Welcome to the Jack Henry & Associates Q3 fiscal year 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw yourself from the question queue, press star then two. I would now like to turn the conference over to Mr. Kevin Williams, Chief Financial Officer and Treasurer. Please go ahead. Thanks, Tom. Good morning, and thank you for joining us for the Jack Henry & Associates Q3 fiscal 2022 earnings call. I'm Kevin Williams, CFO and Treasurer, and on the call with me today is David Foss, Board Chair and CEO. In just a minute, I will turn the call over to Dave so he can provide some of his thoughts about the state of our business, financial and sales performance for the quarter, some comments regarding the industry in general and some other key initiatives that we have in place. Then after Dave concludes his comments, I will provide some additional thoughts and comments regarding the press release we put out yesterday after market close and also provide comments regarding our updated guidance for the remainder of our fiscal year 2022. We will then open the call, 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, and 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 discuss 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. Good morning, everyone. We're very pleased to report another quarter of revenue and operating income growth and an overall solid performance by our business. 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 third fiscal quarter. For Q3 of fiscal 2022, total revenue increased 10% for the quarter and increased 7% on a non-GAAP basis. As projected on our last call, deconversion fees were up more than $13 million over the prior year quarter. Turning to the segments, we again had a good quarter in the core segment of our business. Revenue increased 12% for the quarter and increased by 7% on a non-GAAP basis. Our payment segment performed very well, posting a 10% increase in revenue this quarter and a 9% increase on a non-GAAP basis. We also had a strong quarter in our complementary solutions businesses with a 10% increase in revenue this quarter and a 7% increase on a non-GAAP basis. As I mentioned in the press release, our core sales teams again had an extremely solid quarter, and we continue to see core activity consistent with our pre-pandemic run rate. During the quarter, we inked 14 competitive core takeaways, so we continue at the approximately one deal per week run rate I've discussed on recent calls. In addition to our success signing new core clients, we signed nine existing on-prem core customers to move to our private cloud environment. In addition to the tremendous success we experienced in our core business this quarter, we continued to sign new clients to our digital banking suite. During the Q3, we signed 38 new clients to our Banno platform, and we continue to see increased interest in this offering as well as the rest of our digital suite. On our last quarterly call, I mentioned that the sales team set an all-time sales booking record in our fiscal Q2. Although we didn't break that record in Q3, we did set a record for the strongest Q3 in history, with sales bookings coming in almost 40% higher than the same quarter last year. This extraordinary sales performance in a quarter that is normally lighter than others is reflective of the interest in our company and demand for Jack Henry technology solutions in our market. Regarding our Banno Digital Suite, as of 31 March, we have just over 7.1 million users live on the Banno platform. We continue to enjoy the highest consumer rating in the App Store, and we are regularly recognized as the fastest application in the industry. As I've said before, I expect our success in this area to grow as we continue to add new functionality and features to the platform. On our last quarterly call, I shared an announcement regarding our technology modernization strategy and how we believe it will help position our clients for greater success in the future. As many of you know, that announcement has been received very positively by many experts in our industry, and our strategy has been highlighted in a wide variety of publications. Several pieces are still in production, but so far we've been interviewed for close to 40 different articles, podcast interviews and video podcasts for publications with a combined subscriber base of more than 53 million people. Hopefully, you've all seen the new corporate sustainability report that we published on 31 March. I think it's an excellent representation of the key initiatives and accomplishments we've been working on since we published our last report more than a year ago. In this new report, we provided more detail on the demographic makeup of our workforce, a summary of our employee engagement survey results, more information about our data privacy and cybersecurity practices, and a significantly enhanced update on climate-related risks. This year's report also includes an appendix with detailed disclosures aligned with the Sustainability Accounting Standards Board, or SASB, and the Task Force on Climate-related Financial Disclosures, or TCFD. We continue to make great strides in the key areas of ESG and are committed to providing more detailed information about our progress over time. Although you regularly see Jack Henry recognized as the best place to work in various contests around the country, we received two new designations last quarter that recognize us as a company that isn't simply an outstanding employer. Inc. Magazine recognized us as one of America's best-led companies, and Newsweek recognized us as one of America's most responsible companies. Both awards are great recognition for our ongoing commitment to do the right thing for all of our Jack Henry stakeholders. As we announced a few months ago, Ted Bilke will be retiring at the end of June after 17 years with our company. Ted ran the Symitar division for many years but shifted to become our Chief Technology Officer a few years ago to help us define and finalize our technology modernization strategy. Our modernization strategy benefited significantly from Ted's years of experience speaking directly with our customers about their technology wants and needs. I'd like to thank Ted for his many years of leadership and for helping us to drive consistent success for our customers and shareholders. As you are also aware, we've been working to find a new CFO so Kevin can enjoy a much-deserved retirement. That process has been slower than I had hoped, but we expect to name a new CFO in the near future. Kevin has graciously agreed to stay with us until we're ready to make