Good morning, and welcome to the Jack Henry First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President of Investor Relations. Please go ahead.

Thank you, Vance. Good morning, and thank you for joining the Jack Henry first quarter fiscal 2025 earnings call. Today, I'm joined by President and CEO, Greg Adelson; and CFO and Treasurer, Mimi Carsley. Following my opening remarks, Greg will share his insights on the first quarter of our fiscal year and provide observations on our business and the industry. Mimi will then discuss the financial results and full year guidance outlined in yesterday's press release, which is available in the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session. Please note that this call includes forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The Company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements refer to yesterday's press release and the Risk Factors and forward-looking statements sections in our 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release. Now, I will hand the call over to Greg.

Thank you, Vance. Good morning, and I appreciate each of you joining this morning's call. I'm pleased to report overall solid financial performance results in the first quarter of our fiscal year 2025. I'd like to begin by thanking our associates for their hard work and commitment to our success by doing whatever it takes and doing the right thing for our clients. As I introduced in my script last quarter, I will share three main takeaways from the quarter and then we'll provide additional detail about our overall business. First, our financial performance. We exceeded our first quarter outlook. We had non-GAAP revenue growth of 5.3% in Q1, slightly ahead of the 5.25% anticipated in August. As we indicated in August, Q1 revenue and margins were impacted by slower growth rates for on-premise annual maintenance and card processing. Additionally, several long-term software usage contracts closed in Q1 of last year, creating a difficult comparison for this quarter. We remain confident in our full year non-GAAP revenue guidance of 7% to 8%. We provided commentary in August that non-GAAP margin would see contraction of 100 basis points. We ended the quarter with only 89 basis points of contraction. Second, our sales performance. After a record Q4 for our sales team, we continued the positive momentum with record sales attainment in Q1 that included six competitive core wins. Of the six, three were financial institutions with over $1 billion in assets, including one $7 billion asset win. We also closed six deals to move existing clients from in-house processing to our private cloud. Third, our client conference. We had a very successful Jack Henry Connect conference last month in Phoenix with nearly 2,600 clients and prospects in attendance. This is our largest conference of the year and produces a significant number of sales leads. Last year, 17 of our new core wins were from prospects that attended the conference. Now for more detail on our overall business. During the quarter, we were proud to be included in several national Best Places to Work rankings. We placed 16th on Newsweek's list of top 200 most loved workplaces, marking our third consecutive year ranked in the top 20. We also made Newsweek's Most Admired Workplaces list, earning five stars, which is the highest possible rating. Additionally, we ranked number 11 in IDC's 2024 FinTech rankings based on annual revenue, representing our 16th consecutive year on that list. We are honored to receive these national recognitions as they reflect our people-first culture, commitment to exceptional service, and success in delivering innovative technology that empowers community and regional financial institutions. Our Payments segment continued to perform well. We signed four new debit processing clients and three new credit clients in the quarter. We now have 324 clients on the Zelle platform, 326 clients using RTP, representing approximately 43% of the live RTP clients, and 290 clients using FedNow, representing approximately 36% of the live FedNow clients. In our Complementary segment, we signed seven new Financial Crimes Defender contracts in the quarter. In addition, we signed 26 new contracts for the Financial Crimes Defender faster payment fraud module, a real-time solution designed to help mitigate fraud in Zelle, FedNow, and RTP transactions. We have installed 83 Financial Crimes Defender customers and have another 94 in various stages of implementation. We also have 37 faster payment modules