Jack Henry & Associates - Earnings Call - Q3 2025

Executive Summary

• Solid quarter with revenue growth and strong margin expansion: GAAP revenue $585.1M (+8.6% YoY), GAAP EPS $1.52 (+27.6% YoY); non-GAAP operating margin expanded ~210 bps YoY to 22.9% as mix shifted toward higher‑margin cloud and processing.
• Mixed vs estimates: EPS beat consensus (Primary EPS $1.45 actual vs $1.33 est; GAAP EPS $1.52) while revenue was slightly below ($585.1M vs $587.7M est). Beat driven by cost discipline and mix; miss tied to softer non-key revenue (hardware, project delays) and cautious consumer debit volumes. Estimates from S&P Global*.
• Guidance pivot: Revenue guidance lowered on hardware and project timing, but operating margin and EPS guidance raised on higher incremental margins and expense control; FY25 GAAP EPS now $6.00–$6.09 (from $5.78–$5.87), GAAP operating margin 23.5–23.7% (from 23.0–23.2%).
• Strategic traction continues: 28 YTD new core wins (11 in Q3) totaling $30B in assets; faster payments and Banno adoption rising; 76% of clients now on Jack Henry private cloud; public cloud‑native deposit core targeted 1H’26.
• Potential stock catalysts: raised margin/EPS guide, accelerating core wins and faster payments adoption; offset by near‑term headwinds in hardware/consulting and debit volumes that drove lower revenue guide.

What Went Well and What Went Wrong

What Went Well

• Margin expansion and earnings outperformance: Non-GAAP operating margin rose to 22.9% (+207 bps YoY); GAAP EPS $1.52 up 27.6% YoY on mix and cost control.
• Key revenue engines accelerated: Cloud (data processing & hosting) +12% YoY; processing +8.9% YoY; together ~76% of total revenue in Q3 and grew ~9.8% YoY, supporting guidance raise for margins/EPS.
• Sales and platform momentum: 28 YTD core wins (11 in Q3) totaling $30B in assets; Banno registered users >13.7M (+18% YoY); growing adoption of Zelle (354), RTP (384), FedNow (370).

What Went Wrong

• Revenue headwinds in non-key items: License and hardware softness (hardware −$4M YoY) and delayed non‑recurring projects tempered growth; non‑GAAP revenue growth 7% would have been 7.8% ex-hardware.
• Guide cut for revenue amid macro caution: Lowered FY25 GAAP/non‑GAAP revenue outlook on hardware weakness, delayed implementations, and risk of softer transaction volumes on cautious consumers.
• Early signs of debit pressure: Management noted softening in debit card transactions and mix shift risk toward credit; introduced conservatism for Q4.

Transcript

Moderator (participant)

Good day, and welcome to the Jack Henry & Associates Third Quarter Fiscal Year 2025 Results Conference Call. All participants will be in the listen-only mode. Should you assist us during the conference call, please signal your conference specialist by pressing star, followed by the key zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you press star and one on your touchstone phone. To withdraw your question, you may press star and two. Please note that this conference is being recorded. I would now like to turn the conference over to Mr. Vance Sherard, the Vice President. Thank you, and over to you.

Vance Sherard (VP of Investor Relations)

Thank you, Myron. Good morning, and thank you for joining the Jack Henry Third Quarter Fiscal 2025 Earnings Call. Joining me today are Greg Adelson, President and CEO, and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will share his insights and observations on our quarter and year-to-date financial results, operational metrics, and outlook. Mimi will then discuss the financial results provided in yesterday's press release, which is available in 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 turn the call over to Greg.

Greg Adelson (President and CEO)

Thank you, Vance. Good morning, and I appreciate each of you joining the call. I'd like to begin by thanking our associates for their hard work and dedication to our success, consistently going above and beyond and taking care of our clients. Our commitment to people-first culture, service excellence, technology innovation, and a clear strategy backed by consistent execution continues to differentiate us in the market. I will share 3 main takeaways from the quarter, and then we'll provide additional detail about our overall business. First, our financial performance. Our third quarter fiscal year 2025 results reflect solid overall performance. Our non-GAAP revenue increased 7%, and our non-GAAP operating margin was 23%, representing an impressive 207 basis points of margin expansion over last year. In terms of GAAP revenue, we are starting to see an increase in M&A activity, and our Q3 deconversion revenue was $9.6 million.

We expect a continuation of increased deconversion revenue in Q4. Thus, we are forecasting a full-year deconversion revenue range of $22 million-$28 million. Second, our fiscal 2025 guidance. As you saw in the press release and with three quarters now closed, we adjusted our full-year guidance for GAAP and non-GAAP revenue, margin expansion, and EPS. Despite revenue guidance revisions, our primary or key revenue, consistent mostly of processing and cloud, was 76% of total revenue for the quarter and grew at 9.8% versus a growth rate of 8.8% for Q3 fiscal year 2024. The adjusted non-GAAP revenue guidance is primarily due to macroeconomic concerns and the softening of non-strategic revenue, such as hardware purchases and consulting engagements. As most of you know, hardware is sold to our in-house processing clients at a time they desire to add or replace equipment.

Similar to hardware purchases, we are seeing some customers delay the start of signed non-recurring projects. Examples include one-off work orders and the implementation of post-core conversion products in our complementary and payment segments. We are also seeing some softening in debit card transactions, which is similar to what the card associations experience in their U.S. debit businesses. Based on these factors and what we have seen through April, we felt it was necessary to lower our revenue guidance. However, due to our key revenue growth at higher incremental margins, as well as our disciplined approach to expense management, project prioritization, and capital expenditures, we have increased our GAAP and non-GAAP guidance on margin expansion and EPS growth. Mimi will provide more details in her comments. Third, we are continuing to win larger competitive core deals.

Over the past two years, the aggregate assets of competitive new core takeaways have more than doubled. This is important to note since our core revenue models include asset-based and per-account pricing options, both benefiting from larger institution wins. To date this fiscal year, we have secured 28 new core wins, including 11 in Q3, with financial institutions totaling $30 billion in assets. This compares to 35 core transactions totaling $21 billion in assets at this time last year and 31 core deals totaling $14 billion in assets two years ago. Our core and total pipeline remain very strong, and we will see a significant increase in competitive core wins in Q4 over the previous three quarters. We can expect a win total similar to what we did in Q4 last year and again with larger asset financial institutions.