the transition, so we still have no formal departure date for him. Today, however, we're announcing that Renee Swearingen has been named Senior Vice President and Chief Accounting Officer for Jack Henry. Renee has been with the company for more than 25 years and is a key leader on our management team. You'll see a press release with this announcement later today, but I want to take this opportunity to congratulate Renee and thank her for her partnership for these many years. As we look forward to the end of our fiscal year, our sales pipeline is very strong, and we continue to be optimistic about the strength of our technology solutions, our ability to deliver outstanding service to our customers, our ability to expand our customer relationships, the spending environment, and our long-term prospects for success. I look forward to seeing and chatting with many of you at our Investor Day in Dallas next Monday. With that, I'll turn it over to Kevin for some detail on the numbers. Thanks, Dave. Our services support revenue increased 11% in the Q3 of fiscal 2022 compared to the same quarter a year ago. As Dave mentioned, our deconversion revenue was up $13.1 million for the quarter compared to last year's quarter. License, hardware, and implementation revenue combined were essentially flat compared to the prior year, and our data processing hosting fees in our private and public cloud offerings, which continue to show strong growth in the quarter compared to previous year, growing by 11% for the quarter. On a non-GAAP basis, total support and services revenue grew 6% for the quarter compared to the prior year. Just a reminder that non-GAAP, essentially the only difference is backing out the deconversion revenue that was recognized in the quarter. Our processing revenue increased 9% in the Q3 of fiscal 2022 compared to the same quarter last year on both a GAAP and non-GAAP basis. The increase is primarily driven by higher card volumes, and digital revenue continues to show strong growth as demand for our Banno digital platform continues to be very strong. Total revenue was up 10% for the quarter compared to last year on a reported GAAP basis and increased 7% on a non-GAAP basis. Cost of revenue was up 5% compared to last year's Q3. The increase was primarily due to higher costs associated with customer maintenance and license costs, card and transaction processing increased in line with the related revenue growth, and also higher personnel costs compared to a year ago. Research and development expense increased 12% for the Q3 of fiscal 2022 compared to last year. The increase is primarily due to increased personnel costs this year compared to last. SG&A expense increased 13% in the Q3 compared to the same quarter of last year. Again, this increase was due primarily to increased personnel costs and also increased travel-related costs compared to the prior year. Our reported consolidated operating margins increased from 21% last year to 23.3% in the current year quarter for a 220 bps increase. On a non-GAAP basis, our operating margins expanded from 20.3% last year to 20.9% this year for a 60 bps expansion. The effective tax rate for the Q3 of fiscal 2022 increased to 23.6% compared to 21.5% in the same quarter a year ago, which is in line with the guidance we provided for the year. Net income grew 19% to $84.7 million for the third fiscal quarter, compared to $71.4 million last year, with earnings per share of $1.16 for the current quarter, compared to $0.95 last year for a $0.21 or a 22% increase over the previous year quarter. Some comments on cash flow. Our total amortization increased 2.6% for the year to date compared to last year due to capitalized software projects being placed into service. Included in total amortization is amortization of intangibles related to acquisitions, which decreased to $12.4 million this year to date compared to $13.3 million last year's first three quarters of the fiscal year. Depreciation actually decreased 3.7% compared to the first nine months of the prior fiscal year. Operating cash flow was $301.4 million for the year to date, which is up from two hundred and sixty-six point three million last year, which this was primarily due to increased net income during the first nine months compared to the previous year and the timing and change of various operating assets and liabilities considered in the calculation of operating cash flow. We invested $145.1 million back into our company through CapEx, purchase, and capitalized software. Our free cash flow, which is operating cash flow less CapEx and capitalized software, and then adding back net proceeds from disposal of assets, was $156.4 million for the first nine months of the fiscal year. Also, during the first nine months, we spent $193.9 million to purchase 1.25 million shares for the treasury, none in the current quarter. We paid dividends of $103.4 million, for a total return to shareholders of $297.3 million in the first nine months of fiscal 2022. Couple of comments on our balance sheet. As of 30 June, our cash position was $39.8 million compared to $70.1 million a year ago. Our revolver balance was $225 million compared to $200 million a year ago, which the change in cash and our debt balance is primarily related to the 4.1 million shares we've purchased in the last 24 months. Our return on average assets for the trailing 12 months was 16%. Our return on average equity for the trailing 12 months was 27.2%. Our return on invested capital for the trailing 12 months was 23.4%. All very solid returns. For updated guidance, in the press release yesterday, we provided both GAAP and non-GAAP revenue guidance. We also provided a reconciliation of GAAP to non-GAAP revenue in the release following the segment information. However, just to be clear, this guidance continues to assume that the country continues to open and the economy continues to improve. For GAAP revenue growth for fiscal 2022, based on the amounts in the release yesterday, our revenue guidance continues to reflect a little higher than 10% growth over fiscal 2021, which we still anticipate deconversion revenue to be approximately $49 million-$50 million for the entire fiscal year. As we thought, some of the Q4 actually pulled into Q3, so we're not anticipating very much deconversion revenue in Q4. For non-GAAP revenue growth, we continue to guide to be just under 9% growth for the fiscal year. We continue to anticipate GAAP and non-GAAP operating margins to improve a little in FY 2022 compared to last year. Again, I continue to be somewhat cautious on guiding too much of a non-GAAP operating margin