installed and 133 in various stages of implementation. Continuing with our Complementary segment, we continue to see strong success with our Banno digital solution. For the quarter, we signed 12 new clients to the Banno retail platform as well as 18 new Banno Business deals. We currently have more than 950 Banno retail clients with over 180 live with Banno Business. We finished the quarter with 12.7 million registered users on the Banno platform. At the end of Q1 last year, we had 10.5 million registered users, a 20% increase over the past 12 months. Each year, we sponsor two technology surveys. We conduct the Jack Henry strategy benchmark in mid-January through early February, and this only goes to Jack Henry clients. We also co-sponsor a survey with Bank Director, and the results from their mid-June to early July technology prioritization and spending questions were published in September. In the Bank Director survey, 75% of the respondents reported an increase in their bank technologies budget for fiscal year 2024. Their top technology objectives are to improve operational efficiency, attract and retain customers, and increase deposits. Those results are consistent with findings from our strategy benchmark published last spring. In that survey, 80% of our own clients said they plan to increase technology spending over the next two years, with their top priorities being growing deposits, increasing operational efficiency, and growing loans. Although the two surveys were conducted six months apart, they yield very similar results around planned technology spending and key priorities. As I mentioned earlier, Jack Henry Connect was a tremendous success, and we received rave reviews from our clients, prospects, and industry consultants that attended the event. Along with the more than 2,400 clients in attendance, we hosted 130 prospect attendees from 50 financial institutions. Our technology showcase included 250 third-party fintechs, with most being competitors, which underscores our philosophy to be an open technology provider. Our vendor exit survey indicated 99% of these fintechs want to exhibit again at our conference in 2025. The conference agenda was robust and anchored by the significant progress we made on our technology modernization initiative. We continue to execute the strategy of breaking out key components of the core and building them on a cloud-native API-first platform, The Jack Henry platform. We are live with domestic wires, international wires, data broker, and entitlement. We are in beta testing with both exception processing and general ledger. We remain on track to deliver a digital retail and commercial deposit-only core during calendar year 2026. I will continue to provide more details on our progress throughout the year. As we've done in prior years at the Jack Henry Connect, we held our annual CEO forum, which was attended by 185 CEOs, a new record for us. The general feedback throughout the meeting suggested that attendees are less concerned about the overall economy in the last year, and they continue to invest in technology to enhance digital capabilities, improve efficiencies, and modernize their businesses. The CEO agenda was well received by both clients and prospects, including the demonstration of our recently announced SMB solution with Moov. As mentioned at Investor Day, we remain on track to deliver this unique solution to Banno early adopter clients in May of 2025. This solution will be sold through our banks and credit unions to capture more and higher-value deposits while positioning the financial institution at the center of the relationship with their SMB customers. The SMB will benefit from eight daily settlement windows, tap-to-pay capabilities for both iOS and Android devices, one-click enrollment and approval, and continuous accounting reconciliation. In closing, we hold our Annual Shareholder Meeting next week in Monett, Missouri. We will also offer a webcast viewing option for observers to watch remotely. I remain extremely optimistic about the demand environment based on the recent surveys I referenced and our pipeline returning to an all-time high. Furthermore, we continue to hear positive feedback from our clients, prospects, and industry consultants regarding our key differentiators of culture, exceptional service, and innovative technology. These strengths, along with our proven track record of execution, will continue to drive positive results and position us well for the future. With that, I'll turn it over to Mimi for more specifics on our financials.

