Jack Henry & Associates, Inc. (JKHY) Earnings

Management highlights

### Record Financial and Sales Performance - Delivered record revenue and margin expansion for Q4 and full fiscal year 2026, beating implied Q4 guidance and exceeding initial margin guidance for the third straight year - Achieved a 20+ year record of 58 competitive core wins for the full year, up from 51 last year and surpassing the prior record of 57; only 6 of 58 wins were de novo institutions, with 14 wins being institutions over $1 billion in assets - 59% of 2026 core wins were higher-value trifecta deals (core + digital banking + card), up from 39% last year - New sales process implemented at the end of last fiscal year delivered better-than-expected results, with 60% of 2026 sales coming from new contracts, up from 45% the prior year ### Innovation and Technology Advancements - Expanded AI initiatives: currently 22 AI-enabled products in market, with 20+ additional AI capabilities planned for release over the next six months; over 100 approved internal AI tools supporting 890+ use cases, with 50+ custom AI agents deployed - AI use cases include: 75-85% reduction in suspicious activity report drafting time in Financial Crimes Defender, 200+ language translation for client communications, AI-generated relationship summaries in CRM, and doubled engineering productivity for internal development - Announced expanded AI cybersecurity collaboration with Google Cloud, and joined Anthropic's Project Glasswing cybersecurity initiative; maintains strict risk and compliance governance for all AI deployments - Joined the OpenUSD stablecoin initiative for global money movement, and continues beta testing USDC send/receive capabilities to add cross-border and treasury payment options for clients - Newer solutions saw strong adoption: tap-to-local SMB merchant payments added over 200 institutions in Q4, reaching over 900 total with doubled merchant enrollment; Rapid Transfers digital money movement is live with over 140 institutions, 150 more in onboarding, with average transaction size double original projections - The cloud-native Jack Henry platform, launched four years ago, is a key driver of competitive wins especially among larger institutions, enabling flexible, scalable architecture for AI, open banking, and modern financial experiences ### Corporate Milestones and Recognition - Celebrated the company's 50th anniversary in fiscal 2026 - Earned recognition from U.S. News & World Report, Time Magazine, Newsweek, and the American Bankers Association as a top workplace, reflecting strong internal culture - Upcoming Investor Day on September 15 in Dallas will provide detailed strategy and innovation updates, and annual client conference Jack Henry Connect in October is tracking 36% ahead of last year's registration pace

Guidance

- Full year fiscal 2027 GAAP revenue growth guidance is 5.5% to 6.5%, with non-GAAP revenue growth expected between 6.3% to 7.3% maintaining the company's consistent historical growth range - Initial deconversion revenue guidance for fiscal 2027 is $23 million, with $11 million expected in Q1 and the remaining $12 million spread evenly across the final three quarters, following the conservative methodology introduced in fiscal 2024 - Full year non-GAAP operating margin is projected to expand 20 to 40 basis points, consistent with the past three fiscal years; management is cautiously optimistic that margin expansion may exceed this range as the year progresses - Non-GAAP revenue and margin comparisons are expected to be tougher in the first half of fiscal 2027, improving in the second half to meet full year guidance targets - Q1 2027 non-GAAP revenue growth is expected to come modestly below the low end of the full year guidance range, driven by a 1% impact from shifting the Jack Henry Connect client conference to Q2 from Q1, plus timing of one-time revenue items - Full year GAAP EPS guidance is $7.33 to $7.38 per share, representing 5% to 6% growth year-over-year; conservative deconversion guidance may understate actual GAAP EPS growth - Full year free cash flow conversion is projected to be between 85% to 100% for fiscal 2027 - The GAAP full year tax rate for fiscal 2027 is projected to be 23%