In addition to core wins, we are seeing a similar trend in migrations of existing customers from in-house processing to our private cloud. This fiscal year to date, we have contracted to migrate 26 clients, including 7 in Q3, that total $42 billion in assets. That compares to 29 clients with $27 billion in assets at this time last year, representing a 55% increase in assets. We currently have 76% of our clients processing in the Jack Henry Private Cloud environment. Our success with new core wins and migration aligns well with the core platform survey results published by the American Bankers Association in February. For the first time, the ABA named the core providers. Previously, they used generic labels like Company A, B, and C. The title of the report is "All Core Platform Providers Are Not the Same," and we wholeheartedly agree.

Jack Henry scored near the top across multiple categories, and when the respondents were asked what matters most in a core provider, innovation and customer service topped the list, definitely two key differentiators for Jack Henry. Turning to specific product and strategy updates, I will comment on the payments and complementary segments followed by providing updates on technology modernization, our new SMB solutions, and our annual benchmark survey results. In our payments segment, we continue to experience strong growth with our faster payment solutions. Over the past year, we've grown the number of FIs using Zelle by 10%, the clearing houses RTP network by 37%, and FedNow by 96%. We now have 354 clients on the Zelle platform, representing 14% of FIs using Zelle, 384 clients on RTP, representing 43% of FIs using RTP, and 370 clients on FedNow, representing 26% of FIs using FedNow.

In our complementary segment, 32 contracts were signed in the quarter for Financial Crimes Defender, or FCD, Faster Payment Fraud Module, a real-time solution designed to mitigate fraud in Zelle, RTP, and FedNow transactions. As of the end of March, we have installed 115 Financial Crimes Defender customers and have another 83 in various stages of implementation. We also have 69 Faster Payment Modules installed and 160 in various stages of implementation. Our Banno digital platform continues to experience healthy growth, with 29 new Banno platform contracts in the quarter. At the end of March, we had more than 1,000 Banno platform clients, including 270 live with Banno Business. We finished the quarter with more than 13.7 million registered users on the Banno platform. At the end of Q3 last year, we had 11.6 million registered users, an 18% increase over the past 12 months.

Regarding our technology modernization, we continue to execute very well and ahead of schedule on our core strategy for the new public cloud-native Jack Henry platform. We are now live in various stages with 15 components. Some of these are only used internally to eliminate duplication of development costs across the company, but most are utilized by our clients and are getting favorable reviews. As a result of the efforts of our development teams, we remain on track to deliver our public cloud-native consumer and commercial deposit-only core in the first half of calendar year 2026, which will be about 6 months ahead of what we communicated in February of 2022. Another example of our technology modernization progress is our new enterprise deposit and loan account opening solution.

This technology enables banks and credit unions to grow loans and deposits by streamlining processes, automating workflows, and better serving retail and business clients through a single digital deposit and loan account opening experience. We have initiated our closed beta process with two clients and will continue to add more early adopter clients over the coming months. Another area of focus that the industry is excited about is our small and medium-sized business strategy. A key aspect of our strategy is to only provide the service directly to financial institutions, allowing them to recapture high-value deposits and service the needs of their account holders. Our initial offering, called Jack Henry Rapid Transfers, is in closed beta with 3 clients. We are currently extending availability to all Banno customers and actively enrolling clients through our digital operations team.

Jack Henry Rapid Transfers enables both SMBs and consumers to instantly move funds between external accounts, eligible cards, and digital wallets. We are collaborating with both Visa and Mastercard to facilitate these transactions through their respective debit rails. The second offering is our unique merchant acquiring solution in partnership with Move. This solution delivers many distinguishing features for merchants, including instant decisioning, tap-to-pay for both iOS and Android devices, the option to receive settlement funds up to 8 times per day, and continuous account reconciliation to the accounting platform of their choice. We are on track for a closed beta in June with 2 Banno clients. We are also currently working on several additional phases to our SMB strategy, as we expect to continue to deliver new functionality and solutions over the next 18-24 months to both Jack Henry and non-Jack Henry core institutions.

We recently released our 7th annual 2025 strategy benchmark survey. While we track many industry surveys, this one stands out because it reflects insights directly from the CEOs of our own bank and credit union clients. The survey indicated that 76% of our bank and credit union clients plan to increase technology spending over the next 2 years. Of those, the largest segment, 33%, plans to increase investments between 6-10%. We also asked where they expect to invest over the next 2 years. The top 3 areas identified were digital banking, fraud prevention, and enhancing efficiency through automation. All areas where Jack Henry has been investing and executing with innovative solutions such as the Banno platform, Financial Crimes Defender, and the digital deposit and loan account opening solution that I mentioned earlier.

It's worth noting that the survey was conducted in January and February prior to April's market volatility. However, we did spend a significant amount of time speaking with our clients about the current environment at our strategic insights event last week in Minneapolis. Much of what we learned in the survey still holds true for them today. Banks and credit unions are generally concerned about the impact of tariffs on their commercial clients, especially SMBs. They remain optimistic overall and see expected regulatory relief as a positive as well. Our clients continue to suggest that M&A activity is picking up, and we are also seeing an increase in our clients making acquisitions, which presents additional revenue opportunities in the future.

In closing, we remain excited and confident that our unwavering approach to culture, service, innovation, strategy, and execution will continue to enable Jack Henry to drive industry-leading revenue growth and margin expansion through this evolving macro environment. We have a robust sales pipeline and a proven ability to attract and win deals, especially with larger financial institutions. We will continue to evaluate acquisitions that will accelerate or complement our strategy, remain disciplined in our expense management, and continue to rationalize products that fall in our non-key revenue segment. In short, we remain well-positioned for the future. With that, I'll turn it over to Mimi for more detail on the financials.

Mimi Carsley (CFO and Treasurer)

Thank you, Greg, and good morning, everyone. I want to open by thanking the dedicated Jack Henry team for their steadfast focus on execution and support of our clients.

While the quarter results differed modestly from our fiscal year expectations, it was another quarter of solid revenue and earnings growth. I will discuss the details behind our third quarter and year-to-date results, then conclude with commentary on our updated fiscal 2025 guidance. Q3 GAAP and non-GAAP revenue increased 9% and 7%, respectively, with GAAP revenue outperformance driven by a notable uptick in deconversion revenue. Despite strong performance in previously identified key areas, overall non-GAAP revenue growth was tempered by lower non-key revenue growth, especially from a slowdown in hardware sales and non-recurring revenue from customer projects. Excluding hardware impact, Q3 non-GAAP revenue growth would have been 8%. Quarterly deconversion revenue of approximately $9.6 million, which we released prior to full earnings, increased $8.8 million compared to the same period last year, reflecting an accelerating pace of consolidation in the industry.