Thank you, Greg, and good morning, everyone. Our continued focus on culture, service, and innovation while supporting our community and regional financial institution clients led to another quarter of solid revenue and earnings growth and a healthy start to our fiscal year. I will cover the details behind our first quarter results and then conclude with commentary on the second quarter outlook and our fiscal '25 guidance. Q1 GAAP and non-GAAP revenue increased 5%, consistent with our expectations and providing the base for achieving our full-year guidance. Quarterly deconversion revenue of approximately $4 million, which we released prior to full earnings, was largely flat with the same period last year, reflecting minimal consolidation of our clients. This is also consistent with our expectations. Now, taking a closer look at the details. GAAP and non-GAAP services and support revenue increased 4%. Data processing and hosting continue to be significant drivers of services and support revenue growth. Lower license and hardware revenues compared with the prior year moderated services and support revenue. Our private and public cloud offerings increased over 11% in the quarter, reflecting strong persistent growth. This reoccurring revenue contributor is 30% of our total revenue and has long been a key double-digit growth engine. Shifting to processing revenue, which is 41% of total revenue and another significant contributor for our long-term growth model, we saw strong performance with 7% growth on both a GAAP and non-GAAP basis for the quarter. Continuing long-term trend, quarterly drivers include increased card, digital, and payment processing revenue. Completing commentary on revenue, I would highlight quarterly total reoccurring revenue was 93%. Quarterly enterprise fee revenue was 71% of total revenue and grew at 9%. Excluding hardware, non-key revenue grew 1%. Next, moving to expenses, beginning with the cost of revenue, which increased 6% on both the GAAP and non-GAAP basis for the quarter. Drivers for the quarter included higher direct costs, increased personnel costs, internal license, and amortization. For clarification and to assist with models, the amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense increased 8% on both the GAAP and non-GAAP basis for the quarter. The quarterly increase was primarily related to personnel costs. Ending with SG&A expense for the quarter on a GAAP basis, SG&A decreased over 15% versus the prior year related to last year's one-time needed cost. SG&A increased 7% on a non-GAAP basis. We remain focused on generating annually compounding margin expansion. While the quarterly results delivered an 89-basis point decrease in non-GAAP margins to 25%, we remain confident in our ability to deliver full-year margin expansion consistent with our full-year guidance. These solid quarterly results produced a fully diluted GAAP earnings per share of $1.63, up 17%. This was partially driven by the expenses in Q1 of fiscal '24 that were nonrecurring. Reviewing the three operating segments, we are pleased by positive performance across the board. Our Core segment revenue increased 5% for the quarter on a non-GAAP basis against a tough comparison. For the segment, key revenue was 62% of total segment quarterly revenue with tremendous growth of 12%. Non-key revenues, primarily on-premise annual maintenance, decreased 4%. Non-GAAP operating margin decreased 84 basis points. Margins were impacted by software usage and headcount associated with the implementation. Payments segment quarterly revenue increased 6% on a non-GAAP basis. The segment again had impressive non-GAAP operating margin growth of 103 basis points. Revenue growth was due to continued growth in our card-related risk management solutions and strong growth from faster payments. Margins benefited from lower cost of revenue and card network incentives. Finally, complementary segment. Quarterly non-GAAP revenue growth increased 7% from a strong product mix with hosting and digital being a consistent driver. Segment margin contracted 45 basis points, primarily due to amortization, licensee fees, and direct support costs, partially offset by the growth in hosting and digital revenue. Now let's turn to a review of cash flow and capital allocation. First-quarter operating cash flow was $117 million, a $40 million decrease over the prior period, reflecting a timing shift, higher annual maintenance collections in Q4 last year than the historical norm. Trailing 12 months free cash flow was $289 million, resulting in a 72% conversion. Our consistent dedication to value creation resulted in a trailing 12-month return on invested capital of 20%. Heading into the second quarter, I will conclude with comments on quarterly cadence and full-year guidance metrics. As you're aware, yesterday's press release included fiscal 2025 full-year GAAP guidance along with a reconciliation to our non-GAAP guidance metrics, all of which are reiterated. While the press release also included fiscal '25 non-GAAP EPS metrics, this is not intended to be a new guidance center. The purpose is to provide additional clarity on our numbers, and it should be noted that a 24% tax rate is used. All of the current fiscal year guidance metrics are in line with our near-term target as business operations remain healthy and consistent. Our outlook for financial performance remains upbeat, with the pace of fiscal 2025 non-GAAP revenue margin on track to increase sequentially throughout the year. This accelerating cadence will result in a strong second half that will be more pronounced and difficult. Consequently, Q2 expectations for non-GAAP revenue growth is approximately 6% with non-GAAP margins flat to slightly down. The rest of the year is expected to improve strongly, resulting in full-year guidance remaining consistent with our longer-term target. As a reminder, we see fluctuations in quarterly results relating to software's usage license component along with the timing of implementation. Therefore, the correct indicator of our business is the consistently strong fiscal year financial results. In conclusion, Q1 was consistent with our expectations and sets us up to achieve a full year that is consistent with our stated long-term targets. We remain focused on delivering long-term profitable growth at scale through compounding revenue growth and margin expansion. We appreciate the efforts of our more than 7,100 dedicated associates that drove these strong results and our investors for their ongoing confidence. Vance, will you please open the line for questions?

