Jack Henry & Associates Q2 Earnings Call Highlights

Jack Henry & Associates (NASDAQ:JKHY) reported what management called a record second quarter for fiscal 2026, highlighting solid revenue growth, meaningful operating margin expansion, and strong competitive sales execution. Executives also raised full-year guidance for a second consecutive time, citing continued demand from banks and credit unions, a healthy pipeline across core and ancillary products, and improving visibility into free cash flow.

Record quarter driven by recurring revenue and margin expansion

President and CEO Greg Adelson said the company produced record second-quarter results with non-GAAP revenue of $611 million, up 6.7% year over year. Non-GAAP operating margin was 25.1%, representing 355 basis points of expansion versus the prior-year quarter.

CFO and Treasurer Mimi Carsley added that GAAP revenue increased 8% in the quarter and fiscal year-to-date, while non-GAAP revenue increased 7% for the quarter and 8% for the year. Carsley noted quarterly growth was negatively affected by the shift of the company’s Connect client conference into the first quarter from the second quarter; excluding that timing impact, she said non-GAAP revenue growth would have been about 8% for the quarter.

Total recurring revenue exceeded 92%, according to Carsley. Cloud revenue rose 8% in the quarter and represented 33% of total revenue. Processing revenue, which represented 44% of total revenue, grew 9% on a GAAP basis and 8% on a non-GAAP basis, driven by increased digital, card, and faster payment processing revenue.

On profitability, Carsley said second-quarter non-GAAP margin benefited from operating leverage, strategic cost management, the use of enterprise process improvement and AI, and lower self-insured medical costs that she characterized as not expected to be sustainable. Management said it expects benefits costs to return to more normalized levels in the second half of the year, pressuring margins.

Jack Henry posted GAAP EPS of $0.72 for the second quarter, up 29%. For the first half of the fiscal year, GAAP EPS was $3.70, an increase of 24%.

Sales momentum and market share gains amid industry consolidation

Adelson highlighted a strong competitive sales quarter, with the core sales team delivering 22 competitive core wins. Of those wins, four were with financial institutions with more than $1 billion in assets, and 15 included core digital banking and card solutions.

He said “trifecta wins” have increased over the past 12 months, and that 68% of new core wins this quarter included both digital and card processing, compared with 45% in the second quarter of fiscal 2025.

Management discussed a competitor’s recently announced core consolidation and said it has positively impacted Jack Henry’s pipelines for core, payments, and complementary solutions. Adelson said the Q2 results were minimally affected due to deal timing, but executives described an uptick in pipeline activity since the announcement. In Q&A, Adelson said pricing trends in core and ancillary services have been “pretty consistent” over the past couple of years and emphasized Jack Henry “is never the lowest cost provider.”

Adelson also pointed to long-term market share gains despite financial institution consolidation. Over the past eight years, he said Jack Henry’s core market share among banks increased 17% and credit union market share expanded 40%. Among institutions with more than $1 billion in assets, he said market share rose 32% for banks and 12% for credit unions over the same period. Management attributed gains to client growth through M&A, success in “winning mergers,” and broad relationships across the U.S. financial institution landscape.

Product updates: SMB, faster payments, platform modernization, and stablecoins

Management provided several updates on newer initiatives. Adelson said the company is seeing strong reaction to Tap2Local, a cloud-native merchant acquiring solution offered through banks and credit unions in partnership with Moov. Tap2Local is being rolled out in waves to Banno clients, with 300 clients live in November and December, another 100 clients rolled out recently, and a plan to add 100 to 150 per month. Adelson said management expects to share additional data points on the May earnings call.

Jack Henry also highlighted early traction for Rapid Transfers, which allows SMBs and consumers to move funds between external accounts, eligible cards, and digital wallets. Adelson said Rapid Transfers is live with 75 clients, with another 180 in various stages of onboarding.

On digital assets, Adelson said Jack Henry is in beta testing with multiple financial institutions to send and receive USDC as part of its stablecoin strategy and is evaluating “over 20” stablecoin infrastructure, compliance, and payments fintechs for potential partnerships.

