Jack Henry & Associates, Inc. Reports Second Quarter Fiscal 2020 Results
MONETT, Mo., Feb. 4, 2020 /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 second quarter of fiscal 2020.
GAAP Results for the Quarter
Revenue for the quarter ended December 31, 2019 increased to $419.1 million, which is 9% growth over the second quarter of fiscal 2019. Operating income increased 6% to $93.7 million and net income increased 6% to $72.1 million, or $0.94 per diluted share, compared to the second quarter of fiscal 2019. The increase in operating income was driven by organic growth in both our services and support and processing lines of revenue and higher deconversion fees quarter over quarter. The increase in net income is primarily attributable to the growth in both our lines of revenue and higher deconversion fees discussed above.
For the six months ended December 31, 2019, revenue increased to $857.1 million, which is 10% growth over the six months ended December 31, 2018. Operating income increased 11% over the prior year-to-date period to $211.9 million. Net income totaled $161.5 million, or $2.10 per diluted share, an increase of 6% compared to the six months ended December 31, 2018. The increase in operating income was driven by organic growth in both our services and support and processing lines of revenue and higher deconversion fees in the year-to-date period over the prior year-to-date period. The increase in net income is primarily attributable to the growth in both our lines of revenue and higher deconversion fees discussed above, partially offset by the increase in effective tax rate compared to the prior-year period.
Non-GAAP Results for the Quarter
For the quarter ended December 31, 2019, adjusted revenue increased 8% to $409.4 million and adjusted operating income increased 6% to $86.7 million, compared to the prior-year quarter.
For the six months ended December 31, 2019, adjusted revenue increased 9% to $830.1 million and adjusted operating income increased 8% to $191.2 million compared to the six months ended December 31, 2018 (see Non-GAAP Impact of Deconversion Fees and Acquisitions on page 4).
According to David Foss, President and CEO, "We are very pleased to report another quarter of strong revenue, operating income and net income growth. We continue to see very strong demand for Jack Henry technology solutions in the markets we serve and our sales teams had another outstanding quarter. We are now half way through the fiscal year and sales bookings are 18% ahead of where we were at this time during last year's record sales year. 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 and six months ended December 31, 2019, as compared to the three and six months ended December 31, 2018, were as follows:
Revenue (Unaudited)
(In Thousands)
Three Months Ended %
Six Months Ended %
December 31, Change
December 31, Change
2019 2018 2019 2018
Revenue
Services & Support $
255,204 $
237,322 8 $
534,012 $
483,890 10
% %
Percentage of Total 61 61 62
Revenue % %
% % 62
Processing 163,915 148,953 10 323,112 294,928 10
% %
Percentage of Total 39 39 38
Revenue % %
% % 38
Total Revenue 419,119 386,275 9 $
857,124 $
778,818 10
% %
-- Total revenue increased 9% for the second quarter of fiscal 2020
compared to the same period last year. The increased revenue in the
services and support line for the second quarter of fiscal 2020 was
primarily driven by the growth in data processing and hosting fees, as
well as increased implementation fees primarily related to our private
cloud offerings and consulting fee revenue, quarter over quarter. The
increase in processing revenue was mainly driven by increased
transaction volumes within card processing and remittance fees within
processing revenue. Deconversion fees, which are included within
services and support, increased $1.1 million compared to the second
quarter of the prior year. Excluding deconversion fees from both
periods, and revenue from the fiscal 2020 acquisition, total adjusted
revenue increased 8% for the second quarter of fiscal 2020 compared to
the same quarter of fiscal 2019.
-- Total revenue increased 10% for the six months ended December 31, 2019
compared to the same period last year. For the six months ended December
31, 2019, deconversion fees increased $8.1 million compared to the prior
year-to-date period. Excluding deconversion fees from both periods and
revenue from the fiscal 2020 acquisition, total adjusted revenue
increased 9%. The increase in the services and support line was
primarily driven by the growth in data processing and hosting fees, as
well as increased software usage, hardware revenue, consulting fee
revenue, and implementation fees primarily related to our private cloud
offerings when compared to the prior year-to-date period . All
components of processing revenue increased for the year-to-date period.
-- For the second quarter of fiscal 2020, core segment revenue increased 7%
to $138.4 million from $129.7 million in the second quarter of fiscal
2019. Payments segment revenue increased 10% to $152.0 million, from
$138.0 million in the same quarter last year. Revenue from the
complementary segment increased 10% to $113.5 million in the second
quarter of fiscal 2020 from $103.3 million in the same quarter of fiscal
2019. Revenue in the corporate and other segment remained consistent at
$15.2 million, compared to $15.3 million for the second quarter of
fiscal 2019.