We will now begin the question-and-answer session. And the first question comes from Andrew Schmidt with Citi. Please go ahead.

If I could just drill down on the core revenue growth for a moment. Maybe just unpack the first quarter performance a little bit. I know you managed for the full year, so I don't want to get too caught up on the first quarter performance. But maybe just a few more details on how core performed in the first quarter? And then as the year progresses, can you talk about the trajectory we should expect there and the drivers as the year progresses?

So, I'll start off with the Core attainment because that could be a combination of what you're doing, and I'll let Mimi talk about the specifics on the revenue. So, six core wins. I will tell you that there were a couple of pushes that we had due to the hurricane and we had a few deals that we anticipated would have closed in the first quarter that got pushed to the second quarter. So, we didn't lose them. They just were timing. And obviously, we're not going to push people to try to sign a contract during those types of challenges. So that's part of it. But honestly, the exciting part that we highlighted was that we continue to win the multibillion-dollar opportunities, including the $7 billion. We have several others that we expect to come to fruition as well. So that part of, I think, the potential part of your question is on the sales side, and I'll let Mimi handle the revenue component.

So as Greg alluded just now, demand remains strongly intact and solid and you should expect that as the year goes on across all of the segments, in particular to your question around Core. We're going to continue to see the key growth strong with the installation of prior year sales. And so, we expect, similar to how you called it out in your note that Q1 will be the floor for revenue growth with subsequent acceleration as the year progresses. So, nothing particular to call out from a cadence perspective. I just think you're going to see a very strong second half.

Yes. And I think one other point, Andrew, and really for everybody else is I think it does point out that we still had a record quarter. So, if you look at our complementary products and the things that we're doing tangentially to just core wins, having a record quarter even with six core wins, which, again, we typically see Q1 being light for us anyway, coming off of the 20-or-so that we won in Q4 of last year. But the reality is, it really was pushes that happened from the hurricane, or it would have been a fairly normal first quarter.

Got it. Yes, that makes sense. It's good to see the balance in the bookings there with the record sales quarter. Maybe just in the wake of the election, could you just remind us how Jack Henry is impacted by consolidation from an underlying revenue growth perspective? And then whether this cycle should be any different than what we've seen historically?

So again, I'll start, and Mimi can add on. I think there's a couple of things. So, one, what is baked into '25, I don't think the election results will change much of what we have baked for '25. Knowing, obviously, we have a President that we've seen before. So, we know a little bit more of his playbook and what we should expect related to regulatory, hopefully, some improvement in the timing of M&A. But for our institutions, we do have several already lined up with acquisitions that will be happening in the second half of our year and '25 that are already baked into the number. If something else accelerates, then obviously, that would be additional gravy for us. But we've already added, and I think we mentioned this on the last call, we've already added additional conversion teams and migration teams for both banking and credit unions based on the feedback that we've gotten from our clients. And of course, we get knowledge of deals that are going to happen very early on so they can't get those slots. And so, we're working through that. But we'll see what happens. I think the regulatory challenges that we see today, hopefully, there's some lessening of that. And then obviously, the approach that they've taken in the past regime on really slowing down M&A and the timing of getting approvals, we would hope and expect that, that would enhance. And again, the more we're winning and the more we're growing asset sizes with our own institutions, which we've been articulating the 27% bank growth over the last four years and 34% credit union growth over the last four years, that continues to position us and more of the drivers in a lot of these opportunities.

Yes. I think spot on, Greg. The only thing I would add is given last year and the guidance for this year for deconversion revenue, it's hard to imagine that essentially next year, you don't see the impact to M&A leading to higher deconversion revenue. But again, as we said, you never know, that's really hard to forecast. And it really depends on the institution and where they are on their renewal cycle. But I would not bake in anything else for this year given the timing of the turnover of the new administration.

Next question comes from Vasu Govil with KBW. Please go ahead.

I guess first one for you, Greg. I wanted to ask about the Banno retail win. I think you said 12 new wins in the quarter, which is a good number, but if I look back, it's probably one of the slowest we've seen in the last several quarters. Just anything to call out there, anything timing related like you talked about the core? And then I know you have identified third-party cores also to sell Banno into? Just how is that effort going and any color around that?

Yes, that's a good question. There are no concerns about the number of wins. The timing is a significant factor. Many Banno deals are currently tied to Core wins. We are continuing to transition customers from the old platform and are preparing to announce the sunsetting of the NetTeller platform, which will help to accelerate some deals that have been slower to progress. Overall, there are no concerns on that front, and achieving 18 Banno Business is consistent with our performance last year. I expect the fourth quarter to be a strong sales period for us. When comparing to the first quarter of last year, our performance is fairly aligned. This primarily pertains to Banno rather than our other products being offered outside the base. We've encountered challenges with some competitors who aren't as open as they claim. We’re attempting to navigate through the timing and costs they want to impose on us. As a result, we are reassessing our approach. While I don’t want to disclose too many details to avoid informing our competitors, we have found an alternative method that bypasses typical integration points, particularly for the Banno platform, which has numerous API integrations that complicate this process. We plan to leverage some of our strategies with Moov to provide solutions outside the base, running parallel to our other initiatives. There’s no significant change in our strategy, just a slight adjustment in our productivity and success expectations by the end of this fiscal year. We will share more updates soon, but I believe this new approach will prove more effective for us.