In light of year-to-date results and fourth quarter pending agreements, we have raised our full-year deconversion guidance to a range of $22 million-$28 million. Financial institution M&A activity will have minimal non-GAAP impact in fiscal 2025, but potential for a meaningful impact in fiscal 2026. Now, looking closer to the quarterly results, in the quarter, GAAP and non-GAAP services and support revenue increased 8% and 6%, respectively. Data processing and hosting continue to dominate services and support revenue growth for the quarter and year-to-date. Hardware revenue is down $4 million in the quarter and $11 million year-to-date, creating headwinds for services and support revenue. As a reminder, hardware revenue is both non-recurring and low visibility, making it a part of non-key revenue. Our private and public cloud offerings increased 11% in the quarter, reflecting strong, persistent new install and existing FI growth trends.

This recurring revenue growth contributor is 33% of our total revenue and continues to be a double-digit growth engine. Moving to processing revenue, which is 43% of quarterly revenue and a significant contributor to our long-term growth model, we saw strong performance with 9% growth on both a GAAP and non-GAAP basis for the quarter. Continuing long-term trends, quarterly drivers include increased card, digital, and payment processing revenues. Completing complementary revenue, I would highlight quarterly total recurring revenue, excluding deconversion revenue, was 92%. We focus on key revenue, which is comprised of our strategic recurring revenue. Non-key revenue includes lower growth and margin solutions that are typically non-recurring or not aligned to our future strategic direction, yet often support existing operations. Quarterly key revenue was 78% of total non-GAAP revenue and grew a robust 10%.

The year-to-date key revenue was 75% of total non-GAAP revenue, with continued momentum producing healthy growth of 9%. Quarterly non-key revenue makes up the remaining non-GAAP revenue, and during the quarter and year-to-date, has contracted 2%, creating a headwind to total growth. While Jack Henry is not immune to the broader macroeconomic challenges, the high recurring revenue, long-term contracts, and critical functionality of our products ensure the resiliency of our business model. We are well-positioned regardless of economic conditions. Next, moving to expenses. Starting with cost of revenue, which increased 4% on a GAAP basis and 3% on a non-GAAP basis during the quarter. The quarterly increase was due to higher direct costs, internal licenses, and fees, which were partly offset by increase in labor cost deferral. For clarification and to assist with models, the amortization of acquisition-related intangibles was $6 million in the quarter.

Next, R&D expense increased 9% on both a GAAP and non-GAAP basis for the quarter. The quarterly increase was primarily related to net personnel costs. Ending with SG&A expense, it increased 7% for the quarter on a GAAP basis and 5% on a non-GAAP basis. This is also related to an increase in net personnel costs. We remain focused on prioritization, cost efficiencies, and effective utilization of our workforce that will result in annually compounding margin expansion. We are pleased to report that the quarter delivered 207 basis points increase in non-GAAP margin to 23%. We remain confident in our ability to deliver margin expansion and have increased the full-year guide. These solid quarterly operating results produced a fully diluted GAAP earnings per share of $1.52, up 28%.

Reviewing the 3 operating segments, we are pleased with core segment key revenue performance, monitoring payments for consumer sentiment impacts, and continue to benefit from strong complementary performance. Core segment increased 6% for the quarter on a non-GAAP basis due to the headwinds from license and credit union hardware that rolls up into this segment. On a key basis, the segment revenue grew 11%, a 10 basis point increase over the prior period. Core segment performance primarily came from organic growth in data processing and hosting, partly offset by lower maintenance fee revenue and credit union-related hardware, the result of our core clients continuing to shift from on-premise to private cloud. Non-GAAP segment income margin for core increased 141 basis points from improved operating leverage. Payment segment non-GAAP quarterly revenue increased 7% and saw non-GAAP segment income margin growth of 59 basis points.

This performance was due to continued higher card revenue from volumes, increased payment processing revenue, including FedNow, RTP, Zelle, and elevated EPS payments. Margins in the payment segment also benefited from ongoing improvement to operating leverage. Finally, complementary segment quarterly non-GAAP revenue increased 10% from strong product mix with digital and hosting revenue driving growth momentum. Segment margins strongly expanded 164 basis points from the high incremental margin of recurring revenue and SaaS-like nature of our business model. Now, let's turn to a review of cash flow and capital allocation. Third quarter operating cash flow was $108 million, a $10 million increase over the prior year's period. Strong cash flow reflects higher profitability from operations and increased deconversion revenue, partly offset by higher tax payments. Trailing 12-month free cash flow was a hearty $303 million, resulting in a 71% conversion in line with the full-year guidance range.

Our dedication to value creation resulted in a trailing 12-month return on invested capital of 20%. This is a nice improvement, and we expect to see this increase returning to historic levels in the near future. For the quarter, we repurchased $18 million of Jack Henry shares, aligned with our constructive outlook for future Jack Henry growth. As we move towards the close of fiscal 2025, I will conclude with comments on full-year guidance and other operating metrics. Yesterday's press release included adjusted fiscal 2025 full-year GAAP guidance, along with a reconciliation to our adjusted non-GAAP guidance metric. While the press release also included a fiscal 2025 non-GAAP EPS metric, this is not intended to be a new guidance metric. The purpose is to provide additional clarity on our numbers, and it should be noted that a 24% tax rate is used.

Given the current dynamic macroeconomic environment, including early signs of softness of consumer-related payments, we are adopting a more cautious stance for the remainder of the fiscal year. Updated full-year guidance metric and outlook include full-year deconversion revenue of $22 million-$28 million, up from $16 million. Non-GAAP revenue growth of 6%-6.5%, lowered from 7%-8%. Non-GAAP margin expansion of 60-70 basis points, increased from 25-40. A tax rate of 23%, decreased from 24%. GAAP EPS of $6.00-$6.09, up from $5.78-$5.87, representing annual growth of 15%-17%. Outlook for full-year free cash flow conversion is unchanged at 65%-75%. An outlook for full-year return on invested capital is 21%-22%, based on expected lower debt at the end of the fiscal year.

The appropriate performance indicator for our business continues to be the full fiscal year financial results. In conclusion, we are seeing modest headwinds to non-key revenue items that impact our consolidated results and near-term outlook. Still, we remain confident as the key parts of our business continue to perform strongly and position us for continued growth. Our focus remains on delivering long-term profitable growth at scale through compounding revenue growth and margin expansion. In pursuing these goals, we appreciate the achievement of our approximately 7,200 dedicated associates and our investors for their ongoing confidence. Myron, please open the line for questions.

Moderator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press Star and 1 on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw a question, please press Star and then 2. At this time, we will pause momentarily to assemble our roster. We have the first question from the line of Dan Perlin from RBC. Please go ahead.

Dan Perlin (Financial Technology Analyst)

Thanks. Good morning. I wanted to get back to the question, obviously, around large capital purchases for hardware being down. I completely understand that. The question is, are you seeing similar restraints when it comes to your more modernized projects and cloud migrations? Are you starting to hear elongated implementation cycles in that kind of area, or is it really just this non-recurring stuff that we are seeing right now?