-- For the six months ended December 31, 2019, revenue in the core segment
increased 9% to $294.3 million, compared to $268.9 million for the six
months ended December 31, 2018. Payments segment revenue increased 11%
to $301.8 million from $272.2 million for the prior year-to-date period.
Complementary segment revenue increased 10% to $230.7 million, up from
$209.0 million in the prior year-to-date period. Revenue from the
corporate and other segment increased 6% to $30.4 million for the six
months ended December 31, 2019 from $28.8 million for the six months
ended December 31, 2018.
Operating Expenses and Operating Income
(Unaudited, In
Thousands) Three Months Ended % Six Months Ended %
December 31, Change
December 31, Change
2019 2018 2019 2018
Cost of Revenue $
249,267 $
227,284 10 $
495,058 $
447,396 11
% %
Percentage of Total
Revenue 59
% 59
% 58
% 57
%
Research and 27,187 23,990 13 51,778 48,016 8
Development
% %
Percentage of Total
Revenue 6
% 6
% 6
% 6
%
Selling, General, & 48,961 46,797 5 98,396 91,979 7
Administrative
% %
Percentage of Total
Revenue 12
% 12
% 11
% 12
%
Total Operating 325,415 298,071 9 645,232 587,391 10
Expenses
% %
Operating Income $
93,704 $
88,204 6 $
211,892 $
191,427 11
% %
Operating Margin 22
% 23
% 25
% 25
%
-- Cost of revenue increased 10% for the second quarter of fiscal 2020
compared to the second quarter of fiscal 2019, but remained consistent
as a percentage of revenue. Excluding costs related to deconversions and
the fiscal 2020 acquisition, the adjusted cost of revenue increase was
9%. The increase was primarily due to higher costs associated with our
card processing platform and higher personnel costs.
-- For the six months ended December 31, 2019, cost of revenue increased
11% compared to the equivalent period of the prior year, and increased
1% as a percentage of revenue. Excluding costs related to deconversions
and the fiscal 2020 acquisition, adjusted cost of revenue increased 10%.
The increase was primarily due to higher costs associated with our card
processing platform, increases in related revenue, and higher personnel
costs.
-- Research and development expense increased 13% for the second quarter
and 8% for the year-to-date period of fiscal 2020. This increase was
primarily due to increased personnel costs. Headcount increased 4% at
December 31, 2019 compared to a year ago. The quarter and year-to-date
research and development expense remained consistent with the prior year
quarter and year-to-date period as a percentage of total revenue.
-- Selling, general, and administrative expense for both the second quarter
and year-to-date period of fiscal 2020 increased mainly due to increased
personnel costs primarily due to a 2% increase in headcount over the
prior-year period and pay raises during the trailing twelve-month
period. Selling, general, and administrative expense for the quarter
remained consistent with the prior-year quarter as a percentage of total
revenue. Selling, general, and administrative expense for the
year-to-date period decreased 1% as a percentage of total revenue
compared to the prior-year period due to ongoing cost control efforts.
-- For the second quarter of fiscal 2020, operating income increased 6% to
$93.7 million, which is 22% of revenue, compared to $88.2 million, which
was 23% of revenue in the second quarter of fiscal 2019. For the
year-to-date period, operating income increased 11% to $211.9 million,
which is 25% of revenue, compared to operating income of $191.4 million,
which was 25% of revenue, for the six months ended December 31, 2018.
Net Income
(Unaudited, In
Thousands,
Except Per
Share Data) Three Months Ended % Six Months Ended %
December 31, Change December 31, Change
2019 2018 2019 2018
Income Before $
93,894 $
88,308 6 $
212,433 $
191,674 11
Income Taxes
% %
Provision for 21,796 20,219 8 50,965 40,034 27
Income Taxes
% %
Net Income $
72,098 $
68,089 6 $
161,468 $
151,640 6
% %
Diluted $
0.94 $
0.88 7 $
2.10 $
1.96 7
earnings per
share % %
-- Provision for income taxes increased in the second quarter, with an
effective tax rate at 23.2% of income before income taxes, compared to
22.9% for the same quarter of the prior year. The increase in the
effective tax rate in the second quarter of fiscal 2020 was primarily
due to the change in the impact of share-based compensation
quarter-over-quarter.
-- For the six months ended December 31, 2019, provision for income taxes
increased, with an effective tax rate at 24.0% of income before income
taxes, compared to 20.9% for the same period last year. The increase to
the Company's tax rate was primarily due to the difference in impact of
stock-based compensation. A significant excess tax benefit was
recognized in the first six months of the prior fiscal year from
stock-based compensation. The stock-based compensation has not resulted
in the same level of tax benefit during the same period of the current
fiscal year.