expansion as we continue to have headwinds on license and hardware revenue, as we continue to move more core customers from on-premise to our private cloud. Also, our travel costs continue to increase significantly compared to the prior year. However, we are still comfortable that full-year non-GAAP operating margins will expand approximately 50 basis points or higher, but also a reminder, the highest margin quarter is our Q1 due to software subscriptions in that quarter. Our effective tax rate for the year continues to be projected to be slightly higher than 23% compared to the prior year rate. Our updated FY 2022 GAAP EPS guidance is now a range of $4.80-$4.85, which is an increase from the previous guidance of $4.75-$4.80 a share. That concludes our opening comments, and we are now ready to take questions. Tom, will you please open the call lines up for questions? We will now begin the question-and-answer session. If you'd like to join the question queue, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw yourself from the question queue, press star, then two. We will pause momentarily to assemble the roster. Our first question comes from Rayna Kumar with UBS. Please go ahead. Good morning, David and Kevin. Your guidance suggests revenue growth will accelerate in Q4 versus the Q3 against more difficult comp. What gives you confidence revenue growth is gonna accelerate from here? Well, Rayna, I mean, as Dave mentioned, our sales continues to be very strong, our pipeline's strong, and all of our primary drivers continue to hit on all cylinders, which is primarily our private cloud. We continue to have good movement of our on-prem customers to private cloud. Our card and remittance and digital businesses all continue to grow extremely well. Yeah, we're very comfortable that we're gonna have a little higher growth in Q4 compared to the previous year. Got it. Can we have some early thoughts on FY 2023 in terms of what you're seeing out there in demand and pricing and how that translates to revenue and margin opportunity? Yeah. I mean, as far as the demand, I mean, Dave mentioned several times over in his comments that we continue to see a very, very robust demand for our products in the sales organization, with record sales in just about every quarter for the last three quarters. We look to be very good. Pricing, I mean, you know, obviously, this is a very mature market, so I don't see much change in pricing, Rayna. You know, obviously we're very early in our budget process for next year. You know, I'd just go out on a limb and say, you know, I see no reason why we can't continue to grow top line non-GAAP revenue, you know, in that 8.5%-9% similar to this year, for FY 2023, and also get some leverage to the operating margin line on a non-GAAP basis of at least 50 bps or so. Yeah, I think FY 2023, forget about the deconversion revenue, because again, we can't predict that. I think FY 2023 is probably gonna look a lot like FY 2022. Got it. That's very helpful. If I can sneak one final question in here. What are the key milestones we should be looking out for as you progress in your technology modernization strategy in the near term? Yeah, Rayna, it's Dave. We'll have releases this summer. As I mentioned on the call last time, we have customers in beta right now. This summer, you know, we'll announce customers going live. They'll come out of beta, they'll go live with the first modules. Sometime this summer, you know, I don't have an exact date to give you, but sometime this summer, you'll hear me talk about, you know, customers going live with the first modules on the, on the new platform. Later this year, we'll talk about this at the Investor Day on Monday, but later this year, we'll provide roadmap to our customers and to you all, so you can kind of track our progress more specifically as far as things that we're planning to roll out. I think the first indicator for you will be this summer when we talk about customers going live with the first modules in the tech modernization strategy. Perfect. Thank you. Sure. The next question comes from Kartik Mehta with Northcoast Research. Please go ahead. Hey, good morning. Dave, you know, I think both you and Kevin have talked about the strong demand environment and how well Jack Henry's doing. I'm wondering, are you running any capacity issues? You know, I think, Kevin, you talked about maybe 8.5%-9% in FY 2023. If the demand continues, could revenue grow faster, or are you at a point where, you know, now you have to push people out further? Yeah. No, also, and I would say neither. Is revenue going to grow faster? You know, it might grow just a little bit faster. The thing you always have to keep in mind is almost everything we sign today is a, you know, a hosted contract. It's a long-term commitment where we're layering revenue in as opposed to something that gives us a revenue pop in the quarter, and that just continues to be true. Almost all of the sales success are with contracts that are long-term commitments layered in over time. But, as I mentioned a couple of calls ago, I think, you know, we were facing capacity issues as far as doing core conversions, and so we stood up another team on the banking side of our business. A few months ago, we did another team on the credit union side. Now we've done another one on the banking side. We are slowly but surely adding teams to make sure that our backlog doesn't get stretched out with any of our product lines. We're having good success in adding capacity as we need to add capacity so our customers don't, you know, get frustrated that they're looking at a year or two before they can go through a conversion. It's a constant process of measuring what do we have in the backlog, what's customer expectation, what's coming from the sales pipe. As I just mentioned, you know, we set an all-time sales record in Q2. Q3, normally a lighter sales quarter, 40% higher bookings than last year's Q3 and more than any other Q3 in history. There is a great deal of demand, but our teams are doing well, I think, in managing the implementation side of that equation and making sure that we get these contracts into production at a reasonable rate. Hey, Kevin. You gave a little bit of a look into FY 2023. You talked about maybe margins up around 50 basis points. I'm wondering from an inflation standpoint, you know, how much that might be, the margins are maybe being held back by some of the costs that you're having to assume because inflation or are you able to push prices enough that the offset is negligible? Yeah. The offset's pretty negligible, Kartik. I mean, yeah, I