revenue, which represents a considerable margin business; it's actually our highest margin for implementations. Therefore, this not only mitigates the revenue headwinds but also enhances our overall operating margin.

And I will chime in here, Dom, on that topic. One of the things that are interesting in this business is when an existing customer is looking at acquiring another institution, whether it's a bank or credit union, we have a lot of visibility into that because they will contact us to say, we're working on this deal. We may not consummate the deal, but we're working on it, and we want to make sure that we have a conversion slot available. We have time on the Jack Henry calendar because we want to be able to do that as quickly after we close the deal as possible. So we have good visibility into the activity that's happening out there in the convert merger space. And I can tell you right now there is a lot of activity. So there's a lot in the press about M&A activity coming back, and we're certainly seeing it in the number of our customers who are coming to us saying, we're looking at acquiring another institution, we want to make sure you guys are ready to help us. So we can't exactly predict when those things are going to happen, but the activity levels are definitely back.

Okay. And then last one for me. Kevin, anything to call out from sequential cadence this year on the revenue side? Where margins are? Should we just basically look at two years to your CAGRs on the top line? And maybe remind us when your in-person conferences are in those expenses and which quarters those will be in. Thanks, guys.

That's a great question, John. I was actually thinking about that on my way here this morning. The main point is that we've been adhering to ASC 606 for four years now, so our growth pattern should remain consistent. We expect Q1 to be particularly strong due to the software subscription revenue we recognize in that quarter. It will naturally taper off a bit in Q2, but then we anticipate growth in Q3 and Q4. Regarding our user conference, we have a combined conference scheduled for October, which will impact Q2.

Okay. I appreciate you guys. Thanks.

Yeah. Thanks, John.

Our next question comes from Dominick Gabriele with Oppenheimer.

Good morning. Thank you for answering my questions. The sales pipeline looks significantly improved, ranging from 7% to 8%, compared to your usual quota increase of 3% to 5%. Can we discuss what is contributing to this change? Is it the result of acquiring a few large clients, or perhaps some pent-up demand that has recently emerged? Could you share some insights on the factors at play here? I would greatly appreciate it. Thank you.

Sure. To clarify, when I mentioned the 7% to 8%, I was referring to actual performance compared to the previous year. Pipeline, in my terms, means the opportunities we are currently working on that may close in the future, rather than quota attainment, which pertains to deals that have already been finalized with our customers. To address your question specifically, no, this increase is not due to just a few large clients. We have a wide range of solutions that we are selling to a diverse list of customers. The significant core success we've experienced this year has contributed to this, highlighted by the 219 new Banno digital customers we signed, which is becoming a key driver for our growth moving forward. Additionally, we have various other solutions like treasury management and the payment platforms we've established, including the EPS platform, which is generating interest as a payments solution for our clients. While discussing pent-up demand is complex, especially since sales were uneven during the peak of COVID, it’s important to note that over the past year we didn’t experience a sales slowdown, though the sales were irregular. Thus, I hesitate to describe it as pent-up demand. We're seeing new customers coming to Jack Henry, who have not previously engaged with us, thanks to our extensive suite of solutions and the innovative technology we provide. I mentioned in my opening comments the impressive work our Symitar team achieved with database migration and the creation of a completely new database, along with enhancements our lending team has rolled out this year, and the initiatives from our digital team, including the PayCenter platform that enables real-time payments via our newly developed payment system. All these factors combined contributed to a very successful sales year.

It is definitely no question arguing with the awesome sales wins numbers. And then maybe just one more. When you talk about the revenue and margin guidance being conservative, can you maybe walk through some of the puts and takes of that commentary? And you went over this a little bit. But when you think about beating the 50 basis points margin expansion, does that really coincide with you beating your revenue guidance? And perhaps what kind of investments do you think you could see where, even if you beat on the revenue guidance, there are some additional investments you'd like to make that might just keep you around that 50 basis points overall for margin expansion for the year? Thank you.

That's a good question. To beat the guidance we gave for non-GAAP revenue, it would mean that we would have some continued implementation of movements from some of our card customers. So moving some large debit customers over, the continued success in our credit card platform processing, MA activity, which would drive the convert merge revenue and billable travel that we talked about earlier. And then just meeting obviously the continued movement of moving out on-prem customers into our private cloud could also help our margins. So there are several different drivers that could cause us to beat that non-GAAP revenue guidance. And from what I'm seeing, I think that's probably going to happen. But I'm not willing to step on that limb and say how much at this point. And every one of those things I just mentioned can also help to improve margin. As far as investments, I mean, we just finished our budget, and I don't know that even if we beat revenue guidance, I don't know that there are any big investments out there that we need to make, that we're not already making, either from a cap software development or from Capex that’s not already in the budget, which is part of that guidance.

Really great. Thanks so much for taking on my questions.

You bet.

Our next question comes from Ken Suchoski with Autonomous Research.

Hi, good morning, David and Kevin. Thanks for taking the question. I just want to ask about Banno since you had some really strong results there. I believe Banno is no longer restricted to the core basis year. So I was hoping you could talk about how you expect Banno growth to trend now that that offering is open to the rest of the market. And what's the size of that business today? You mentioned I think it's 5.6 million users. I mean, what type of revenue does Banno contribute?

