Jack Henry & Associates, Inc. Reports First Quarter Fiscal 2020 Results
MONETT, Mo., Nov. 4, 2019 /PRNewswire/ -- Jack Henry & Associates, Inc. (NASDAQ: JKHY), a leading provider of technology solutions and payment processing services primarily for the financial services industry, today announced results for the first quarter of fiscal 2020.
GAAP Results for the Quarter
Revenue for the quarter ended September 30, 2019 increased to $438.0 million, a 12% improvement over the first quarter of fiscal 2019. Operating income increased 14% to $118.2 million and net income increased 7% to $89.4 million, or $1.16 per diluted share, compared to the first quarter of fiscal 2019. The increase in operating income was driven by organic growth in both our services and support and processing product lines and higher deconversion fees quarter over quarter. The increase in net income is primarily attributable to the growth in our product lines and higher deconversion fees discussed above, partially offset by the increase in effective tax rate compared to the prior year quarter.
Non-GAAP Results for the Quarter
On an adjusted basis for the quarter ended September 30, 2019, revenue increased 9% compared to the prior year quarter to $420.7 million. Operating income increased 9% to $104.5 million (see Non-GAAP Impact of Deconversion Fees and Acquisitions on page 3).
According to David Foss, President and CEO, "We are very pleased to report another record quarter of revenue, operating income and net income. Our sales teams again had a very strong quarter and demand for Jack Henry technology solutions continues to be high. We recently hosted our two large annual client conferences and I was humbled once again by the high levels of customer satisfaction and engagement I witnessed at those events. I would like to thank all of our associates for their continued commitment to our customers and their ongoing success."
Operating Results
Revenue, operating expenses, operating income, and net income for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, were as follows:
Revenue (Unaudited)
(In Thousands)
Three Months Ended %
September 30, Change
2019 2018
Revenue
Services & Support $
278,808 $
246,568 13
%
Percentage of Total 64
Revenue %
% 63
Processing 159,197 145,975 9
%
Percentage of Total 36
Revenue %
% 37
Total Revenue $
438,005 $
392,543 12
%
-- The increased revenue in the services and support line for the first
quarter of fiscal 2020 was primarily due to organic growth in software
usage and subscription fees within 'in-house support' revenue and data
processing and hosting fees, which fall within our 'outsourcing and
cloud' revenue stream. The increase in processing revenue was mainly
driven by increased transaction volumes within the 'card' and
'remittance' components of processing revenue. Deconversion fees, which
are included within services and support, increased $7.0 million
compared to the first quarter of the prior year. Excluding deconversion
fees from both periods, and revenue from the fiscal 2020 acquisition,
total revenue increased 9% for the first quarter of fiscal 2020 compared
to the same quarter of fiscal 2019.
-- For the first quarter of fiscal 2020, core segment revenue increased 12%
to $155.9 million from $139.2 million in the first quarter of fiscal
2019. Payments segment revenue increased 12% to $149.7 million, from
$134.2 million in the same quarter last year. Revenue from the
complementary segment increased 11% to $117.2 million in the first
quarter of fiscal 2020 from $105.7 million in the same quarter of fiscal
2019. Revenue in the corporate and other segment increased 12% to $15.2
million, compared to $13.5 million for the first quarter of fiscal 2019.
Operating Expenses and Operating Income
(Unaudited, In
Thousands) Three Months Ended %
September 30, Change
2019 2018
Cost of Revenue $
245,791 $
220,112 12
%
Percentage of Total
Revenue 56
% 56
%
Research and 24,591 24,026 2
Development
%
Percentage of Total
Revenue 6
% 6
%
Selling, General, & 49,436 45,183 9
Administrative
%
Percentage of Total
Revenue 11
% 12
%
Total Operating 319,818 289,321 11
Expenses
%
Operating Income $
118,187 $
103,222 14
%
Operating Margin 27
% 26
%
-- Cost of revenue increased 12% for the first quarter of fiscal 2020
compared to the first quarter of fiscal 2019, but remained consistent as
a percentage of revenue. Excluding costs related to deconversions and
the fiscal 2020 acquisition, the cost of revenue increase was 11%.
Overall, costs increased commensurate with increases in revenue.
-- Research and development expense increased 2% for the first quarter of
fiscal 2020. This increase was primarily due to increased salary and
personnel costs. Headcount increased 5% at September 30, 2019 compared
to a year ago. The quarter remained consistent with the prior year as a
percentage of total revenue.
-- Selling, general, and administrative expenses for the first quarter of
fiscal 2020 increased mainly due to increased salaries and benefits
primarily due to a 2% increase in headcount over the prior year quarter
and pay raises during the trailing twelve-month period. Selling,
general, and administrative expense decreased as a percentage of revenue
for the first quarter.
-- For the first quarter of fiscal 2020, operating income increased 14% to
$118.2 million, or 27% of revenue, compared to $103.2 million, or 26% of
revenue in the first quarter of fiscal 2019.