mean, there's some inflation impact primarily in personnel costs and especially in different areas and pockets within the company that we're going to be facing. I mean, obviously, if it wasn't for that and inflation, I'd probably predict that we could get more expansion than that. There is some headwinds on the margin from those things. You know, at this point, and again, we're very early in the budget process, but I think we're pretty comfortable that we can get that margin expansion even in lieu of the inflation and everything else that's going on in the world today. Okay. Thank you very much. Really appreciate it. Yep. The next question comes from David Togut with Evercore ISI. Please go ahead. Thank you. Good morning, Dave and Kevin. Dave, could you give a little more detail on the new bookings? You called out 38 new Banno platform signings. I didn't hear you call out new core wins in the quarter. Yeah, it was 14. Yeah, I definitely called it out. 14 new core wins in the quarter. I think three of them were multi-billion dollar banks, if I remember correctly, but 14. As I said in my opening statement, we are absolutely continuing on this run rate of one a week. You know, again, it's lumpy, but continuing to see great success. As I sit here, you know, well into the fourth fiscal quarter, I can tell you that has not slowed down since the end of March. Got it. Kevin, maybe you could just give a little more detail on the preliminary FY 2023 guide. You called out an initial view of 8.5%-9% non-GAAP revenue growth. Approximately, how might that break down at the segment level? At the segment level? That's a good question. You know, obviously, our payments segment is gonna continue to be the strongest grower. Our payments segment is probably still gonna be, you know, our payment segment is now, David, 38% of our total revenue. It's probably gonna grow. Again, we're still early in the budget process, but I'm gonna guess it's gonna grow 9%-10%. Core and complementary will both be in there at 7%-8.5% right behind it. Got it. Just a quick final question. Could you unpack, kind of the three major subsegments within payments, bill pay, card and enterprise payments in terms of their growth in the March quarter, and how would you see them trending going forward? Well, the strongest grower that has been for quite some time is our EPS line of business, and I don't see that slowing as we continue to add merchants. Even though the number of checks per merchant continues to decrease slightly, we continue to add more than enough merchants each quarter to continue to have that very strong growth in the mid-teens. You know, right behind that is card. Now that we're, you know, a year past the migration of the new platform, we're adding a lot of new customers, both debit and full service credit. So that's gonna continue to grow, you know, in the high single, low double digits. Then the slowest grower is online bill pay. I mean, it's. We've pretty much saturated the market. We've got 3,500 FIs on our online bill pay, so it's growing but low single digits. Thank you very much. I don't see any of those changing in FY 2023, Dave. Appreciate that. Yep. The next question comes from Vasundhara Govil with KBW. Please go ahead. Hi, thank you for taking my question. I guess first question, just the complementary segment growth. I thought that was a little bit lighter versus what we were expecting on a non-GAAP basis, a deceleration from last quarter. Just anything, any call outs on what products might have been a little bit weaker? I sort of got the comments on Banno still being pretty strong, but any other commentary on the other product suites and what you're expecting for the Q4? Yeah, I don't know that there was anything significant that I would call out, that impacted. It's more just a matter of timing of different revenue coming in. There's no specific products or services that I would call out that there was a drag. Understood. On the sales booking, 40% growth, very impressive number. I caught the comments on sort of the core and Banno wins. Any other areas, sort of decomposition of like where all the strength is coming from besides those two areas? No, Vasu, it's across the board. You know, Kevin highlighted that our EPS, Enterprise Payment Solutions business is growing nicely. We're signing a lot of contracts in that area, and I don't normally highlight it on this call, but that's one that was a little bit larger than the normal run rate this quarter. We had good success with our debit, signing new customers coming to our debit platform. Credit, we're continuing to add customers. It was just across the board, just a really solid performance from the sales team this quarter. Understood. If I could sneak in a last one for you, Dave. You know, it seems like the director of CFPB made some comments to the banking industry recently about, you know, not enough competition in the industry, anti-competitive contracting practices. Just sort of any comments from you on how you would respond to that? Yeah. It's interesting, and I've certainly have read through the script of the director's comments and other follow-on presentations by other people in the CFPB. You know, we're highly regulated at Jack Henry, and so we deal with the regulatory bodies regularly. CFPB has also been engaged with us as they've engaged with all the other players in our space. The challenge that we have sometimes, I think, is that we get lumped in with everybody else. Jack Henry gets lumped in with everybody else as far as business practices, and I think Jack Henry has distinguished ourselves for years as doing business differently, very bank and credit union friendly, I think, in our approach. I think if and when, you know, there's more requests from the CFPB for us to be engaged with them, I think they will learn more about how Jack Henry does business and how it's different. I'll say that, you know, we've been through this with the ABA, for example. ABA at one point was kind of lumping Jack Henry in with everybody else and saying Jack Henry does things the same way. Then once we really got into those detailed discussions with the ABA committees, they realized and stated that we now recognize Jack Henry is doing things differently and is much more kind of supporting the community and regional financial institution environment with our business practices. You know, we're prepared if there is some requests that come to us to engage more directly. Great. Thank you for the color. Sure. The next question comes from Peter Heckmann with D.A. Davidson. Please go ahead. Thank you. Good morning, gentlemen. I'm