According to Kevin Williams, CFO and Treasurer, "We continue to have good revenue growth, with the primary drivers being our Outsourcing in our private cloud and debit and credit card processing. In fact, every component of revenue was up for the quarter compared to last year except license and related maintenance revenue. Which the decrease in license is primarily due to almost all new core customers electing to be processed in our private cloud and many of our existing on-premise customers continuing to elect to make the move to our private cloud for all their back-office processing. Sixty percent of our core customers are now processed in our private cloud. Our operating margins are showing the impact of the additional costs related to the migration of our debit card customers to the new processing platform which is still on schedule, and our effective tax rate is in line with previous guidance provided."
Non-GAAP Impact of Deconversion Fees and Acquisitions
The table below shows our revenue and operating income (in thousands) for the three and six months ended December 31, 2019 compared to the prior year period, excluding the impacts of deconversion fees and the fiscal 2020 acquisition.
(Unaudited, In
Thousands) Three Months Ended % Six Months Ended %
December 31, Change December 31, Change
2019 2018 2019 2018
Reported Revenue 9 10
(GAAP)
$
419,119 $
386,275 % $
857,124 $
778,818 %
Adjustments:
Deconversion fees (7,716) (6,611) (22,602) (14,494)
Revenue from fiscal
2020 acquisition (2,040) (4,432)
Non-GAAP Adjusted 8 9
Revenue
$
409,363 $
379,664 % $
830,090 $
764,324 %
Reported Operating 6 11
Income (GAAP)
$
93,704 $
88,204 % $
211,892 $
191,427 %
Adjustments:
Deconversion fees (6,798) (6,342) (20,449) (14,026)
Operating (income)/
loss from fiscal
2020 acquisition (187) (237)
Non-GAAP Adjusted 6 8
Operating Income
$
86,719 $
81,862 % $
191,206 $
177,401 %
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 include a reconciliation to non-GAAP adjusted operating income presented above.
(Unaudited, In
Thousands)
Three Months Ended December 31, 2019
Core Payments Complementary Corporate & Total
Other
Revenue $
138,369 $
152,044 $
113,484 $
15,222 $
419,119
Deconversion Fees (3,629) (2,065) (1,987) (35) (7,716)
Revenue from fiscal
2020 acquisition - (2,040) (2,040)
Non-GAAP Adjusted
Revenue 134,740 149,979 109,457 15,187 409,363
Cost of Revenue 61,243 79,135 48,019 60,870 249,267
Non-GAAP
Adjustments (377) (56) (1,081) (47) (1,561)
Non-GAAP Adjusted
Cost of Revenue 60,866 79,079 46,938 60,823 247,706
Non- GAAP Adjusted
Segment Income $
73,874 $
70,900 $
62,519 $
(45,636)
Research & Development 27,187
Selling, General, & Administrative 48,961
Other Non-GAAP Adjustments (1,210)
Non-GAAP Total Adjusted Operating
Expenses 322,644
Non-GAAP Adjusted Operating Income $
86,719
(Unaudited, In
Thousands)
Three Months Ended December 31, 2018
Core Payments Complementary Corporate & Total
Other
Revenue $
129,729 $
138,019 $
103,250 $
15,277 $
386,275
Deconversion Fees (2,744) (2,274) (1,587) (6) (6,611)
Non-GAAP Adjusted
Revenue 126,985 135,745 101,663 15,271 379,664
Cost of Revenue 60,288 65,100 44,167 57,729 227,284
Non-GAAP
Adjustments (52) (31) (82) (104) (269)
Non-GAAP Adjusted
Cost of Revenue 60,236 65,069 44,085 57,625 227,015
Non- GAAP Adjusted
Segment Income $
66,749 $
70,676 $
57,578 $
(42,354)
Research & Development 23,990
Selling, General, & Administrative 46,797
Other Non-GAAP Adjustments
Non-GAAP Total Adjusted Operating
Expenses 297,802
Non-GAAP Adjusted Operating Income $
81,862
(Unaudited, In
Thousands)
Six Months Ended December 31, 2019
Core Payments Complementary Corporate & Total
Other
Revenue $
294,265 $
301,791 $
230,679 $
30,389 $
857,124
Deconversion Fees (10,762) (7,036) (4,754) (50) (22,602)
Revenue from fiscal
2020 acquisition - (4,432) (4,432)
Non-GAAP Adjusted
Revenue 283,503 294,755 221,493 30,339 830,090
Cost of Revenue 124,549 155,759 94,693 120,057 495,058
Non-GAAP
Adjustments (1,130) (153) (2,561) (120) (3,964)
Non-GAAP Adjusted
Cost of Revenue 123,419 155,606 92,132 119,937 491,094
Non- GAAP Adjusted
Segment Income $
160,084 $
139,149 $
129,361 $
(89,598)
Research & Development 51,778
Selling, General, & Administrative 98,396
Other Non-GAAP Adjustments (2,384)
Non-GAAP Total Adjusted Operating
Expenses 638,884
Non-GAAP Adjusted Operating Income $
191,206
(Unaudited, In
Thousands)
Six Months Ended December 31, 2018
Core Payments Complementary Corporate & Total