Great. And a quick question for you, Mimi. Is there any update on the 65% guidance for free cash flow conversion that you provided last quarter? Anything to note regarding changes?

So, I feel comfortable with the guide remaining intact at the 65 to 75. There were a couple of people that noted Q1 at 50% cash flow. And I would just remind everyone that the annual, the trailing 12 months is a better indicator of the free cash flow because there are times, particularly Q4 to Q1, and the timing of the payments related to the annual maintenance. And as I called out on last quarter's call, Q4 benefited about $60 million from a higher mix being paid in Q4 to this Q1. So, if you think about that Q1 50%, it really is closer to the 100% like we've seen in prior year Q1. But I think the 72% should give everyone comfort that we are well within that full-year guidance range.

The next question comes from Rayna Kumar with Oppenheimer. Please go ahead.

So, one of your competitors recently called out a competitive win of less than a $10 billion asset bank. I'm just wondering, if you're seeing any increased competition for banks and credit unions in core processing in your focus area?

No, we have always competed with that particular company in that space, and we don't win them all. We win a lot more than anyone else, but we certainly don't win all of them. However, from a competitive pressure standpoint, there's no issue. I understand what happened with that particular deal, and there was a significant price difference. Still, we are continuing to be very successful in that space, including the $7 billion opportunity we just won, along with many renewals we’ve secured over the last 18 months with our larger client bases. So, there are no concerns at this point.

Understood. That's very helpful. The economy seems to be showing more resilience evidenced by recent earnings reports from other payment companies. Do you think if this macro environment persists, there could be upside to your 25 to 40 basis point margin expansion target for this fiscal year?

Yes. I think at this point, it's probably a little too early to say for us because we're just closing our first quarter. We do already have a pretty substantial second half planned that reflects robust growth. But yes, particularly in the area of transaction and card volumes, we anticipate a growing spending in the spring, but there is always an upside the economy and consumer sentiment is stronger.

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

I just wanted to start on the second half revenue growth outlook and definitely appreciate the priority on Q2 to get our models tuned. I guess you got to be at around 9% in the second half to get to the midpoint of the full year, and you talked about implementation cadence. But can you maybe just go a layer deeper into the visibility you have, factors that are going to drive that acceleration, and just clarify which revenue lines that's going to be most pronounced in? It sounds like a lot of it is Core, but just wanted to check in on that.

Great question, Jason. Let me give you a little bit more color on some of the drivers that make us feel quite confident for the second half of the year. So first, I would call out the Hardware last year was quite strong. That's a harder comparison in the first half of this year than in the second half. So, the first half this year Hardware is about a $7 million drag impact that eases up a little bit in the second half of the year. We expect cloud revenue, the record growth to continue. The impact is of new sales impact. We see strong growth in the faster payment transaction, and we're starting to see more traction. So, I think that's another opportunity in the second half. Card is, as I just said, we expect this spring to pick up a little bit, and we do have a lower Q4 comparison. And then I think just as new products continue to ramp, things like Defender accelerating, we're running implementations, consulting revenue transactions, and then overall digital adoption tied to the F&B strategy. So, the impact of all that plus the implementation for all the prior year sales success coming on board gives us confidence in the second half.

Okay. And just talking about Core wins for a second. I think you mentioned six in the quarter. I know it's a typical year; you target 50 to 55. It's still early. We know this is never ratable. It's usually lumpy by quarter. And I think you said a couple of deals slipped because of the hurricanes, but I wanted to just check in on overall pipeline confidence and visibility. And the 50 to 55 is still a reasonable target for this fiscal year based on how you see the pipeline converting over the next few quarters?

It is. And again, we're still tracking well. Last year, we did the 15, more than $1 billion. And we're tracking again nicely with that. We're already having three in the first quarter, which again is a typically lighter quarter for us. And not just a $1 billion deal; one of them was a $7 billion deal. So, absolutely on track and the pipeline is as robust as it's ever been. It's at an all-time high again even after the record Q4 and year and record Q1. So, feel very confident in the team's ability to go hit our normal numbers.

The next question comes from Will Nance with Goldman Sachs. Please go ahead.