To clarify, we will begin selling Banno outside our existing customer base in 2022, not this year. This year, our main focus for the Banno group is enhancing the Banno business, specifically by delivering the same consumer functionality to the business side of our solution in the coming months. Next year, we will start reaching customers outside our core base. As I have mentioned before, most banks and credit unions in the U.S., not just our core customers, have separate internet and mobile banking services, which leads to different user experiences. Consumers today expect a seamless experience regardless of the device they are using, whether it's a phone, tablet, or PC. This creates opportunities for us both within and beyond our current client base. Many institutions will upgrade their digital services over the next few years, and we intend to support this with Banno starting next year. Regarding the size of the business, we do not currently categorize it as a separate segment, although we may consider that in the future. We have 5.6 million users, and while there are some comparable companies in the market, we generally believe that their revenue per user can be applied to Jack Henry as well. It's important to note that our digital business, like all our divisions, is held to the same standards for profitability and operational results. The Banno business is performing well, continuing to grow based on the current demand and our existing backlog of installations, and is expected to produce strong operational results for our company.

Just one more thing in there. So when we talk about digital, that's not just Banno; that includes a lot of different things, which includes our predecessor NetTeller solution, which we still have several hundred financial institutions on our NetTeller solution and using our goDough mobile solution. A lot of those will never move to Banno. But when we talk about digital, we're talking about all of that, and Geezeo, and Molson, which is open anywhere, which are some of the acquisitions we've done the last three years. So the term digital encompasses quite a few different products and offerings.

Yeah. That's really helpful. The very detailed answer there. Appreciate that. And I know you guys aren't giving guidance for fiscal year '23, but there's a lot of moving parts at the margin in terms of things opening up; you have the platform migration. But once that platform migration, I guess, is behind you, what's the right way to think about margins or margin expansion after fiscal year '22? Just because when I look at your numbers, I mean, Jack Henry had a, call it a roughly, 24.5% operating margin in fiscal year '17. I mean, is that a good benchmark for fiscal year '23?

It depends on which numbers you're considering for 2017. If you are looking at the restated figures after ASC 606 or the previous numbers, the implementation of ASC 606 did affect our margins. I would respond this way: I feel fairly confident that after we navigate through fiscal year 22, despite the many uncertainties with COVID and other factors, we can return to our usual margin expansion of 50 to 100 basis points starting in fiscal year 23 as we get everything back on track this year.

That's really helpful. As you consider new sales and their projected trend with the reopening of the economy, the pipeline is quite strong. I'm curious if you anticipate that accelerating once you can meet with your customers in person again.

Yeah. I don't expect that you're going to see some great big pop in sales. I mean, as I said before, our quota is a very large number today. And so if you're growing it 3% to 5% year-over-year on a very large sales number, that sets the Company up pretty well because we're such a high concentration of recurring revenue. So you assume that the recurring revenue is continuing to percolate and you're layering revenue on top of it, and you're growing a sales quarter at 3% to 5% per year over the prior-year performance. That's a pretty solid model, so I'm happy with that model. Don't expect that we're going to see some great big pop in sales in the coming year; I think the performance will continue to be solid and consistent.

Okay. That's really helpful. Thanks a lot, David and Kevin, really appreciate it.

Good.

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

Yes. Good morning. This is Dan. I have a quick question. With the payment platform conversion completed, are there any significant solutions remaining that need to be transitioned to the open architecture? Additionally, with theoretical solutions on an open architecture, does that impact the accounting process regarding software capitalization, timing, or depreciation and amortization, or the income statement components of capital expenditures?

I'll take the first part of your question, and Kevin can address any of the hard financial questions. First, we have about 300 different solutions, some of which are fully on an open platform, while others are in various stages of development, and some no longer make sense to transition. For instance, we have an older payroll solution that was once successful, but we haven't sold a copy in 20 years, so it wouldn't be logical to invest in re-platforming it. Considering the broad suite of solutions we offer, it isn't feasible to move everything to a new platform. However, our high-demand solutions are either already operating in an open environment or in the process of transitioning. Many have been moved to public cloud offerings, as we are using both Azure and AWS for some of our solutions, along with several in our private cloud. Due to the diverse range of products we have, it naturally results in a variety of platforms. For the key solutions supporting open connectivity or open infrastructure, we are making good progress. Now I'll let you handle the more complex aspects, Kevin.

So if you look at our performance over the last 10 years, our total research and development spending, including R&D expense on the profit and loss statement and capitalized software on the cash-flow statement, has consistently been 14% of our revenue. This indicates that our total R&D expenditures have grown in line with our top-line revenue over the last decade, and I don’t anticipate this changing. We maintain our approach and do not implement large-scale production changes; instead, we focus on shorter sprints to roll out modules quickly and introduce additional features. Therefore, you won’t see a significant spike in software amortization in any single year; it will increase gradually. Currently, about 85% to 86% of our total capitalized software on the balance sheet is in production and being amortized, which has remained steady over the past few years. This suggests that while we continue to develop and release software, some products will have their amortizations completed in five years. Thus, we will not undertake any drastic actions in the near future that would significantly affect cash flow or the profit and loss statement beyond what has occurred in recent years.

Okay. Thank you very much.

You bet.

That concludes today's question and answer session. I would like to turn the call back to Kevin Williams for closing remarks.

Thank you. And thank you all again for joining us. We continue to be very pleased with the overall results of our ongoing operations. I do want to thank all of our associates for the way they've handled these challenges by taking care of themselves and our customers and continuing 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. Thank you again for joining us. And Liz, would you please provide the replay number so it's in the transcript?

The replay of this call will be available until 11:59 PM Eastern Time, August 25th, 2021. Thank you, and have a great day.