wondering, as you work with the Fed on the upcoming FedNow release, do you have any updated thoughts on real-time payments and, you know, maybe perhaps some of the first use cases that we'll see in the U.S. and how you think, you know, that could change, you know, parts of your business? I know Jack Henry's been very, you know, innovative and kind of forward-thinking in terms of real-time payments. You know, I'd be curious to see, you know, if you think that's gonna be a big splash or a very gradual increase in volumes. Yeah, it's a good question, Pete. It's one that we've continued to talk about around here. In fact, I just talked to the Fed governor from Kansas City who is responsible for the FedNow program, and I talked to her just a month ago or so about the program and the status and are they gonna hit their dates. You know, right now, they're mid-2023, calendar 2023 for a release date. Right now they're still on track to hit that release date, and we hope that happens. With respect to real-time payments, just in general, I want to emphasize again, Jack Henry today, more than 60% of the financial institutions in the U.S. who use the real-time payments network through The Clearing House, so more than 60% are Jack Henry customers. They're doing that through Jack Henry. We are the dominant player today in real-time payments as far as number of financial institutions that are using the RTP network through the Clearing House. We're very, very involved in RTP. Our PayCenter solution has been highly adopted, and of course, FedNow is supported in our PayCenter application at Jack Henry. When FedNow comes live, we're ready for it, obviously, because we've been working with the Fed for a long time. The pace of adoption is. You know, that's gonna be interesting to see. When Zelle first rolled out, you know, the thing that I said back years ago was, as long as Zelle is kind of the really easy, fun-to-use application, it poses a real threat to Venmo. Well, it wasn't the easy, fun-to-use application. It's kind of a clunky application, you know. You know, we all support it. Those of us in the financial technology space, we support it, but it was never any real threat to Venmo because it's kind of a clunky application as far as I'm concerned. Okay, what happens with FedNow? Is it going to be, you know, really user-friendly and kind of easy for people to adopt or not? You know, we'll see. I think most banks and credit unions are planning to adopt and support FedNow. I hope it's a, you know, a really easy-to-use application and it'll receive wide adoption 'cause I think that'll be good for us. We have a number of use cases that we've built out that we think will be, really, good for banks and credit unions to adopt, but it's gotta be something that people wanna use. You can't force them to use it. Definitely. Any early thoughts on just kind of the revenue model or how the pricing of FedNow might compare to other existing real-time networks in the U.S. or same day ACH? Yeah, there's a lot of discussion on that topic right now. I'm not going to predict publicly where that's going to end up because that's, you know, that's a real key to this whole equation is, you know, how does the Fed end up pricing and how competitive do they want to be as compared to other offerings out there. I don't know where that's all going to end up, but that is a big topic of discussion right now. All right. We'll stay tuned. Appreciate it. Yeah, you bet. The next question comes from Dominick Gabriele with Oppenheimer. Please go ahead. Hey, thanks so much for taking my questions. Have you heard about rising tech talent costs putting an accelerant on your services for companies to outsource their core or other processes to the cloud? Is there an area of the business where rising wages would put a particular set of products in higher demand? I just have a follow-up. Thanks. Yeah. It's an interesting question, Dominic. In fact, it's something that I was just talking about this week with a couple of our customers and with internally with our team. It's less about rising costs and more about banks and credit unions' challenge to find the talent that they need. You know, we all know the Great Resignation. We all talk about it, that you know, most companies are experiencing higher turnover than they normally experience, and in a lot of cases, it's hard to find the talent you need. Banks and credit unions are experiencing the same thing. That is certainly creating some demand to come to companies like Jack Henry to provide services that we've done for a long time. The interesting thing that's happening now is there are also more requests for us to provide more kind of back office assistance, back office guidance because they have lost talent in the back office of the bank or credit union. That, I can't decide if that's a blip or if it's a long-term opportunity that's gonna create opportunities for us to sell more technology, more workflow technology, as an example. You know, you can use workflow technology when you don't have the people to do the manual work. So we're trying to figure out if that's a short-term opportunity or long-term opportunity. We don't really wanna be in the business of being a, you know, a consultant, a body shop as far as consulting. We certainly do a lot of that, but that's not our core competency. We're a technology provider. We're trying to weigh all that and kind of figure out where's the opportunity and is it a short-term opportunity or a long-term opportunity. It is certainly a topic. Great. Maybe just one more. You know, given the strong demand for your products and given the sales growth, do you think we're seeing not only just really strong execution, given the strategy shift and the demand for your current products, but also perhaps an accelerating overall banking and credit union industry tech demand for software leaving the pandemic on top of that? We could see even higher than 9% revenue growth maybe in core. I think we have built in. First off, on Monday at the Investor Day, I'm gonna share with you some charts specific to industry projections. You know, I tend on these calls to share, as surveys come out, I try to share with you all what we're hearing about demand in the industry generally. I'm gonna give you some more information about that on Monday at the Investor Day. But yeah, it's definitely the spending is up overall in the industry, Jack Henry is clearly a beneficiary of that, but that is baked into all the comments that Kevin made earlier about what we're looking at for FY 2023, what we're experiencing today, and what we're looking at for FY 