Greg Adelson (President and CEO)

Hey, Dan. Yeah. It is almost all in the kind of non-recurring stuff.

We are seeing a little bit in some of the complementary and payment products that I mentioned. Mostly in what we would call kind of day 2 or kind of post-conversion, where folks have a product set that they're either waiting for a contract to terminate with a competitor, or they have an existing Jack Henry product, which is the case in most of these, where they're just delaying kind of putting the new one on. Let's say Yellowhammer to our Financial Crimes Defender product, which, by the way, also affects some consulting revenue because the consulting revenue goes hand in hand with the Financial Crimes Defender stuff. There are some examples of that. We're not really seeing any real delays in, as you described, from somebody going from in-house to outsource. They usually fill those gaps and want to take advantage of them.

I also do want to remind you that we see delays regularly throughout the year, but because there's only one quarter left and where we are with kind of the environment, especially with pure hardware sales, where folks that are in-house that are wanting to buy hardware and looking to either delay that decision for one of 2 reasons. One, that they want to wait to kind of see timing-wise and see if they have an opportunity to wait as long as they can to make those purchases. The other side is actually a really good reason, which is several of those folks are evaluating moving to our private cloud. It is through that evaluation they've also made decisions to delay those purchases as well.

Dan Perlin (Financial Technology Analyst)

Interesting. Yeah. That's great color. Just a quick follow-up for Mimi.

Mimi, you talked about M&A impacts being really kind of de minimis to this year, but you took the opportunity to kind of throw out that there could be impacts to non-GAAP revenue growth for 2026. I am just wondering if you want to put any kind of context or a finer point around that point. Thank you.

Mimi Carsley (CFO and Treasurer)

Thank you, Dan, for the question. Yes, as we talked about, we have line of sight through known when people sign the deconversion agreement. That is when we start from a revenue recognition perspective when folks are leaving. I would say we have seen an acceleration in that merger activity, roughly around 30 clients. The majority of these have been Jack Henry to Jack Henry mergers. Typically, they are cloud customers. Fantastic that we are retaining that revenue.

There can be a little bit of a modest pricing impact from a tiered pricing perspective. What usually comes later in the merger cycle, when it is a Jack Henry client doing the acquisition, we get notified pretty early on in the cycle. They want to secure their slot. What happens when it is a Jack Henry customer getting acquired away to another platform? We tend to hear about that a little later in the cycle, as well as the convert merge services that we help them with during that consolidation when it is our clients doing the acquisition are usually a little later post-approval cycle. That is why we are not really expecting to see much of that impact in FY2025. You would see more of that probably longer in the improvement cycles. We are only a couple of months into the administration.

We haven't seen a radical shift in the timing being shrunken from an approval cycle. As more deals happen and you get a little longer in that implementation and close of those deals is where we would expect to see the impact to our revenue from a positive perspective, as well as any services that we would perform for them. Just a final note on the point, on that convert merge-related Jack Henry to Jack Henry cloud, any of that, you won't see any lumpiness because that is spread out over the remaining life of the contract. It is doubtful that you would see anything noticeable in any one quarter.

Dan Perlin (Financial Technology Analyst)

That's great color. Thank you so much.

Mimi Carsley (CFO and Treasurer)

Of course.

Moderator (participant)

Thank you. We have the next question from the line of Rayna Kumar from Evercore. Please go ahead.

Rayna Kumar (Managing Director of Fintech Equity Research)

Hi, Greg and Mimi. Yeah, it's actually Oppenheimer now.

Just in terms of the project delays that you experienced in the third quarter, what are you hearing on a timeline? Are these projects that could come in later this year, or is this maybe a next-year event?

Greg Adelson (President and CEO)

Yeah. Hey, Rayna. So yeah, just you're right on. Where we are at the end of the year, like I said, this happens throughout the year on a regular basis. We're seeing a little bit more than normal, but also ones that are getting pushed into the following year. As I said, these are delays in products that they've already contracted for. It's not like they're walking away from a contract or things along that line. They're just things that are getting pushed out of the next quarter and into the next fiscal year.

Rayna Kumar (Managing Director of Fintech Equity Research)

Understood. That's helpful.

It was nice to see the strong margin expansion in the quarter. I know, Mimi, you have spoken about 20-40 basis points of margin expansion as a medium-term target. Just given the strength we saw in the high margin revenue and cost management, is that target too low?

Mimi Carsley (CFO and Treasurer)

Cost management is something that is just bread and butter for Jack Henry. It is something we have always done from zero baselining of every headcount decision to a rigorous prioritization of our capital spend. I will note that our R&D spend is 14.5% this year, down a little from last year. Last year was elevated a touch related to the payrolls acquisition and the integration needed between those 2 businesses. We are always very mindful as a leadership team.

Certainly, as we've started to see a little bit of the softness related to that non-key revenue, we've even turned up the dial a little bit more from discretionary spending controls. I feel very comfortable in the 25%-40% representing the floor of what's achievable from the model from a year-in-year-out basis. That's always just a floor, and we aim for more. Too early to see from a fiscal 2026 perspective, given where we stand in the budget timing cycle.

Greg Adelson (President and CEO)

Yeah. Rayna, one thing I want to add on that. Mimi said it, but historically, we've always done a really good job of managing our headcount and the timing of that headcount. We've taken that to another level. We have new leaders, and really, they've been trained and trained to make sure that that's part of the process. That'll continue.

Obviously, some of the things that we have to spend additional money on as far as infrastructure and other spends do vary each year. Some of that is, as we're still going through the budget process, as you know, some of that is yet to be determined on where we will end up for next year.

Mimi Carsley (CFO and Treasurer)

This year, we're up 1% on headcount.

Greg Adelson (President and CEO)

Yeah.

Rayna Kumar (Managing Director of Fintech Equity Research)

Thank you. Appreciate all the color.

Moderator (participant)

Thank you. We have the next question from the line of Vasu Govil from KBW. Please go ahead. Hi.

Vasu Govil (Managing Director)

Thank you for taking my question. I guess the first one, Mimi, just for you to follow up on the change in the revenue guide for the fourth quarter. It sounds like it's mostly hardware and these contract delays, but I think you also mentioned conservatism in the guide.

If you could just break apart the big drivers for the change, and then also if there's a way to size the overall hardware revenue for us so we sort of have a sense for how much that can drive volatility and growth.

