Jack Henry’s Margins Surge 355 BPS as Cloud and Core Wins Accelerate

Date of Call: Feb 4, 2026

Financials Results

• Revenue: Non-GAAP revenue of $611 million, up 6.7% over last year's second quarter.
• EPS: GAAP EPS of $1.72, up 29% YOY.
• Operating Margin: Non-GAAP operating margin of 25.1%, representing a 355 basis point margin expansion over last year's Q2.

Guidance:

• Full year GAAP revenue growth guidance increased to a range of 5.6% to 6.3%.
• Non-GAAP annual revenue growth guidance tightened to 6.4% to 7.1%.
• Full year non-GAAP margin expansion guidance increased to a range of 50 to 75 basis points.
• GAAP EPS outlook for full year is $6.61 to $6.72 per share, growth of 6% to 8%.
• Free cash flow conversion outlook is 90% to 100% for fiscal '26.

Business Commentary:

Record Financial Performance and Margin Expansion:

• Jack Henry reported record non-GAAP revenue of $611 million for the second quarter, up 6.7% over the previous year's second quarter. The non-GAAP operating margin was 25.1%, reflecting a margin expansion of 355 basis points from the prior year.
• The strong financial performance was driven by robust sales, particularly in core digital banking and card solutions, and a strategic shift towards cloud-based services.

Core Segment Growth and Competitive Wins:

• The company secured 22 competitive core wins in the quarter, including 4 financial institutions with over $1 billion in assets and 15 that included core digital banking and card solutions.
• Growth was attributed to an increase in trifecta wins (core, digital, and card) and a strategic focus on outpacing competitors in market share growth amid industry consolidation.

Cloud Revenue and Processing Growth:

• Cloud revenue increased 8% in the quarter, accounting for 33% of total revenue, while processing revenue, which represents 44% of total revenue, saw a 9% GAAP and 8% non-GAAP growth.
• The growth was driven by increased digital, card, and faster payment processing, along with strong adoption of private and public cloud offerings.

Innovative Solutions and Strategic Initiatives:

• Jack Henry's new cloud-native Tap2Local merchant acquiring solution and Jack Henry Rapid Transfers service have been well-received, with Tap2Local already live with 300 clients and another 100 recently onboarded.
• These initiatives, along with the development of a stablecoin strategy and embedded payments capabilities, are part of a broader strategy to leverage technology modernization and cloud-native platform development.

Increased Fiscal Year Guidance:

• The company increased its full-year non-GAAP revenue growth guidance to 6.4% to 7.1%, reflecting strong year-to-date results and increased confidence in second-half performance.
• This adjustment was based on continued momentum in technology spending by clients, robust sales pipelines, and successful execution of strategic initiatives.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'record second quarter results,' 'robust 355 basis points of margin expansion,' and 'increased and tightened' guidance. They expressed being 'very optimistic about the rest of our fiscal year' based on 'strong demand environment' and 'exceptional competitive win rate.'

Q&A:

• Question from Rayna Kumar (Oppenheimer & Co. Inc., Research Division): Based off of what you're seeing, do you expect 3Q sales results to come in better? And are you starting to see the impact from the core consolidation news from one of your competitors at this point?
  Response: Q3 is starting off very well, but the core consolidation news had minimal impact on Q2 as deals were already in motion; the pipeline is growing across all products.

• Question from Vasundhara Govil (Keefe, Bruyette, & Woods, Inc., Research Division): How do you think about AI's impact on your business model over the long term and where you see it as an opportunity versus a risk?
  Response: AI is a tool that accelerates development and innovation for Jack Henry's platform but does not apply straightforwardly to seat-licensed models; it's a differentiator in complexity-rich core banking.

• Question from Jason Kupferberg (Wells Fargo Securities, LLC, Research Division): Which segments exceeded expectations perhaps in the quarter? And how should we think about second half growth rates by segment?
  Response: Strong performance across all segments; payments growth will be more challenging in the back half, complementary is expected to continue strong, and core is supported by multiyear wins and cloud migration.

• Question from William Nance (Goldman Sachs Group, Inc., Research Division): How is AI a positive accelerant for modernizing outdated code bases and improving competitive positioning?
  Response: AI has been used for years to enhance efficiency and innovation; it differentiates Jack Henry by enabling faster development and leveraging public cloud infrastructure for velocity of enhancements.

• Question from Darrin Peller (Wolfe Research, LLC): How should we think about the near-term versus long-term revenue cadence around core wins, and what's driving the success with larger institutions?
  Response: Core wins are supported by a strong culture, innovation, and execution; pipelines are growing fast, but it's too premature to guide for fiscal '27, focusing on execution in '26.