2023. That's not new news to us. We really started to see that being telegraphed to us with those first surveys that came out last September, I think, if I remember correctly. Everything we've seen since then has supported that idea. We've baked that into everything that we're working on right now as far as budgets for FY 23. Great. Excellent execution this quarter. Thanks so much. Thank you, Dominick. The next question comes from David Koning with Baird. Please go ahead. Yeah. Hey, guys. Great job. Maybe if I could kick it off on the payment segment. David Togut kind of asked about the breakdown, but debit I think decelerated in general across the industry, so no surprise that yours did a little bit. What's kind of interesting, last year, yours accelerated a ton in Q4. I actually don't know if that creates a tough comp for Q4 this year, or if that was just a normalization, you can actually still grow 9%-10% Q4 this year. I just wanna kinda understand that. Well, a couple things, Dave. Last year was a little more rapid growth coming out of COVID compared to the previous year, because remember the previous year, our Q4 was very weak, just like everybody else in the industry. It is a little tougher comp, but with the backlog of sales that we're having, I mean, I still feel we're gonna have really solid growth in all of our lines of payments in Q4 compared to last year, even with a little tougher comps. Yeah. That's what it looked like. No, that's great. Secondly, you know, there's a lot of like just comp issues for other companies that have either stimulus benefits or wallets that all kind of tie in with stimulus. You seem to have none of that, but is there actually almost a benefit that you get? You know, we kind of went through this cycle where a lot of people got these wallets and Cash App and all this stuff, and maybe come back now and say, "Okay, that worked for a little bit, but I just want a bank now." You know, that you might benefit from some consumer demand that way. That's a good question. I don't know that I could say, yes, that's happening, or yes, we're gonna benefit from that. I believe there is, you know, there has not been a slowdown in demand or interest in the services from our customers. We don't have customers that have lost a bunch of share or something like that, you know, as a result of these people experimenting with new applications or fintech-y, you know, fintech-y type solutions. I don't know that I would say, "Oh, there's some big opportunity here," because people will kind of revert back to working. Now that their bank or credit union has cooler technology, they're gonna revert back to work primarily with their bank or credit union. I don't know that they stopped working with their bank or credit union. Remember that we get paid, you know, on, when it comes to our primary businesses, it's on number of, customers that we're supporting, number of accounts, number of assets. Of course, there is the transaction volume, but, since we're not an acquirer, we're an issuer, you know, we normally are getting that anyway. I don't think that I would want to hang my hat on that as a big opportunity, but I might be missing something. All right. Thanks, guys. Good job. Sure. Thanks. The next question comes from John Davis with Raymond James. Please go ahead. Hey, good morning, guys. Kevin, just wanted to start out on your preliminary outlook for the payments business or segment for next year, the 9%-10%, and I realize it's really early, so I'm not trying to nail you down on this. Have you contemplated further kind of debit mix normalization in that? And, you know, are you guys seeing much of an impact at all from, you know, as a little bit of a follow-up to Dave's question, just credit becoming a bigger part of the mix as we kind of exit the pandemic? You know, we've not seen a lot of that, JD. Obviously, the other thing I would say is, you know, we are now offering full service credit, which we weren't even offering that a year ago. Even as it moves to credit, we've got that opportunity in front of us now. I mean, I think we're gonna see some shift from debit to credit, but so far we've not seen much of an impact on our business. Okay. Dave, maybe switching to capital allocation for a second. You know, no buybacks in the quarter. You guys have a great currency. You know, thoughts on M&A as some of these valuations have come in. Should we read into anything with no buybacks this quarter, despite you know, obviously a very healthy balance sheet? Just any comments there would be helpful. I've said in many forums here in the past few months that I'm pretty optimistic about calendar 2022 as a year where Jack Henry can get back into the game as far as M&A is concerned. You know, we say all the time that acquisitions are at the top of our list always. We know that we're a good acquirer. We're a disciplined acquirer. We know how to integrate companies well. What I've said for the last several months is you have several companies who went public last year who probably, you know, technically shouldn't have gone public, and now, you know, their valuation has dropped significantly. They have shareholders that are kind of wondering what the future looks like. There may be opportunity there. I think the greater opportunity is there are a lot of companies in our space who were on the sidelines, who were kind of prepping to go public, given the frothiness of the market, and now that has all stopped. If you're running a nice little company and you're sitting on the sideline thinking you were gonna IPO, and now that is not gonna happen and you're contemplating a capital raise or find a really nice strategic partner like Jack Henry, I think I think you would look seriously at talking to Jack Henry. We are prepared for those opportunities, and I'm very hopeful that we're gonna see some of those here this calendar year. Okay. I'm gonna squeeze one more in if I can. Just there's been a lot of talk among investors around CPI escalators, you know, in the industry just broadly. You know, I think most management teams have kind of talked down the impact just given that there's caps, but obviously with inflation running as hot as it is right now. Just curious on how you guys think about the CPI inflators or escalators, how material are they? Any color there would be helpful. Yeah, we do have CPI escalators, and I always say virtually all of our contracts. You know, keeping in mind we've acquired a lot of companies here over the last years, and some of those contracts are still in place. I can't say absolutely that every single contract has a CPI escalator