Segment performance

1. **Core Segment**: Non-GAAP revenue increased 6% year-over-year (YoY) in Q4 FY2026. Non-GAAP operating margin contracted 139 basis points due to temporary lower-margin implementation revenue mix, as the segment added two new conversion teams. For the full year, the segment won 58 core deals (a 20+ year record), 36 on-premise to private cloud conversion contracts, with 15 of those being institutions over $1 billion in assets. Today, 79% of core clients operate on the private cloud. 2. **Payment Segment**: Non-GAAP revenue increased 6% YoY in Q4 FY2026. Non-GAAP operating margin grew 174 basis points YoY. Card processing revenue grew steadily, partially offset by atypically low incentive revenue, while faster payments saw strong double-digit growth. For the full year, the segment signed 65 total debit and credit card deals, up from 63 the prior year, with faster payment transaction volume across Zelle, RTP, and FedNow growing 45% YoY in Q4. 3. **Complementary Segment**: Non-GAAP revenue increased 6% YoY in Q4 FY2026. Non-GAAP operating margin grew 16 basis points YoY. Growth was driven by strong demand for digital solutions, favorable product mix, and new sales from both new core wins and existing clients. For the full year, Banno Digital Platform signings grew 24% YoY to 219 total, now serving over 15.8 million registered users (up 11% YoY); treasury management new deals grew 25% YoY to 45, with the average client asset size up 43% over the prior two-year period; 183 Financial Crimes Defender and faster payment module contracts were signed for the full year. 4. **Corporate Services Segment**: Non-GAAP revenue increased 31% YoY in Q4 FY2026, driven primarily by meaningful increases in hardware sales. Operating margin is not reported for this segment, as it holds unallocated corporate expenses and provides no meaningful insight. Total company Q4 FY2026 non-GAAP revenue was $633 million (up 7% YoY), with full year non-GAAP revenue of $2.5 billion (up 7% YoY). Full year non-GAAP operating margin was 24%, up 92 basis points YoY, marking the third consecutive year of 60+ basis point margin expansion.

Risks & headwinds

- Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from current projections, with detailed risk factors available in the company's 10-K and recent press release - First half 2027 margin pressure is expected from: normalization of self-insured medical costs to historical levels after lower-than-normal costs in fiscal 2026, increased investments in cybersecurity, frontier AI model innovation, and the EC 2030 data center consolidation project - Core deal revenue recognition is typically delayed 15-24 months from contract signing depending on remaining term on the client's existing contract and client implementation preparedness, creating lag between wins and revenue recognition - Fewer credit union requests for proposal (RFPs) are expected in fiscal 2027 as a cyclical industry trend, which could impact overall core win composition even as management expects to gain market share in available opportunities - AI compute and token costs present ongoing cost management challenges, requiring active financial optimization and vendor management to maintain margin targets - Some institutions pursue in-house development of fintech solutions, which could create competitive pressure for the company's complementary product offerings

Analyst Q&A

• Q: With record core wins in FY2026 and ongoing industry disruption among competitors, what is the current core sales pipeline outlook for FY2027?

  A: Management is already seeing pipeline momentum from industry disruption across multiple competitors, not just one. Core sales in the first month of FY2027 have already exceeded last year's first quarter pace. While there are expected to be fewer credit union RFP opportunities this year, management projects total core wins will land between 58 and 65 for FY2027, matching or exceeding last year's record total.

• Q: You have had success selling Banno Digital Platform to existing core clients. What is the progress of selling Banno to non-core clients, and what is the revenue opportunity?

  A: The company began building non-core sales traction for Banno around 7-8 months before the call. The first non-core client contract for both Banno and the full Jack Henry cloud platform (for a digital-only core operation) has already been signed, and another large non-core deal is expected to be announced soon. Leveraging the combined platform + digital offering is a unique competitive advantage that should help drive incremental momentum in this new market, though it is still early to quantify the full long-term revenue opportunity.

• Q: What explains the three-year streak of >50bps non-GAAP margin expansion, and what headwinds could prevent this in FY2027?

  A: The three-year streak of consistent margin expansion reflects the company's long-term focus on AI efficiency, automation, workflow improvement, and disciplined headcount management. Fiscal 2026 saw one-time benefits from lower-than-normal medical costs and timing of commissions that will not repeat in FY2027. Headwinds for FY2027 include increased spending on infrastructure, cybersecurity, and AI frontier model development that started in late FY2026 and will be felt mostly in FY2027. Management started guidance with a conservative 20-40bps expansion target but expects to potentially outperform this as the year progresses.

• Q: How does the new 60% new sales / 40% renewal process work, and how does it align with the growth in trifecta deals?

  A: The new sales process and trifecta deal growth are not directly connected: trifecta growth comes from product improvements to Banno and card solutions that brought them to parity with competitors, as promised two years ago. The new process was designed to end the prior practice where sales teams could pull forward renewals to hit quotas, which did not benefit long-term company revenue growth. The process change worked as intended, delivering 60% new sales in FY2026, and management expects new sales to remain above 55% of total in FY2027.

• Q: How should we think about AI spending and the timing of margin benefits from AI adoption?

  A: Some AI benefits are spread across multiple fiscal years rather than realized immediately: AI cuts development timelines (accelerating revenue monetization of new products rather than just delivering immediate in-year cost savings). AI-driven productivity gains are already visible, with engineering productivity doubling and process times cut dramatically, but the company is still investing heavily in scaling AI adoption, so full cost benefits will build over time. Cybersecurity AI spending is a near-term headwind, while product and internal efficiency AI will drive longer-term margin gains, with more detailed planning to be shared at Investor Day.