• Question from Madison Suhr (Raymond James & Associates, Inc., Research Division): What are you seeing in terms of adoption for SMB products like Rapid Transfer and Tap2Local, and how does the competitive set differ?
  Response: Adoption is early but promising; differentiation lies in deposit retention, faster account approval, cross-platform tap-to-pay, and unique account reconciliation features versus competitors like Stripe or Square.

Contradiction Point 1

Competitive Core Takeaways and Market Share Outlook

Inconsistent assessment of competitive pressures and market share gains over time.

With accelerated bank M&A, will it remain neutral to positive for your business? - Vasundhara Govil (Keefe, Bruyette, & Woods, Inc.)

2026Q2: Market share growth (17% for banks, 40% for credit unions over 8 years) and success in winning mergers... support this view. The company is already doing business with many acquiring institutions, giving it a strong advantage. - Gregory Adelson(CEO)

What caused the decline in core competitive takeaways from 16 in the June quarter to 10 in Q1, and were there changes in the competitive environment? - David Togut (Evercore ISI)

2024Q1: Q1 is typically a light quarter, and 10 takeaways were strong compared to last year's 6. The sales pipeline is large, and disruptions among competitors are creating opportunities. Core conversion cycles are long and disruptive... - David Foss(CEO)

Contradiction Point 2

Free Cash Flow Conversion Timeline and Drivers

Contradictory statements regarding the timeline and primary drivers affecting free cash flow.

What factors contributed to the tighter free cash flow conversion outlook and current capital expenditure levels? - Charles Nabhan (Stephens Inc.)

2026Q2: Increased clarity on tax legislation and asset sales provides confidence for the full-year projection, biasing to the higher end of the 90-100% range. Capex is around 14-15% of R&D. Headcount growth remains low... due to strategic workforce management, AI, and continuous improvement... - Mimi Carsley(CFO)

When will FCF conversion return to historical levels? - John Davis (Raymond James)

2024Q1: The FCF impact is due to the nondeductibility of R&D expenses. A legislative change is hoped for but not banked on. If no change, a return to historical FCF norms is expected in a couple of years, hopefully more than 4. - Mimi Carsley(CFO)

Contradiction Point 3

Competitive Pricing Dynamics

Contradiction on whether pricing pressure is a new, widespread trend or remains localized and manageable.

How do competitors price core systems and ancillary services? - Rayna Kumar (Oppenheimer & Co. Inc.)

2026Q2: Pricing has remained consistent over the last couple of years, with no significant changes due to the competitor's announcement. Winning 22 core deals in Q2 demonstrates Jack Henry's competitive position despite not always being the lowest-cost provider. - Gregory Adelson(CEO)

Is pricing pressure affecting renewals or new deals? - Kartik Mehta (Northcoast Research Partners)

2025Q4: Pricing pressure occurs in both renewals and new deals. It is competitive and expected, especially for the roughly 100 major renewal opportunities each year. - Gregory Adelson(CEO)

Contradiction Point 4

M&A Impact on Revenue Outlook

Contradiction on the magnitude and timing of revenue headwinds from bank/credit union consolidation.

With accelerating bank M&A, do you still expect it to be neutral or positive for your business? - Vasundhara Govil (Keefe, Bruyette, & Woods, Inc.)

2026Q2: Absolutely. Market share growth (17% for banks, 40% for credit unions over 8 years) and success in winning mergers, even when a Jack Henry institution is acquired, support this view. The company is already doing business with many acquiring institutions, giving it a strong advantage. - Gregory Adelson(CEO)

How should the impact of bank M&A on FY26 revenue be quantified, and is the recent large merger a headwind for this year or next? Could accelerated M&A lead to multi-year revenue softness? - Vasundhara Govil (Keefe, Bruyette, & Woods)

2025Q4: No indication that Jack Henry's technology will be terminated in the merger; any changes would affect FY27, not FY26. The client is an in-house client, so revenue impact would be less substantial. - Gregory Adelson(CEO)

Contradiction Point 5

Competitor Consolidation Impact on Pipeline and Business

Q2 suggests minimal impact, but Q1 indicates it's a key opportunity.

Given strong Q2 sales, do you expect Q3 to be better, and are you seeing the impact of a competitor's core consolidation? - Rayna Kumar (Oppenheimer & Co. Inc.)

2026Q2: The Q2 results were minimally impacted by the competitor's announcement as most deals were already in motion. The sales pipeline is growing across core, complementary, and payment products... - Gregory Adelson(CEO)

What are the trends in complementary attach rates during deal signing and post-conversion? - James Faucette (Morgan Stanley)

2026Q1: The most frequent bundle is the 'trifecta' of card, digital, and financial crimes. Competitive consolidation is expected to accelerate opportunities in the coming years. - Gregory Adelson(CEO)