Net Income
(Unaudited,
In
Thousands, Three Months Ended %
September 30, Change
Except
Per
Share
Data)
2019 2018
Income
Before
Income %
Taxes $
118,539 $
103,366 15
Provision
for
Income %
Taxes 29,169 19,815 47
Net $
89,370 $
83,551 7
Income
%
Diluted
earnings
per %
share $
1.16 $
1.08 8
-- Provision for income taxes increased in the first quarter, with an
effective tax rate at 24.6% of income before income taxes, compared to
19.2% for the same quarter of the prior year. The increase in the
effective tax rate in the first quarter of fiscal 2020 was primarily due
to the change in the impact of share-based compensation
quarter-over-quarter. A significant excess tax benefit was recognized in
the prior year quarter from share-based compensation, and share-based
compensation resulted in an excess tax deficiency in the current
quarter.
According to Kevin Williams, CFO and Treasurer, "We had solid growth in every line of revenue in the quarter compared to the prior year. The increase in software usage and subscription revenue which carries high margins helped to offset the continued headwinds on our operating margin on a non-GAAP basis, created by the additional costs of our on-going migration of our debit and credit card transaction processing customers. Obviously, GAAP operating margins were up due to the increase in deconversion fees during the quarter. The impact of the stock-based compensation in the previous year quarter was the entire impact on the change in our effective tax rate compared to the prior year."
Non-GAAP Impact of Deconversion Fees and Acquisitions
The table below shows our revenue and operating income (in thousands) for the three months ended September 30, 2019 compared to the prior year period, excluding the impacts of deconversion fees and the fiscal 2020 acquisition.
(Unaudited, In
Thousands) Three Months Ended %
September 30, Change
2019 2018
Reported Revenue 12
(GAAP)
$
438,005 $
392,543 %
Adjustments:
Deconversion fees (14,886) (7,882)
Revenue from fiscal
2020 acquisition (2,392)
9
Non-GAAP Revenue $
420,727 $
384,661 %
Reported Operating 14
Income (GAAP)
$
118,187 $
103,222 %
Adjustments:
Deconversion fees (13,649) (7,683)
Operating (income)/
loss from fiscal
2020 acquisition (50)
Non-GAAP Operating 9
Income
$
104,488 $
95,539 %
The tables below show the segment break-out of revenue and cost of revenue for each period presented, as adjusted for the items above, and includes a reconciliation to the non-GAAP operating income presented above.
(Unaudited, In
Thousands)
Three Months Ended September 30, 2019
Core Payments Complementary Corporate & Total
Other
Revenue $
155,896 $
149,746 $
117,195 $
15,168 $
438,005
Deconversion Fees (7,133) (4,970) (2,768) (15) (14,886)
Revenue from fiscal
2019 acquisitions (2,392) (2,392)
Non-GAAP Revenue 148,763 144,776 112,035 15,153 420,727
Cost of Revenue 63,306 76,624 46,674 59,187 245,791
Non-GAAP
Adjustments (753) (98) (1,480) (72) (2,403)
Non-GAAP Cost of
Revenue 62,553 76,526 45,194 59,115 243,388
Non- GAAP Segment
Income $
86,210 $
68,250 $
66,841 $
(43,962)
Research &
Development 24,591
Selling, General, &
Administrative 49,436
Other Non-GAAP
Adjustments (1,176)
Non-GAAP Total
Operating Expenses 316,239
Non-GAAP Operating
Income $
104,488
(Unaudited, In
Thousands)
Three Months Ended September 30, 2018
Core Payments Complementary Corporate & Total
Other
Revenue $
139,155 $
134,197 $
105,705 $
13,486 $
392,543
Deconversion Fees (3,985) (2,073) (1,792) (32) (7,882)
Non-GAAP Revenue 135,170 132,124 103,913 13,454 384,661
Cost of Revenue 59,216 65,707 41,830 53,359 220,112
Non-GAAP
Adjustments (2) (13) (184) (199)
Non-GAAP Cost of
Revenue 59,214 65,694 41,830 53,175 219,913
Non- GAAP Segment
Income $
75,956 $
66,430 $
62,083 $
(39,721)
Research &
Development 24,026
Selling, General, &
Administrative 45,183
Non-GAAP Total
Operating Expenses 289,122
Non-GAAP Operating
Income $
95,539
Balance Sheet and Cash Flow Review
-- At September 30, 2019, cash and cash equivalents decreased to $96.7
million from $114.9 million at September 30, 2018.
-- Trade receivables totaled $234.4 million at September 30, 2019 compared
to $198.6 million at September 30, 2018.
-- The company had no borrowings at September 30, 2019 or at September 30,
2018.
-- Total deferred revenue increased to $325.6 million at September 30,
2019, compared to $317.8 million a year ago.
-- Stockholders' equity increased to $1,476.7 million at September 30,
2019, compared to $1,368.6 million a year ago.
