Jack Henry & Associates, Inc. Q2 FY2026 earnings call

• Financial performance: Record second quarter with non-GAAP revenue of $611 million, up 6.7% year-over-year, and non-GAAP operating margin of 25.1% (355 basis points expansion). - Sales performance: Core sales team had 22 competitive core wins, including 4 financial institutions with over $1 billion in assets and 15 including core digital banking and card solutions; trifecta wins increased, with 68% of new core wins including digital and card processing. - Innovative solutions: Strong reaction to Tap2Local merchant acquiring solution (rolling out to Banno clients), early success with Jack Henry Rapid Transfers (live with 75 clients, 180 in onboarding), stablecoin strategy in beta testing, and Victor Technologies integration progress. - Market share: Outpaced competitors in core market share growth over 8 years; core market share among banks increased 17%, credit unions 40%; among institutions >$1B, bank market share up 32%, credit union 12%. - Company recognitions: Named one of America's Most Loved Workplaces, Forbes Best Companies, etc.

Core segment: Non-GAAP revenue increased 7% for the quarter with operating margin increasing 5 basis points. Payments segment: Quarterly non-GAAP revenue increased 6%, with operating margin growth of 200 basis points. Complementary segment: Quarterly non-GAAP revenue growth increased 9% with 58 basis points of non-GAAP margin expansion. Revenue contributions: Cloud revenue is 33% of total revenue, processing revenue is 44% of total revenue, and total reoccurring revenue exceeded 92%.

• Full year GAAP revenue growth guidance: 5.6%-6.3%. - Non-GAAP annual revenue growth guidance: 6.4%-7.1%. - Non-GAAP margin expansion guidance: 50-75 basis points. - GAAP EPS guidance: $6.61-$6.72 per share, growth of 6%-8%. - Free cash flow conversion outlook: 90%-100% for fiscal '26, bias to higher end.

• Potential impact of AI misinformation on industry perception. - Uncertainties in execution related to market competition and integration of new solutions. - Impact of legislative changes and medical cost benefit fluctuations on financial results.

Q: Do you expect 3Q sales results to come in better and the impact from core consolidation?

A: Q3 starting well, pipeline growing across products, but can't comment definitively yet. Q2 results minimally impacted by core consolidation news due to timing.

Q: How does AI impact your business model?

A: AI is misinterpreted; not simple for core system development. Jack Henry uses AI in back office and products, with new platform products containing AI. Different from other enterprise-wide solution sets.

Q: Thoughts on bank M&A?

A: Bank M&A is net neutral to positive; seen market share growth and opportunities from M&A, including complementary products.

Q: Segments exceeding expectations and second half growth?

A: Complementary segment had upside; payments expected to slow in back half, core strong, complementary continuing strong.

Q: AI and modernization of code bases?

A: Jack Henry has been modernizing for 5 years, using AI in DevOps, API-first platform, allowing faster solution enhancements. Different from competitors still on legacy paths.

Q: Competitive dynamics on payments and card?

A: New entrants are compartmentalized; Jack Henry's full suite and solution set gives advantage.

Q: Core wins and industry dynamics?

A: Core wins growing, pipelines strong; culture, service, innovation, strategy, execution are reasons for winning. Renewal processes changes driving results.

Q: SMB strategy adoption and longer-term opportunity?

A: SMB products like Tap2Local and Rapid Transfers early, significant differentiation vs Stripe/Square; long road map ahead.

Q: Capital allocation and M&A?

A: Priorities include dividends, M&A, internal development; $125M share repurchased, expect more; dynamic capital allocators.

Q: Renewal pricing strategy traction?

A: Starting to see impact in financial results; new vs renewal percentages improved, negotiating at stronger position.

Q: Bank spending by asset size?

A: Some banks spend more, others less; technology needed for growth, those not spending may be on market.

Q: Trifecta wins driving factors?

A: Banno solution set improvement, card platform enhancements; combination of factors leading to trifecta wins.

Q: New enterprise account opening platform?

A: Still in closed beta, will be unique with consumer/commercial embedded account opening, needs further development.

Q: Complementary product growth and implementation?

A: Some complementary wins independent of core, sooner to implement; modular approach driving opportunities.

Q: Execution requirements for core consolidation opportunity?

A: Teams aligned, significant pipeline, operational readiness in place; marketing, sales, finance geared up.

Q: Attach rate and bundling?

A: Trifecta of card, digital, and others common; attach rates consistent, focusing on lucrative products.

Q: Free cash flow conversion visibility and capital expenditure?

A: Clarity on legislative changes and asset sales increased visibility; R&D investment around 14%-15%, headcount growth controlled.

Q: Credit union market dynamics?

A: Benefiting from core consolidation residual, Symitar platform enhancements, higher penetration in complementary/payments.

Q: Maintaining service differentiation?

A: 50-year history of service, at all-time high survey results; hard for competitors to match mindset, will continue to differentiate.