Mimi Carsley (CFO and Treasurer)

Sure, Vasu. The guide for the remaining of the year is really just given the prudence and having conservative macro assumptions as it relates to what's going on in the economy, as well as the trends we've seen in the third quarter. Particularly, the outlook for hardware is down. As Greg mentioned, we're seeing some customers delay big capital purchases, possibly due to economic uncertainty, also as they contemplate moving to the cloud, which is a good thing for Jack Henry. In fact, FIs maybe not wanting to make those pretty expensive hardware decisions may actually help push their decisions to the cloud.

I think in the long run, that could be a great thing for Jack Henry as we're already at 76% of our clients in our private cloud environment. The headwind on hardware is about $11 million for the year. I'll call out that 80% of that falls within the corporate segment, with the remainder of that being in the core segment. I think the other is what Greg already touched upon, which is we're just seeing customers take a bit more of a cautious stance, delaying some of these non-recurring projects, mostly consulting work orders, some of the implementation of some of their post-core. As Greg mentioned, and I just want to reiterate it, these are contractual commitments they've already signed for. It's just more of a timing than a fundamental shift or a change in decision-making pattern.

Historically, we've seen anywhere between after 18 months of implementation, but it can be as long as 36 months. That really comes down to their readiness versus our resources and capability to help them. We have not seen any meaningful changes to our implementation schedule. I think it's more just out of an abundance of caution to be thoughtful. In terms of the payments impact, we just started to really see that more in April. As we sit here today, we all know that the transaction volume is based on consumer spending and how they feel. It also depends on what's top of their wallet, whether it's debit or credit. Again, just prudent in the current environment to narrow that horizon aperture of our outlook. It really more came down to what our original expectation was, which was more for a really robust fourth quarter.

In absolute, it's not that we're calling for it to drop off precipitously from the current trends. It's more just relative to our original expectation of being pretty robust.

Greg Adelson (President and CEO)

Yeah. One last point, Vasu, is that when you think about historically in tough economic times, folks tend to move to their credit versus their debit. And so based on what we saw in April, and ironically, we've actually seen pretty good volumes in May thus far, even though a short number of days so far. The reality is, based on historical around here, we've seen the use of credit accelerate over the use of debit during these times. As Mimi said, we're just being cautious with our approach and making sure that we provide that level of guidance.

Vasu Govil (Managing Director)

Great. That's very helpful color. Then, Greg, one high-level one for you.

Any change in how you're thinking about your competitive positioning following the announcement from FIS to acquire the issuer business from Global Payments? Thank you.

Greg Adelson (President and CEO)

Yeah. It's a great question. Thank you. No, I mean, I think, look, here's what I would say. When you look at the fact that they added much better credit processing capabilities with that acquisition, that's good for them. We already had credit capabilities. I think one thing that we have that is still a differentiator is that we process on a single platform for both debit and credit. That's not the case for what they have today. It's too early to see from a competitive standpoint. Specifically, that particular competitor, we didn't have a lot of challenges when it came to looking at their debit processing capabilities versus ours. We'll have to wait and see.

They're still working in the same environments as they always have as far as the type of customers they're going after and the size of asset customers. We will continue to compete as we always have at that market. As I mentioned in my opening remarks, we're very bullish on our Q4 related to core opportunities. As you know, most of those come with a lot of add-on products. I'll leave it at that.

Vasu Govil (Managing Director)

Thank you for the color.

Thank you. We have the next question from the line of Jason Kupferberg from Bank of America. Please go ahead.

Jason Kupferberg (Senior Equity Research Analyst)

Good morning, guys. It sounds like as we start thinking ahead to fiscal 2026, there might be a couple of moving parts we need to consider on the revenue line.

You've got the effect of the deconversion revenues that you highlighted as a potential headwind, but now we've got some delays and post-core add-ons being pushed into fiscal 2026, which sounds like could be a tailwind. I'm just wondering how you think those 2 dynamics might net out and what the implications could be for revenue growth next year, just in the context of the medium-term outlook of 7-8%. Is there any risk there? Thank you.

Mimi Carsley (CFO and Treasurer)

Jason, I'd love to share with you the full fiscal year 2026 picture. We're just too early in the process. Budget season is deeply underway here at Jack Henry, but it's not finalized yet for another several months. In this dynamic environment, we just can't commit on next year this far in advance.

I will say to some of your comments in terms of the tailwinds and headwinds, our sales pipeline continues to be robust. We're seeing no elongation of the sales cycle. Greg mentioned the numerous account wins, including large FIs that are still making plenty of decisions and commitments. Seeing no change in trends from that perspective. In terms of any of the deals that are being pushed from an implementation perspective, as Greg mentioned, there's always some moving of the calendar within the year. I'm not sure that that will really create a tailwind. We always manage the implementation pretty tightly. We'll see if there's enough demand for another implementation team. We'll certainly add that if it's there. I wouldn't say that that's a layering effect to the normal flow. It's a continuously evolving calendar.

In terms of just the guide, again, too early to say for sure, but I would say as a preview, the width of the revenue guide will likely expand on that. We will talk more about that in August.

Jason Kupferberg (Senior Equity Research Analyst)

Okay. No, that's definitely helpful for now. I wanted to come back to the key revenue, the cloud plus processing. Like you said, it's now 76% of total. You did actually see acceleration in the growth, almost 10% versus 9% each of the past two quarters. Are we expecting to sustain, call it that, 10% level in Q4? Is there any reason to believe that something in that kind of general neighborhood could not sustain into next year?

Mimi Carsley (CFO and Treasurer)

I think you're on the right course in terms of the ballpark you're talking about. I feel pretty comfortable. Those are the long-term strategic growth of the business.

You have things like digital. You have things like the new products, the cloud, the continued cloud migration. All of those have been long-sustainable trends for the business, and we fully expect that to continue. What has hurt us is the headwinds from the non-key business that has compressed at about 2%. That has been more of the challenge. As we have more and more as a percentage of the portfolio in that key revenue, we will continue to thrive.

Jason Kupferberg (Senior Equity Research Analyst)

Thanks, Mimi.

Moderator (participant)

Thank you. We have the next question from the line of Darrin Peller from Wolfe Research. Please go ahead.

Darrin Peller (Managing Director)

Hi, guys. Thank you. You mentioned, obviously, the step-up in consolidation you're seeing in your end markets. I think it was just brought up a little bit in the prior question around what it could mean for the future.

At the end of the day, there's positives and negatives. Obviously, you have integration revenue if your customers are the acquirer or part of the merger. Then there's obviously the risk. Just number one, is this an environment that you'd say is big enough of a change in consolidation levels that you would anticipate it actually impacting growth in the next 12 to 18 months, or are we just a little higher than normal and still watching to see? Just remind us the positives versus the negatives. Obviously, besides just losing a customer, what could be the positive offsets in a higher M&A environment for you guys?