Cash provided by operations totaled $123.1 million in fiscal 2020 compared to $146.7 million last year. The following table summarizes net cash (in thousands) from operating activities:
(Unaudited, In
Thousands) Three Months Ended September 30,
2019 2018
Net income $
89,370 $
83,551
Depreciation 12,708 10,903
Amortization 29,380 27,827
Change in
deferred income
taxes 2,359 730
Other non-cash
expenses 2,861 1,801
Change in
receivables 77,123 98,708
Change in
deferred revenue (68,939) (52,151)
Change in other
assets and
liabilities (21,810) (24,635)
Net cash provided
by operating
activities $
123,052 $
146,734
Cash used in investing activities for fiscal 2020 totaled $75.4 million, compared to $52.3 million for the same period in fiscal 2019 and included the following:
(Unaudited, In
Thousands) Three Months Ended September 30,
2019 2018
Payment for
acquisitions,
net of cash
acquired $
(30,285)
$
Capital
expenditures (13,101) (24,001)
Proceeds from the
sale of assets 10 33
Purchased
software (2,424) (1,626)
Computer software
developed (28,475) (26,669)
Purchase of
investments (1,150)
Net cash from
investing
activities $
(75,425) $
(52,263)
-- On July 1, 2019, the Company acquired all of the equity interest of
Geezeo for $30,285, net of cash acquired. Geezeo is a Boston-based
provider of retail and business digital financial management solutions.
Financing activities used cash of $44.6 million in fiscal 2020 and $11.0 million in fiscal 2019.
(Unaudited, In
Thousands) Three Months Ended September 30,
2019 2018
Purchase of treasury
stock $
(14,145)
$
Dividends paid (30,771)
Net cash from
issuance of stock
and tax related to
stock-based
compensation 340 (11,039)
Net cash from
financing
activities $
(44,576) $
(11,039)
Use of Non-GAAP Financial Information
Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting in the United States. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, we have provided certain non-GAAP financial measures.
These non-GAAP measures include adjusted revenue and operating income.
We believe these non-GAAP measures help investors better understand the underlying fundamentals and true operations of our business. The non-GAAP revenue and operating income presented eliminate items management believes are not indicative of the Company's operating performance. Revenue increase/ decrease adjusts for one-time deconversion fees and contributions of current fiscal year acquisitions give investors further insight into our performance. For these reasons, management also uses these non-GAAP measures in its assessment and management of the Company's performance.
Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP measures. Reconciliations of these non-GAAP measures to related GAAP measures are included.
Quarterly Conference Call
The company will hold a conference call on November 5, 2019; at 7:45 a.m. Central Time and investors are invited to listen at www.jackhenry.com.
About Jack Henry & Associates, Inc.®
Jack Henry (NASDAQ: JKHY) is a leading provider of technology solutions primarily for the financial services industry. We are an S&P 500 company that serves more than 9,000 clients nationwide through three divisions: Jack Henry Banking® supports banks ranging from community banks to multi-billion-dollar institutions; Symitar® provides industry-leading solutions to credit unions of all sizes; and ProfitStars® offers highly specialized solutions to financial institutions of every asset size, as well as diverse corporate entities outside of the financial services industry. With a heritage that has been dedicated to openness, partnership, and user centricity for more than 40 years, we are well-positioned as a driving market force in future-ready digital solutions and payment processing services. We empower our clients and consumers with the human-centered, tech-forward, and insights-driven solutions that will get them where they want to go. Are you future ready? Additional information is available at www.jackhenry.com.
Statements made in this news release that are not historical facts are forward-looking information. Actual results may differ materially from those projected in any forward-looking information. Specifically, there are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking information. Additional information on these and other factors, which could affect the Company's financial results, are included in its Securities and Exchange Commission (SEC) filings on Form 10-K, and potential investors should review these statements. Finally, there may be other factors not mentioned above or included in the Company's SEC filings that may cause actual results to differ materially from any forward-looking information.
Condensed Consolidated Statements of Income (Unaudited)
(In Thousands, Except Per
Share Data) Three Months Ended %
September 30, Change
2019 2018
REVENUE $
438,005 $
392,543 12
%
EXPENSES
Cost of Revenue 245,791 220,112 12
%
Research & Development 24,591 24,026 2
%
Selling, General, & 49,436 45,183 9
Administrative %
Total Expenses 319,818 289,321 11
%
OPERATING INCOME 118,187 103,222 14
%
INTEREST INCOME (EXPENSE)
Interest income 508 291 75
%
Interest expense (156) (147) 6
%
Total 352 144 144
%
INCOME BEFORE INCOME 118,539 103,366 15
TAXES %
PROVISION FOR INCOME 29,169 19,815 47
TAXES %
NET INCOME $
89,370 $
83,551 7
%
Diluted net income per
share $
1.16 $
1.08
Diluted weighted average
shares outstanding 77,067 77,537
Consolidated Balance Sheet Highlights (Unaudited)
(In Thousands)
September 30, %
Change
2019 2018
Cash and cash equivalents $
96,679 $
114,872 (16)
%
Receivables 234,362 198,564 18
%
Total assets 2,225,978 2,033,103 9
%
Accounts payable and $
120,373 $
123,551 (3)
accrued expenses
%
Deferred revenue 325,554 317,765 2
%
Stockholders' equity 1,476,660 1,368,564 8
%
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SOURCE Jack Henry & Associates, Inc.
