Henry (Jack) & Associates 2026 Q4 Earnings Call

Good morning, and thank you for joining the Jack Henry fourth quarter and full year fiscal 2026 earnings call. Joining me today are Greg Adelson, President and CEO, and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will provide a summary of our quarterly and annual results, along with updates on our operations and strategic initiatives. Mimi will then discuss the financial results and fiscal 2027 guidance provided in yesterday's press release, which is available at the investor relations section of the Jack Henry website. Afterward, 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, everyone, and thank you for joining us today. I want to start by recognizing our associates. Their hard work and unwavering focus on culture, service, innovation, strategy, and execution helped deliver an historic year for Jack Henry. Today, I will cover three main takeaways from the quarter and fiscal year before diving deeper into our overall business. First, we delivered record financial performance in both the fourth quarter and full fiscal year. In Q4, our non-GAAP revenue was $633 million, up 7% over last year's fourth quarter, and significantly higher than the implied guidance we provided for the quarter. Our non-GAAP operating margin was 21%. For the fiscal year, our non-GAAP revenue was $2.5 billion, up 7% over last year. Our non-GAAP operating margin was 24%, a very strong 92 basis point increase over the prior year.

This was our third consecutive year of margin expansion of 60 basis points or greater, and each exceeded our initial guide of 20 to 40 basis points. Second, we set new sales records for the year. Our sales and marketing team delivered an outstanding 58 competitive core wins for the year, up from 51 last year and surpassing our previous record of 57 wins achieved in both 2019 and 2024. This is the largest number in over 20 years, when growth was largely driven by de novo institutions rather than competitive takeaways. Just six of our 58 wins in fiscal year 2026 were de novos. Our public cloud-native modernization strategy and innovative new solutions have helped us continue to attract larger institutions. Of the 58 wins, 14 were institutions with more than $1 billion in assets.

Over the past three fiscal years, we have won 45 core deals with institutions over $1 billion in assets, representing approximately $98 billion in total assets. That compares with 15 institutions representing $26 billion in assets signed over fiscal years 2022 and 2023 when we started to initiate our upmarket strategy. As we briefly mentioned in our Q3 call, we signed the largest new bank client in our company's history in Q4, Woodforest National Bank, with $9.2 billion in assets. Woodforest was one of 15 competitive core deals we won in the fourth quarter. Third, we continue to win higher value trifecta deals that include core digital banking and card. Of our 58 core wins for the year, 59% included all three solutions. Last year, only 39% of our 51 core deals were trifectas.

This success reflects the strength of our solutions and our collaborative one Jack Henry approach to all we do. One final point about our sales success. You may remember that at the end of last fiscal year, we implemented a new sales process to achieve a healthier balance of new sales and renewal contracts. This was the first full fiscal year operating under that process, and the results exceeded our expectations. 60% of our sales were new contracts in fiscal year 2026, up from 45% the prior year. Now for more detail on our overall business, starting with some accolades for the team. We were recently recognized by three prominent publications: U.S. News & World Report's Best Companies to Work For, Time Magazine's Best Companies, and Newsweek's America's Greatest Workplaces.

Additionally, we were the largest and the second oldest company included in American Banker's Best Places to Work in Financial Technology rankings. This is particularly meaningful because most companies on that list are smaller, specialized fintechs. This recognition reflects both the strength of our culture and the innovation we continue to deliver for our clients. Our commitment to innovation remains a key differentiator for Jack Henry, and during the fourth quarter, we built on our momentum through several important advancements. Starting with artificial intelligence. We announced our expanded collaboration with Google Cloud to provide AI-driven security capabilities for banks and credit unions. Building on our four-year strategic partnership, we will use Google's agentic defense products to develop a proprietary AI security platform to strengthen cyber resilience for financial institutions and help them defend against emerging threats. We also joined Project Glasswing, Anthropic's collaborative cybersecurity initiative.