Greg Adelson (President and CEO)

Yeah. Hey, Darrin. I'll take that as Greg. A couple of things. As I mentioned, it starts with the size of the institution. As you know, we've continued to grow. Last year, we sold 15 multibillion.

We've sold 8 so far this year. Much larger ones, as I referenced from an asset size on the $30 billion on the 28 sold so far this year, meaning on average, we're selling over $1 billion in assets per deal sold. That historically hasn't been the case. As we continue to be able to go upmarket and have larger-sized institutions, they tend to be the acquirers, as you can imagine. Over the forty years of kind of the market shrinking, most of that has happened at the $500 million and below asset size. The larger we have, the more opportunity. To answer the second part of your question, yes. It happens to be kind of both.

If it's a Jack Henry client buying a Jack Henry client, there are some things that we can work through related to the deconversion fees and/or kind of convert and merge fees that end up being positive for us. When you look at a competitor buying one of our clients, obviously, we tend to get the full conversion fee, deconversion fee, and push. It really depends on how much time is left on that contract at the time that that purchase happens. What we typically see when it's Jack Henry to Jack Henry is not only do we retain the client, but they tend to buy additional products depending on which institution had which products. We actually saw that this year with a large merger of $4 billion-plus institutions where one of them had our digital platform and one of them did not.

We were able to get them to move to Banno for both. It is a hit and miss depending on which institutions, what products they have, the timing of how much time is left on the term of the agreement, and things along that line.

Mimi Carsley (CFO and Treasurer)

I'll just add that, in general, over the multi-year period, it tends to be a positive for Jack Henry. As Greg mentioned, more of our clients are the acquirer than the acquired. It can produce some lumpiness, particularly as we moved upmarket. While deconversion revenue is a great thing for free cash flow and EPS, it does represent the loss of future revenue. If for some reason in this environment we were to lose any bulk of larger clients, we would call that out from a headwind grow-over problem.

Darrin Peller (Managing Director)

Yeah.

I mean, where we are now, what you're seeing, do you see it more as a headwind or a tailwind for the next 1 to 2 years? The follow-up for me is more around you guys called out the things you're seeing around the project-related non-key revenue items and then maybe some cyclical impacts on spend on debit, for example. What's the demand environment like for the core business, the key areas? If you just rank-ordered what you're seeing the most demand for right now and how that's looking from the prior couple of—sounds pretty good from a sales pipeline standpoint, but I'd love more color. Thanks, guys.

Greg Adelson (President and CEO)

Yeah. Thanks. I think from a sales pipeline, as we tried to articulate, was very, very robust, continues to be very robust. Not just for core itself, but for the products that we have created.

That level of innovation related to financial crimes into Pay Center components to what I just described as enterprise account origination, a lot of those key revenue products that continue to grow at a nice pace at that 9.8% that we referenced are hugely continue to be in demand. I think when you look at where the challenge was related to what we were trying to describe in the non-key revenue, again, it's really that one-off stuff, the things that we don't control for timing and things that are typically done on a more as-needed basis than a must-have basis. That's really where a lot of that delay happened.

Mimi Carsley (CFO and Treasurer)

I would point to the strategic benchmark survey that Greg mentioned in his opening remarks. That's up on the Jack Henry Investor website and available.

That talks about the 3 top priorities for both banks and credit union CEOs continuing to be around gathering deposits, accounts, efficiency. The longer-term trends that we've talked about over several quarters now around digital, around fraud, and around payments tend to be thematically the largest demand that we're seeing.

Darrin Peller (Managing Director)

Okay. Okay. All right. Thanks, guys.

Moderator (participant)

Thank you. We have the next question from the line of Karthik Mehta from Northcoast Research. Please go ahead.

Karthik Mehta (Research Analyst)

Hey, good morning. Greg, I know you talked a little bit about the delays, a lot actually. I'm just wondering, has that been reflected at all in your conversations with financial institutions on their core decisions? Are they kind of waiting at all to make those decisions, or is that still business as usual, and it's only really impacting these smaller projects?

Greg Adelson (President and CEO)

Yeah.

Karthik, it's 100% on these smaller non-recurring, non-must-have type products or hardware purchases, which can be delayed another quarter for them or delayed because of their evaluation of moving to the private cloud. That's really what it is. When you look at the core component, when you think about a core deal that takes typically anywhere from 12-18 months to even go through the sales cycle on a normal time because most people are looking multiple years out from when their contract actually expires. Those decisions have not slowed down at all. I am very bullish about our success rates for next quarter based on what I've already seen and what I know is coming. I don't see that as any part of the challenge.

It's really just these—if it wasn't the end of the third quarter, we may not be talking about some of these as deep, but some of them are going to move into the next fiscal year, and that's where the challenge comes.

Karthik Mehta (Research Analyst)

Greg, I know earlier in the call you talked about the SMB product, and obviously, you have this partnership with Move. I'm wondering how that's going. I think you anticipated hopefully it would generate some revenue going into next fiscal year. I'm wondering if you've seen any uptake on the product or any update there.

Greg Adelson (President and CEO)

Yeah. Our Jack Henry Rapid Transfers, we've rolled out. We have 3 clients in what we call a closed beta, but we are now taking active enrollments from all of our clients.

There is a process they have to go through for Jack Henry Rapid Transfers that goes through our operational. It is not a contractual thing they have to go, but there is an operational component. That is starting to move. We are very excited. Got a lot of fanfare and comments at our strategic insights meeting last week in particular. Excuse me. On the merchant acquiring side, as I mentioned, the partnership with Move, we will have 2 clients and maybe more in a closed beta in June and moving. Our expectation is to try to roll that out to everybody by the end of the first quarter of fiscal year 2026. We are working through that process as well. Again, the interest level from not only our clients, but some of our distribution partners that we compete with, there is a lot of interest there.

Actually, we've been talking to some non-Jack Henry clients, some very large non-Jack Henry clients that are very interested in the product as well. Like I said, the interest level is there, and we are on track, as we stated, to roll that out in our first phase in June of this year.

Karthik Mehta (Research Analyst)

Perfect. I really appreciate it. Thank you.

Greg Adelson (President and CEO)

Thanks, Karthik.

Moderator (participant)

Thank you. We have the next question from the line of Andrew Smith from Citi. Please go ahead.

Andrew Smith (Managing Director)

Hey, Greg. Mimi, Vance. Thank you for taking the questions. I appreciate the comments on the total level of assets that you've wanted. It's an important distinction versus the number of FIs. Appreciate that. I know a lot of questions have been asked in the demand environment, and I'll ask in a slightly different way.