opportunity, but virtually all of them have escalators. We have already in several cases deployed those already this year. We have others that are coming up with our annual billings that happen here now in next month, I guess it is, or this month. They are happening. You know, the thing I always remind everybody, our business, our customers are bankers. They're banks and credit unions. They understand what's going on in the economy, right? They understand what's reasonable and what's not. At Jack Henry, we've always taken the position that, you know, just because we could do X% as a CPI accelerator, if that's not a reasonable number, we're not gonna go up to X. We have taken a position that I think is reasonable. It supports the business model that we have. It's also been taken as reasonable by our customers. I think it offsets, you know, much of what we see happening in the market, but it's the approach that we're gonna continue to take. We'll do reasonable escalations using the CPI opportunity where it makes sense. Okay. Appreciate it, guys. Yep. The next question comes from Kenneth Suchoski with Autonomous Research. Please go ahead. I'm gonna ask about the fiscal Q4 margin guide. It looks like there's some implied margin pressure next quarter, and we were estimating about 150 basis points year-over-year impact from lower deconversion fees. I was thinking you'd have some margin expansion ex that impact. Maybe you could just give us your thoughts there on what's impacting the margin, and maybe you could also touch on the CapEx and expense expectations related to the next-gen tech strategy that you guys are pursuing. Well, as far as Q4 margins on a non-GAAP basis, we expect to have some slight margin expansion, probably not as what we've seen in the first three quarters, but we expect to see some. You're right. There's gonna be on a GAAP perspective, with only predicting that we're gonna have, you know, $1 million or $2 million in deconversion fees compared to last year, there is gonna be some margin pressure on a GAAP basis going forward in Q4. Overall, we feel like the margins on it, especially on a non-GAAP basis, will still be strong. I'll let Dave handle the CapEx on the new tech. Can you rephrase that part of the question, Ken? Yeah. I was just wondering what type of, you know, CapEx, that you guys are penciling in, and then anything on the expense side that you would expense through the P&L, that you would have to pursue this next-gen tech strategy. So- Yeah. Keep in mind, we've been absorbing both the expense line and the CapEx line. We've been absorbing for more than two and a half years, as I stressed on the last call. This isn't something new. It's been baked into the P&L. The numbers have been flowing through the P&L for two and a half years. We just never called it out as part of the P&L. That rate is going to continue essentially at the same rate. I said on the last call, and I'll say it again, we're committed to 14% of revenue as an R&D investment. That includes this technology modernization strategy. If you look back five years or so, you'll see us running at roughly 14% of revenue that we're putting back into R&D, and we're gonna continue at that rate going forward, including this tech modernization strategy. You won't see any great big spike in either the CapEx side of the equation or the P&L impact, direct-to-expense side of the equation because of this strategy. Okay. This is very similar to everything we've done for years. This is not a big bang approach. Right. As we get the various components done, like the ones that are in beta right now, those will be rolled out into production, and the amortization will begin at that time. It's not like we're gonna wait till the whole thing's done in 10 years and then start expensing the whole thing. They will be rolled out as components go into general availability. Okay. That makes a lot of sense. The bookings were really strong in the quarter. Can you just talk about what's driving that sales success? I mean, how much of that is driven by the offering you have in the overall environment versus something you're doing that's unique in your go-to-market strategy? Maybe you could touch on the full service credit offering that you now have. I mean, how are sales progressing there? Yeah. Those aren't mutually exclusive. You asked if it was, you know, what's going on in the industry or is it something specific that Jack Henry is doing? I would say it's both. You know, the industry, you know, rising tide raises all boats, and that is definitely happening. The spend environment in our space has increased, has improved in the past year. Jack Henry is definitely a beneficiary of that. I think you know, the product mix that we have, all these new things that we've been rolling out here in the past couple, three years, and the announcement. I alluded to this on the last call, and I'll just say it very specifically, although we just publicly announced the tech modernization strategy on the last earnings call, we had taken customers under the covers with NDAs for several months. You know, customers who were thinking about, do I wanna do business with Jack Henry? What does your future look like? If we sign with Jack Henry, you know, where are you guys going as far as technology is concerned? We had taken customers under the covers for months before the public announcement. I think virtually every one of them that we took under the covers, they said, "We wanna go with you guys because we see the future with Jack Henry." I think that is a unique piece. Pretty much everything else is the combination of the improved spending environment and then this recognition that Jack Henry has received broadly for doing a lot of innovative things, rolling out new products, and really focusing on taking care of community and regional financial institutions in the United States. The fact that we didn't pursue the merchant acquiring business, you know. Our customers know that we're focused on them and their success, and that's continuing to drive new opportunities for Jack Henry. Absolutely. Maybe I could sneak one more in. Just the free cash flow conversion, I mean, still a little bit below 100% on a trailing twelve-month basis, but ticked up a little bit versus last quarter. Could you just provide your expectations on how you expect that to trend into fiscal year 2023? Well, I think it's gonna trend back, you know, right at 100%, if not better. I mean, again, Ken, you gotta remember our Q4 and Q1 are our strongest free cash flow quarters because of the annual maintenance billings for all of our on-prem