Together, these efforts reflect our ongoing commitment to leveraging advanced technologies to help financial institutions operate securely in an increasingly complex threat environment. In addition to cybersecurity, we are bringing creative AI capabilities directly into the solutions that our clients use every day. A great example is within our Financial Crimes Defender platform, where we are using AI to streamline the labor-intensive process of drafting summaries for Suspicious Activity Reports or SARs. Once an investigation wraps up and an AI-driven summary is generated for review while keeping the fraud investigator in full control, this can reduce drafting time by 75%-85%, allowing investigators to dig deeper and spend more time stopping fraud.

Other examples include Banno Conversations, where AI translates over 200 languages to help bankers better serve diverse communities, and our flagship CRM tool, Synapsys, where AI will instantly generate client relationship summaries and provide actionable next step guidance for more impactful account holder engagement. We currently have 22 AI-enabled products in the market and have identified more than 20 additional AI capabilities for release over the next six months. In all cases, we will maintain strict risk management, compliance, and governance frameworks to ensure our clients always remain in control. These client-facing capabilities are driven by the rapid AI adoption across our own internal operations. Today, over 100 AI tools are approved for internal use, supporting more than 890 documented use cases.

We've also internally deployed more than 50 AI agents through our custom-developed AI platform, leveraging Gemini and other frontier models to provide specialized expertise, workflow automation, and self-service support at scale. Through our associate-enabled Vibe coding platform, our teams have built more than 100 AI-powered applications that eliminate manual processes, automate repetitive work, and empower business teams to rapidly solve problems without traditional development cycles. The impact is meaningful and expanding. Engineering teams are doubling productivity through AI-assisted development workflows. Operations teams are reducing recurring reporting processes from days to hours, and analysts are cutting research and document creation from hours to minutes. Beyond AI, we are also advancing next-generation money movement capabilities for financial institutions. In Q4, we announced that we are part of Open USD, a new stablecoin for global money movement backed by over 140 leading financial companies, including BlackRock, Mastercard, and Visa.

We will begin integrating Open USD when it launches later this year. This complements the work we are doing in beta testing for send and receive USDC capabilities. Together, these solutions will provide our clients access to additional capabilities such as cross-border and treasury payments. Additionally, we are seeing strong momentum across our newest solutions, including our Tap to Local SMB merchant payment and Rapid Transfers digital money movement offerings. Since our last earnings call, we've added Tap to Local for over 200 banks and credit unions, bringing the total number to more than 900. We have also more than doubled the number of merchants who are now enrolled, and we expect adoption to continue growing rapidly in the coming months. Rapid Transfers is now live with over 140 banks and credit unions, with an additional 150 in various stages of onboarding. As consumer adoption accelerates, transaction volumes continue to grow.

The average transaction size is more than double our original projections, driven by stronger than anticipated inbound transfers. One example we have heard from clients is that before Rapid Transfers, customers would go to an ATM to withdraw cash from one institution and then immediately deposit that money on the same ATM into their bank or credit union account. With Rapid Transfers, that same transaction can now be completed in seconds with a few clicks on a phone or a computer. While these initiatives address different client needs, they are all enabled by the Jack Henry Platform, our public cloud-native platform that connects seamlessly to our core systems. The platform serves as an integrated bridge between our foundational cores and modern solutions. This is increasingly important as the industry enters an era defined by AI, open banking, real-time data, tokenized money, and embedded financial experiences.

Banks and credit unions need architectures that provide the flexibility, connectivity, and scale required to compete in a rapidly evolving financial services landscape. We began building the platform over 4 years ago, and it is a key driver of our competitive wins, especially among larger institutions. Moving on to our reporting segments. In core, in addition to the 15 competitive core wins in Q4, we also secured 13 on-premise to private cloud contracts, including 7 institutions over $1 billion. For the year, we signed 36 in-to-out contracts, with 15 being institutions over $1 billion. Today, 79% of our core clients are operating in the private cloud. In payments, we continue to see strong growth in faster payments. Over the past year, our clients' adoption of Zelle grew by 25%, RTP by 24%, and FedNow by 29%.