It's encouraging to see the confidence regarding the acceleration in the second half. It seems that most of this relates to implementation challenges and tough comparisons from last year. There may be slightly more favorable comparisons in payments during the latter part of the year. However, looking at the overall picture, as you approach the end of the year with a stronger growth rate, aside from the eased comparisons in payments, is there anything about the growth rate in the second half that we should be cautious about as we move into the first half of the next year? I'm not asking for specific guidance, but I'm interested in understanding whether this growth rate is sustainable considering the implementation schedule for the upcoming quarters.

I appreciate your question, Will. I would say FY '26 is a little bit far away to give a cadence deal yet. And as we said, I wouldn't recommend taking any one quarter and annualizing that. So, I think as we get a little closer, we'll certainly get a feel. But I think there are some things with new products, the sales implementation, faster payment adoption, cloud growth that are a continuation and not just kind of a one-time like some of the growth over ease it will be.

Yes. And the only thing I'll add to that, Will, is just as much as we described at the Investor Day, our goal is to continue to inch up to the levels of closer to the 8% with all the things we're doing, we're hoping and believing that that is going to get us there. But the Moov piece will just have been launched at the end of the year and seeing the level of success there, much as Mimi said, with a lot of the new products and continued implementations and getting through some of the queues that we have. And obviously, even in some of the things that we've been able to get launched in tech modernization, things around data broker and all that. So much time still needs to take place before we feel confident with giving you any more additional guidance. But the reality is we have all the things in motion, and we do have an all-time sales pipeline to go make it happen.

Yes. I would say we're steadfast in our prioritization from a capital allocation perspective, we're continuing to invest in our future growth through innovation. We continue to support our long-standing dividend policy. We paid down the debt. We're continuing to pay down the debt throughout the year. And as we start to build into a more positive cash flow position post paying down that debt, we'll always continue to look at share repurchases as an option. And M&A is always on the table. It's just there hasn't been any interesting process over the last several quarters. So hopefully, if people think between the interest rates coming down and M&A being more conducive, hopefully, there'll be some interesting prospects. But again, that would have to be not only financially attractive; it would be an acceleration to our tech roadmap journey.

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

So, I guess, I was just curious if there was any change in the expected pace on deemphasizing some of the lower growth, less profitable businesses? You touched a little bit on it earlier in the call, but if you could give some extra color there?

Yes, that's a great question, and I appreciate you bringing it up. We are definitely focused on this area. As we've discussed at Investor Day and in various meetings, the product rationalization process will take several years to fully realize. We are investigating potential opportunities for small business divestitures, which we mentioned previously. Some products we have announced will be phased out, which typically takes about two years. This transition will enable us to shift customers to more profitable and advancing products like Banno and Yellow Hammer for Financial Crimes. However, there are additional initiatives that will require more time and careful consideration, but this remains a priority. We recently had our strategy meeting, and it continues to be a key focus for our dedicated team.

It's unlikely that you'll see a significant increase in revenue in any single quarter. We're planning to implement various strategies, such as sunsetting products, increasing cash flow, or even considering divestitures. Therefore, I don't think these efforts will coincide in a way that significantly affects one particular quarter. However, over time, you'll notice that the impact of the non-key revenue will lessen and become less of a hindrance to our overall performance.

Based on our analyses, it's also going to assist us with some of the technological modernization in the shared services sector as well as with cost containment and expense control, contributing to our focus on continued margin expansion. All of these factors will support both our revenue growth and margin improvement.

Do you have any insight from your clients regarding whether they were delaying certain tech investments until they identified a clear winner? Additionally, do you believe there is additional tech spending they may pursue that might not have been included in the budget growth mentioned in your surveys?

Honestly, I don't have an answer to that right now, mainly because we have been very straightforward and received positive feedback on what our clients want to pursue, which aligns well regardless of who is in the White House. There could be opportunities emerging from the M&A landscape, where companies might consider acquisitions, leading to new products being expedited due to specific decisions made by banks. However, based on the information we have today and the feedback we received at our CEO forum just a month ago, I don’t see that happening at this time.

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

Greg, I just wanted to see with JH&A Investor Conference Connect, how much of a priority or how much emphasis are you putting on the modern core modular platform? And how is that resonating with clients? And is it your sense that some of these multibillion-dollar institutions are really looking for a vendor that has a pretty well thought out and underway process to migrate toward an unbundled core? I mean how important is that in terms of their decision-making?