customers, which goes out the first of June. Both our operating cash flow and especially free cash flow are the highest in Q4 and Q1. A lot of that, if you look at a year-over-year basis on a fiscal basis, some of that can depend on when we actually collect those fees from our customers, whether we collect in Q4 or Q1, 'cause they're just a matter of timing on that. But on a trailing twelve months, we should be back up to close to 100% conversion. Great. Thank you guys. Yep. The next question comes from Charles Nabhan. Before we get to him, just a reminder, if you'd like to ask a question, press star then one. Charles Nabhan, your line is now unmuted. Hi, good morning, and thank you for taking my question. It's good to see the normalization in core wins over the past couple of quarters. I know you alluded to a couple of multi-billion dollar banks in that 14 this quarter. I'm curious, just looking back, would you say that the average size of the bank or credit union that you're winning is larger than it has been over the past couple of years? Secondly, if we think about the systems that those banks or credit unions may be running, could you speak to the nature of the systems that you're displacing within your takeaways? Sure, Charles, intuitive question on your part. I'll definitely tell you that. Absolutely. The size of institutions that we're winning has gone up, and in some cases fairly significantly. We just had our sales budget planning meeting last week for preparing for FY 2023. Financial budgets, you know, we're just starting, but you have to do the sales budget planning before you can do financial budgets. That was a big topic of conversation with our sales leaders that in the past couple of years, the size of institution that we're winning overall has definitely gone up. Like I say, in some cases fairly significantly. That is absolutely true. Then, what was the H2 of your question? Sorry. Or Kevin, do you have it? No. Chuck, would you repeat that? The types of systems that you're displacing. Oh, yeah. whether it's first gen, in-house, et cetera. We're certainly winning some in-house customers away, people who are running in-house on-prem today. We are winning. It's interesting, most of our wins, if you'd asked me this question two, three years ago, most of the wins would have been from competitors who were supporting older systems and their customers were frustrated because they weren't putting enough investment into these older systems. Today, it's across the board. There are still lots of older systems out there where people are frustrated that they don't think there's enough investment, and we are winning those opportunities. We're winning the, you know, the flagship customers. Customers who are running the flagship solution from some of our competitors, we're winning those deals today as well. It's been an interesting shift I think because it used to be really difficult to displace somebody off of a flagship solution from one of our major competitors. Today that's happening more than it did in the past. Thanks. I guess as a follow-up, I would think this is gonna be a topic of conversation next week at the Analyst Day, but I wanted to get a little color around your product roadmap, and I guess how you think about M&A versus organic product development. Secondly, whether you see that product roadmap is mainly focused on augmenting existing solutions or, you know, perhaps branching out into an area that you're not currently as deep in. You know, if you look back at our company 15 years ago, we were doing a lot of M&A to bring innovative technology into the company. We did, you know, there was one year we did six acquisitions in one year, all different products. In the past couple of years, it's been almost impossible to get a deal done because valuations were crazy. We've focused heavily on organic development efforts. Today and just before the pandemic, I think we were really good at doing the build-buy-partner analysis at Jack Henry. When we see an opportunity, we run through this process of do we build it ourselves? Is there something we could acquire or is there a partnership that makes the most sense for us to pursue? I think we have a healthy balance of that today. Now with the environment changing a little bit as far as valuations, I think we can really get back into that mode again. You know, the challenge as far as the good news and the bad news as far as our product portfolio is we don't have many holes in our product portfolio. It's not like we're desperate to go get a solution to fill a hole because customer demand is so strong. You know, we're really pretty complete as far as our product suite. Most of the acquisitions we look at are things we can connect to something we already have and create that one plus one equals three type scenario for Jack Henry customers. We're always looking for those opportunities. As far as the new development, you know, we're creating new solutions regularly. We have a new fraud solution that's under development right now that we'll talk about a little bit on Monday. And those efforts continue as well. It's a good, healthy mix, I think, for our company today when it comes to what things do we acquire, what do we look at acquiring versus what things should we write ourselves. Great. Thank you. Sure. Ladies and gentlemen, this concludes our question and answer session. I'll turn the conference back over to Mr. Kevin Williams for any closing remarks. Thanks, Tom. Again, as Dave mentioned, we do look forward to hosting many of you on the call next Monday in Dallas at our Annual Investors Day, which is being held at the Hyatt DFW, Dallas Fort Worth Airport, beginning at 1:00 P.M. with registration beginning about 11:00 A.M. Again, after the presentations, we will have a mini tech fair and show off some of, I think, five of our newer, hotter products that are out there. With that, we are pleased with the results from our ongoing operations, and we're excited for the future. I wanna thank all of our associates for the way they've handled these challenges by taking care of themselves and our customers, and continue 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 shareholders. I wanna thank you again for joining us today. With that, Tom, will you please provide the replay number? Yes. The phone number you dial is for United States toll-free 1-877-344-7529, and the United States local toll number being 1-412-317-0088. When prompted to enter a code, please enter 4203516. Again, that replay code is 4203516. Thank you all very much for attending. This conference has now concluded. You may now disconnect.