Adelson also discussed embedded payments and banking-as-a-service initiatives following the Victor Technologies acquisition (completed Sept. 30). He said integration is progressing well and that Jack Henry is extending Victor’s capabilities beyond SilverLake and PayCenter to serve Scimitar credit union clients and integrate directly with the Jack Henry platform. Management also described plans to leverage Victor APIs to complement treasury management offerings, and said it added a team that will work directly with fintechs to bring opportunities to its financial institution clients.

Regarding platform modernization, Adelson said Jack Henry has developed 22 components on its cloud-native, API-first platform, and expects multiple clients to test a new cloud-native deposit-only core functionality in the second quarter of the calendar year.

Segment performance: growth across core, payments, and complementary

Carsley said results were positive across all three operating segments:

• Core: non-GAAP revenue increased 7% in the quarter, with operating margin up five basis points. Adelson noted 10 on-premise to private cloud contracts in Q2, including five with institutions over $1 billion in assets. He said 78% of core clients are operating in the private cloud and that private cloud clients generate about 2x the revenue of on-premise clients on average.
• Payments: non-GAAP revenue increased 6% and segment non-GAAP operating margin expanded 200 basis points. Management cited resilience in card-related services, consistent EPS growth, and faster payments growth on a smaller dollar base. Adelson said payment transaction volume through Zelle, the Clearing House RTP network, and FedNow increased 49% year over year in Q2, while the number of financial institutions using those rails increased 22%, 26%, and 32%, respectively, over the past year.
• Complementary: non-GAAP revenue increased 9% with 58 basis points of margin expansion. The company signed 48 new financial crimes defender and faster payment module contracts in the quarter. As of Dec. 31, management said it had 164 financial crimes installations completed (with 64 in implementation) and 141 faster payment modules installed (with 227 in implementation).

On Banno, Adelson said the company signed 84 clients in the quarter and now has 1,037 Banno retail clients and 435 live with Banno Business. Registered users rose to 15.2 million, up 15% year over year.

Cash flow, capital allocation, and raised fiscal 2026 guidance

Carsley said operating cash flow was $153 million in Q2, up $63 million from the prior-year quarter, and free cash flow was $103 million, up $74 million. She also cited a trailing 12-month non-GAAP return on invested capital of 23%, compared with 19% a year earlier.

In capital allocation, management highlighted $125 million of share repurchases (average price $157), $84 million in dividends paid through the end of calendar 2025, and the Victor Technologies asset acquisition. Carsley said the company ended the quarter with minimal debt and expects to exit the year debt-free absent acquisitions or other opportunities.

For guidance, Carsley announced a second consecutive increase to fiscal 2026 outlook, including:

• Deconversion revenue guidance: increased to $28 million.
• GAAP revenue growth: increased to 5.6% to 6.3%.
• Non-GAAP revenue growth: increased and tightened to 6.4% to 7.1%, with management expecting lower growth in the second half than the first.
• Non-GAAP margin expansion: raised to 50 to 75 basis points, with margins projected to contract in the back half due to benefits and workforce timing.
• GAAP EPS: guided to $6.61 to $6.72, representing 6% to 8% growth.
• GAAP tax rate: estimated at 23.25%.
• Free cash flow conversion: expected at 90% to 100%, with a bias toward the high end.

During Q&A, management also discussed AI, arguing that the impact on software economics is being misunderstood in some market commentary. Adelson said Jack Henry does not rely on seat licenses and is using AI both in back-office efficiency and in new products. Carsley added that the company’s multi-year move toward public cloud infrastructure supports a DevOps environment that can increase velocity of enhancements.

Management closed by reiterating confidence in the remainder of fiscal 2026, citing demand trends, a robust sales pipeline, and strong competitive win rates, while acknowledging second-half headwinds from normalized medical benefit costs and other expense timing.

About Jack Henry & Associates (NASDAQ:JKHY)

Jack Henry & Associates, Inc is a leading provider of technology solutions and payment processing services for the financial services industry. Founded in 1976 and headquartered in Monett, Missouri, the company develops and supports a comprehensive suite of software and services designed to help banks, credit unions and other financial institutions streamline operations, improve customer engagement and manage risk.

The company’s core processing platforms deliver end-to-end account processing, general ledger, deposit operations and loan servicing functionality.