Yes, I think considering the prospects we had, I met personally with 15 out of 50 for some time. The strategy we're pursuing goes beyond just the unbundling of the Core; it's about moving the core to the public cloud and also incorporating some of the non-Core products we've developed, recognizing the benefits of being in the public cloud. Our prospects, along with our clients, have indicated that they aren't experiencing the same level of engagement with their current vendors. So, this strategy is a significant factor. Additionally, our culture, service, and other innovative technologies we've developed over the years—like Financial Crimes, Pay Center, and our enterprise account opening—also contribute to this. It's a combination of factors, Pete, that drives this, but the overarching strategy, encompassing more than just the Core, is what attracts clients to Jack Henry.

If I may add on, I think also what's really resonating is that shared services. So, as we build componentry for the tech modernization, that’s supporting and enhancing the experience on the existing core. And so, that's giving people comfort that there's innovation on the core that they might go to today as well as where they're going tomorrow.

Yes. One final point I want to emphasize is our open philosophy. When participants visit our tech showcase with 250 fintech companies present, they recognize that we are committed to our promises. They understand that Jack Henry will let them choose the product that best fits their needs. This is significant because they are not receiving that level of collaboration elsewhere. If they decide to partner with a fintech or pursue integration outside their current system, they usually incur extra charges, which is something I will continue to address with their other providers. Yes, I expect you to hear more starting in 2025. We have been working on combining the loan vantage platform, which is now a single consumer and commercial platform. We have incorporated our account opening software, called OpenAnywhere, into this solution, now named Enterprise Account Opening. This will enable institutions to compete effectively with nCino and others in the market. We will be in the early adopter phase in January 2025, and some of our customers will begin testing it with us. We are very excited about the opportunities this will create for our financial institutions.

And it is the top priority from our strategic benchmark service.

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

Greg, you mentioned data broker a couple of times. Can you just remind us of what the opportunity is there? And just maybe talk about the CFPB rule and open banking and how that drives that?

Let me start with the CFPB rule, specifically 1033. As mentioned in previous quarters, we eliminated screen scraping in our Banno digital platform, making us the only provider to fully eliminate it. We are already ahead of the upcoming 1033 regulation since we anticipated it and now have direct API integrations with eight leading financial data aggregators, including notable names like Finicity, Yodlee, Plaid, Intuit, and MX, among others. We have several more integrations in progress. It's important to note that this rule mainly affects digital banking providers, not Core, so we are significantly ahead in this area. Regarding Data Broker, we currently have a few clients testing it in our early adopter phase. We're creating a single data repository that consolidates core data, digital data, payments data, fraud data, and lending data for our customers, all from Jack Henry. We also provide access for third-party applications to utilize this data. We're in the early stages of onboarding, currently incorporating core and digital data, with payments expected by the end of this year and fraud data by the end of the first quarter of 2025. We anticipate increased sales as more data becomes available. While we don't expect much revenue impact in 2025, we believe it will significantly contribute to growth in 2026.

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

Mimi, we talked a lot about the second half, but wanted to touch on margins only guide implies margins will be up somewhere close to 100 basis points in the back half of the year. Obviously, you have revenue accelerating, easier comps, anything else to call out on the margin front right now?

Yes. So, I would say the first half is a little bit more pronounced from the headwinds we've seen both the software usage, and additionally, I would call out Q2 is a bit of a tough comparison due to last year’s departures in Q2 but not the replacement. And so, that's a bit of a growth over from a headcount from the roughly 250 heads that are going to be Q2 '25 versus Q2 '24. So, I think those things make a little bit challenging in the first half. But as we get to the second half, it certainly aligns to our revenue growth. So, I feel pretty comfortable with the full-year guide of the 25 to 40 basis points.

Yes. The Banno Business is not a meaningful contributor; it is a contributor. But as far as the growth, it truly is about our implementation numbers, and so as we add more and more business customers, yes, there can be some additional users. But that growth of 20% has been really driven through the retail platform. But as we continue to add, remember, the way we price Banno Business is that the retail customer, regardless of how many retail customers they have, pays that same amount, and it's kind of an add-on fee to what the retail piece is. So, as we continue to get more penetration and some things to do to actually drive adoption activity, I think that number will become more and more meaningful. But as far as the revenue growth, we've been kind of consistent over the last year or two years on where we've been on the revenue growth in the digital side. And remember, digital is more than just Banno.