I understand that these are long-term decisions and obviously a lot of confidence in terms of near-term conversions. Have there been any changes in terms of the mid to upper funnel when we think about just how FIs are working through the decision-making process? Just curious when we get—I know it's a little bit early, but just curious in terms of the earlier part of the funnel if you're seeing anything there. Thanks so much.

Greg Adelson (President and CEO)

Yeah. It's a great question. Thank you for calling out the addition of the asset size. We thought it was important to share that what we're talking about is actually happening.

Related to your question, I have not—I mean, I talk to the sales folks and our sales leaders literally every week, and there has not been anything that has come to my attention from them that has said that anything in the lower half, the middle half, or the ending half of making decisions has slowed down. Again, a lot of those decisions do not necessarily take place for an installation for 6, 9, 12, or 24 months, depending on core or what it is. We have not seen any real longation of the sales cycle at all. It has just been these short-term projects, as I mentioned before.

Andrew Smith (Managing Director)

Got it. Super helpful.

When we think about just the headwinds that you are seeing, obviously a lot of this you mentioned is timing.

We have seen in previous cycles that discretionary projects get pulled back, and sometimes they do not materialize for some time. Is there an element—how large is that discretionary component versus non-discretionary component when we think about just the headwinds that we are seeing here?

Greg Adelson (President and CEO)

Yeah. The interesting thing is—Mimi and I have commented on this before—these are contractual arrangements that they have. We do have some clocks that tick to a certain point in time where we can literally start billing the customer at a certain point in time if the delay goes longer than expected. They have not reached those thresholds and will not in the quarter. The reality is because they are contracted and because there is an approach that we have taken with these, we literally could start billing our customers even if they did not implement. That is something that we can do.

I do not foresee any of these being things that get delayed or they try to cancel or things like that because it is things that they need. As I mentioned, the one that seems to happen a little bit more is that a customer that has our Yellowhammer product that wants to move to Financial Crimes Defender that needs some consulting and other things that go with part of the implementation, we have seen some delays in those. We have worked with our clients. They are already clients of ours using some of our products. That is where some of that delay has happened. A little bit in some of our Pay Center products and payment initiatives as well and trying to get folks to use, say, the come on with our send capabilities or most of them have received, but moving to send capabilities, things like that.

Again, nothing that's wholesale of a challenge. It's not core implementations and things along that line.

Mimi Carsley (CFO and Treasurer)

Morning, Andrew. This is Mimi. The only thing other that I would add from just a macro sense, as we always talk about, regardless of an interest rate environment, regardless of economic condition, the challenges facing financial institutions today are going to be solved through technology. It's not going to be solved through adding more bodies. Whether technology is the only part of the solution or the bulk of the solution, we feel pretty confident in the continuation of the demand. The reality is if you have an ROI that's compelling, and we just saw in our strategic benchmark survey that efficiency is one of the top priorities. If you show the ROI, they will spend.

Andrew Smith (Managing Director)

Absolutely. Yeah. That's great comments. I appreciate the help, Greg and Mimi.

Thanks so much.

Mimi Carsley (CFO and Treasurer)

Of course.

Moderator (participant)

Thank you. We have the next question from the line of Andrew Bauch from Wells Fargo. Please go ahead.

Andrew Bauch (Director of Fintech Equity Research)

Hey, thank you for squeezing me in here. Just wanted to revisit how this business operates through a cycle. I know I appreciate the defensiveness and the recurring nature of all of it, but if we were to go into a more pronounced recession, how would we kind of handicap the impact there? Is it just the trends that you would see today would be more pronounced? Would there be changes to kind of the core pricing strategy? Just trying to understand the recessionary scenario.

Mimi Carsley (CFO and Treasurer)

Andrew, I appreciate this certainly a dynamic environment. It's a really meaningful question.

First of all, I would say, and no one asked the question specifically, but I would say relative to tariff exposure, we're certainly lucky to have very limited exposure to shifts in policy. As a company, we're monitoring our vendor pricing and resource availability as well as costs. For example, prescription costs for our associates. We do have very limited exposure on the direct. I think where more of the exposure is in general to our industry is on the commercial side of the business. We're all watching the health of businesses in the U.S. Through things like our remit business and our EPS, our enterprise payments businesses that serve those commercial customers, as well as indirect through lending, things like Banno Business and treasury. The reality is this is not a global financial crisis.

The banks are well capitalized, have really learned their lesson in terms of mortgage origination and credit extension. They are working their way through various interest rate cycles. We are not anticipating any mass closures of financial institutions. As we said earlier, they need to continue to serve their account holders and members. They need to continue to drive efficiency. Fraud is top of mind for these institutions. Digital experience as well. A lot of them, because of the nature of the competitive market with the largest financial institutions in the country, need to continue to innovate regardless of the economic cycle to retain their account holders and make sure that they get on the other side of the economic situation healthier and stronger.

Andrew Bauch (Director of Fintech Equity Research)

Understood. If I could just, my follow-up question, just wanted to put a finer point on the consolidation activity you have been seeing.

Could you give us a sense on a little bit more around what you're seeing? Is it from a bank size, be it AUM? Is it across banks versus credit unions? Just a little bit more targeted on where you're seeing that activity pick up.

Greg Adelson (President and CEO)

Yeah. The activity really is spread. You probably have seen it. It continues to happen. I mean, there are credit unions continuing to buy banks. In fact, we had a credit union of a competitor buy one of our banks recently. That has continued to happen. We'll see if that continues to happen long-term based on some of the things that they're trying to do in the market related to credit unions. What I would say, I think we have been really well positioned, as I mentioned earlier, just because we've continued to grow the asset size.

We're seeing we've won things that we call winner mergers where we've actually had an institution acquired by a competitor's institution. Because of the technology and innovation and products that we've delivered, they've made the decision to actually switch to Jack Henry versus maintaining their existing core and/or complementary products. Again, we don't win them all, but we've won more than our fair share. That continues to be the trend. I expect that because when you look at what's going on in the industry today, and I recognize that our competition is working their way back into focusing on this space where they weren't for many years, we've never lost our focus. Our focus on this space over the last 6 or 7 years has been unmatched.

When you look at what folks, including what was in the ABA core survey, which I highly recommend all of you to go look at, it was significant differences between us and our competition in how our customers view us versus how their customers view them. As those kind of mentions continue to get out, it continues to help our sales pipeline, our execution, and things along that line. That is why all of these things that we have tried to articulate that are happening today, we truly believe are short-term things. We got to work through the macroeconomic stuff that we cannot control. The other things that we have, we believe are short-term.

Andrew Bauch (Director of Fintech Equity Research)

Great. Greg, Mimi, thank you.

Moderator (participant)

Thank you. We have the next question from the line of James Faucette from Morgan Stanley. Please go ahead.