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

I wanted to ask, Greg, really quickly, you mentioned the implementation queues. And just wondering how those are trending broadly and how are you thinking right now about the puts and takes between the margin expansion you're delivering versus potential for additional resource allocation to help speed up those implementations?

Yes, thank you, James. We review that on a monthly basis as part of our discussions during variance reviews with our teams. We manage that effectively. Last year, we added a significant number of people to our Financial Crimes Defender Group to support this effort. Some implementations, particularly in financial crimes, can take up to six months due to the necessary data transfers. It's not solely about staffing; sometimes it involves waiting. Additionally, many of these implementations are linked to Core implementations, which can cause further delays. However, we consistently assess the need to accelerate revenue flow while balancing it against our operating margin, and we do this on a monthly basis. Yes. So, lots of progress. We've made, honestly, a lot of advancements even since Investor Day, when we publicly announced it. We did a full demo of this at our client conference in front of the 4,000 people that were there and got rave reviews for them being able to see that. As far as timing, as I announced, we're on time to be able to deliver this to our early adopter Banno clients in May of 2025, and so we're on track to do that.

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

I wanted to circle back on the cloud migration. I think you said cloud revenue was 30% of revenue growing low double digits. I think you have 70-75% of clients on the private cloud. Can you just give us a sense for how much runway there is for cloud revenue to continue to grow at these double-digit rates? Are you seeing any traction in the public cloud yet? Just trying to get a sense for how sustainable that growth is on the cloud side and maybe where the revenue shows up across the segments as well?

Yes. Ken, I will begin by discussing the migration, and then Mimi will cover the revenue aspect. Currently, we are at 73% in the private cloud. We do not anticipate reaching 100% and expect to be in the low to mid-90s since some customers prefer not to transition. We still have several years ahead, and we expect to maintain our usual 40-ish from in to out this year. Our performance is on track, with the first quarter of last year showing similar ins to outs as the first quarter of this year. We are now working with many of our larger clients, so even if we have fewer transitions in a quarter, these larger clients tend to have a more significant impact. On average, banks and credit unions experience about a 1.75 increase, which contributes to our current position. We anticipate having three to five more years of this trajectory. Additionally, I mentioned earlier that the deposit-only Core will be ready in 2026, which may encourage some clients to move directly from in-house to the public cloud or from the private cloud to the public cloud, or to operate within both, as we develop the remaining Core components. There is still potential for growth, especially among our larger customers.

Yes, I think Greg covered all the important points about the potential for growth. Our clients are likely to increase in size, and as they expand, we will grow alongside them. Even those who are just starting in our private cloud environment will contribute to our revenue growth as they add more accounts and experience growth. This remains a strong growth driver for us moving forward.

Okay. Great. And as you said non-GAAP revenue would grow 6% in the second quarter. Can you just remind us of the building blocks, I guess, by segment just to get to that 6%?

I think we can discuss the details later, but overall, I don't anticipate significant changes in the momentum we experienced in Q1 for the segment. We still believe that for cards, Q2 will be slightly better than Q1, but overall spending expectations remain modest. We expect cloud to be our slowest quarter in Q2. Hardware will have less of a negative impact compared to Q1, but it will still be a factor in Q2. Additionally, there are some smaller issues like call center and processing that will also contribute to the drag. That's what supports our 6% estimate, with stronger performance anticipated in the latter half of the year.

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

A couple of things. First of all, card processing, you put that in the press release was 5% growth, last quarter was 8% growth. And I know like the networks and stuff were pretty stable growth. Was there anything in there just to call out why that decelerated a bit?

Yes. I think our transaction volume was pretty much in line, I would say, where we've seen on the positive side, we've seen higher ramp from a faster payment spend, and that's really taking off. The bill pay from the rest of it is a modest kind of grower from the EPS business, a little slower than prior year, but modest growth. So, I think that's pretty much in line.

Thank you very much, everybody, for participating in the call, and we look forward to seeing you again soon.

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

Thank you, Viate. We look forward to hosting you at next week's shareholder meeting either in person or on the webcast. And in the coming weeks, we will be attending various investor events in the U.S. and Europe. We would again like to thank all Jack Henry associates for their hard work and dedication which have contributed to our outstanding results. Thank you for joining us today.

The replay number for today's call is 877-344-7529 and the access code is 6482509. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.