James Faucette (Managing Director)

Great. Thank you very much.

Apologies for the background noise. Just wanted to follow up on that comment there, Greg, around competition, competitive intensity. Just wondering how that's if you've seen that manifest at all in terms of your engagements or win rates or even pricing intensity thus far, and how you're expecting that to evolve, especially as there does seem to be some increased focus from historical competitors.

Greg Adelson (President and CEO)

Yeah. Hey, James. Good to hear from you. I think a couple of things. We've continued to see the pricing sensitivity, as we've mentioned in other calls and really even other years. That hasn't significantly changed. Again, our win rates continue to be by far the best in the industry. As I mentioned, we're winning larger deals, which means we're winning those from them. That continues to be, I think, a good benchmark for your question.

I will say that they get aggressive in many times trying to keep their customers. There are times where we may walk away from a particular deal if that gets to be too rich for our blood. I will tell you that I do not see, I have not seen anything strategically change in the market from what they are doing. Obviously, one of them has a brand new CEO that was just formally announced. The other one has made some strategic decisions to rid themselves of one of their businesses and have talked that they are going to get more focused on our space. Time will tell.

But I can tell you as of right now and where we are in our pipeline and where we've been with customer feedback and prospect feedback, because I do go to a lot of our large prospect opportunities, I haven't seen any level of concern on our part as of today.

James Faucette (Managing Director)

That's great color. I just want to ask back on Banno, how has traction trended with Banno Business? I know it's early, but can you update us on the go-to-market, particularly given some of the implications on the competitive front and how you're thinking about that as a product enhancement to the portfolio?

Greg Adelson (President and CEO)

Yeah. Again, another good question and one that we're highly focused on. We do have over 270 clients now live on Banno Business and a little over 1,000 on the platform itself. That continues to roll out.

We're really pushing to that feature parity that I've been talking about since the last investor day in September. We expect to see that this summer, as I mentioned, as well. I think that will be a real turning point for us to not only be able to continue to win more in our own core base, but to take it outside the Jack Henry core base. We've been, as I mentioned, very strategic in our approach, but also on the timing. We don't want to go out and try to sell something to a competitive core base until we're ready. That'll happen later this fall. Long story short, it is very much a big part of what we're doing. Candidly, it will play a big part in what we're doing in our SMB strategy as well.

James Faucette (Managing Director)

Thanks for that, Greg.

Greg Adelson (President and CEO)

Sure.

Moderator (participant)

Thank you.

We have the next question from the line of John Davis from Raymond James. Please go ahead.

John Davis (Managing Director of Fintech Equity Research Analyst)

Hey, good morning, guys. Greg, I just wanted to circle back on core wins. I will echo Andrew's comments that the asset size is helpful. You have historically given us kind of number of wins. Now you are giving us assets. I guess the real question, and maybe you can help us directionally think about ACV, right? If assets year to date are up almost 50%, I am sure ACV is not up 50%. How do we think about number versus assets and what really matters is kind of dollars of revenue contracted? Maybe just help us directionally kind of correlate the asset size to kind of an ACV.

Greg Adelson (President and CEO)

Yeah. I mean, JD, it is a good question.

I think it's very difficult to every core deal is its own core deal, right? Some of it is timing on what other products they have. Some of it is folks have best of breed approaches. Some have best of suite approaches. Every single deal literally has its own nuances to that. I think it's really hard for us to button that up and just say, "Hey, if we want a $100 billion deal and we want a billion dollar deal, doesn't necessarily mean that the $100 billion deal long-term is going to bring 100 times the revenue," right?

John Davis (Managing Director of Fintech Equity Research Analyst)

I guess it's safe to say the asset is more important than number. Is that a fair assessment?

Greg Adelson (President and CEO)

It also ranges based on retail and commercial-based customers. Sometimes a larger asset institution is more commercially focused and has less accounts.

Depending on the type of bank or credit union it is and whether it's more retail-focused or commercial-focused, that's why I'm saying there's such an ebb and flow related to asset pricing, per account pricing, number of attach rates on the products that it brings, and all those. It just isn't that easy to just give you a complete single answer to that.

John Davis (Managing Director of Fintech Equity Research Analyst)

Okay. No, no. Understood. Mimi, one quick one for you on margins. How should we think about the margin implication of kind of the non-strategic revenue runoff? Is this lower margin business and therefore can be a margin tailwind as that kind of revenue rolls off, or is it higher margin? Just help us think about that and the impact that may have had not only this quarter but for the full year guide as well.

Mimi Carsley (CFO and Treasurer)

I would say generally, JD, the non-core, rather non-key, non-strategic revenue tends to be lower margin mix. It has things like hardware. It has things like some of the consulting that is less software-oriented and tends to be lower margin on the whole.

John Davis (Managing Director of Fintech Equity Research Analyst)

Okay. Thanks. I'm going to squeeze one last quick one in if I can. Mimi, free cash flow. I think the midpoint of your guide would imply free cash flow below 100% in the fiscal fourth quarter. At least in my model going back, it's never been below, I think, like 120. Just curious if there's anything specific around free cash flow that you see coming in the fourth quarter that we should be aware of or any other comments there would be helpful. Thanks.

Mimi Carsley (CFO and Treasurer)

I wouldn't have been an earnings call if we didn't have a free cash flow.

I'm glad we were able to squeeze that one in, JD. I would say we're on a healthy pace. As you know, the trailing 12-month or an annual view is the best view to look at from a free cash flow perspective rather than any quarterly. Year-to-date free cash flow of $139 million, definitely on track. We're at 71% from a conversion. On track to that guide of the 65-75%. As we've talked about, that's a multi-year journey back to that 80, 90, 100-plus type of territory as we're now starting to rebuild solidly the cost basis for the R&D-related expenditures. We have greater clarity from a tax policy perspective. On the trailing 12, the prior year had some reflected of over tax payment benefits on the prior year. Plus, there's a touch more on CapEx in the current TTM.

We feel pretty good about staying on track here and hitting the guide for the full year. That is why we kept it unchanged.

John Davis (Managing Director of Fintech Equity Research Analyst)

Okay. Thanks, guys.

Moderator (participant)

Thank you. This concludes our question-and-answer session. I would like to turn the conference back to Vance Sherard, the Vice President, for closing remarks.

Vance Sherard (VP of Investor Relations)

Thank you, Myron. We appreciate all the interest in today's call. In the upcoming weeks, management is planning to attend investor events across the U.S., providing additional availability for in-person meetings. We would like to again thank all Jack Henry & Associates for their outstanding efforts and dedication, which have contributed to our solid results. Thank you for joining us today. Myron, please provide the replay number.

Moderator (participant)

Sure. Thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.