Other
Revenue $
268,884 $
272,216 $
208,955 $
28,763 $
778,818
Deconversion Fees (6,729) (4,347) (3,379) (39) (14,494)
Non-GAAP Adjusted
Revenue 262,155 267,869 205,576 28,724 764,324
Cost of Revenue 119,504 130,807 85,998 111,087 447,396
Non-GAAP
Adjustments (54) (44) (82) (288) (468)
Non-GAAP Adjusted
Cost of Revenue 119,450 130,763 85,916 110,799 446,928
Non- GAAP Adjusted
Segment Income $
142,705 $
137,106 $
119,660 $
(82,075)
Research & Development 48,016
Selling, General, & Administrative 91,979
Non-GAAP Total Adjusted Operating
Expenses 586,923
Non-GAAP Adjusted Operating Income $
177,401
Balance Sheet and Cash Flow Review
-- At December 31, 2019, cash and cash equivalents increased to $72.5
million from $26.2 million at December 31, 2018.
-- Trade receivables totaled $204.7 million at December 31, 2019 compared
to $184.7 million at December 31, 2018.
-- The company had no borrowings at December 31, 2019 or at December 31,
2018.
-- Total deferred revenue increased to $277.0 million at December 31, 2019,
compared to $255.6 million a year ago.
-- Stockholders' equity increased to $1,486.7 million at December 31, 2019,
compared to $1,392.0 million a year ago.
Cash provided by operations totaled $215.0 million in the six months ended December 31, 2019 compared to $192.0 million for the same period last year. The following table summarizes net cash (in thousands) from operating activities:
(Unaudited, In Thousands) Six Months Ended December 31,
2019 2018
Net income $
161,468 $
151,640
Depreciation 25,364 22,470
Amortization 58,873 56,146
Change in deferred income taxes 4,134 1,256
Other non-cash expenses 6,895 5,124
Change in receivables 106,782 113,563
Change in deferred revenue (117,489) (115,014)
Change in other assets and liabilities (31,014) (43,141)
Net cash provided by operating activities $
215,013 $
192,044
Cash used in investing activities for the six months ended December 31, 2019 totaled $125.4 million, compared to $109.7 million for the same period last year and included the following:
(Unaudited, In Thousands) Six Months Ended December 31,
2019 2018
Payment for acquisitions, net of cash acquired $
(30,376) $
(19,981)
Capital expenditures (30,758) (32,968)
Proceeds from the sale of assets 326 76
Purchased software (5,551) (2,694)
Computer software developed (57,886) (54,086)
Purchase of investments (1,150)
Net cash from investing activities $
(125,395) $
(109,653)
-- On July 1, 2019, the Company acquired all of the equity interest of
Geezeo for $30,376, net of cash acquired. Geezeo is a Boston-based
provider of retail and business digital financial management solutions.
Financing activities used cash of $110.7 million in the six months ended December 31, 2019 and $87.7 million in the same period last year and included the following:
(Unaudited, In Thousands) Six Months Ended December 31,
2019 2018
Purchase of treasury stock $
(51,210) $
(21,276)
Dividends paid (61,502) (57,104)
Net cash from issuance of stock and tax related to stock-based
compensation 1,979 (9,295)
Net cash from financing activities $
(110,733) $
(87,675)
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, including adjusted revenue, adjusted operating income, adjusted segment income, adjusted cost of revenue, and adjusted operating expenses.
We believe non-GAAP financial measures help investors better understand the underlying fundamentals and true operations of our business. The non-GAAP financial measures presented eliminate one-time deconversion fees and contributions of the current fiscal year acquisition, both items which management believes are not indicative of the Company's operating performance. Such adjustments give investors further insight into our performance. For these reasons, management also uses these non-GAAP financial measures in its assessment and management of the Company's performance.
Any non-GAAP financial 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 financial measures to related GAAP measures are included.
Quarterly Conference Call
The company will hold a conference call on February 5, 2020; 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 approximately 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 statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those discussed in the Company's Securities and Exchange Commission filings, including the Company's most recent reports on Form 10-K and Form 10-Q, particularly under the heading "Risk Factors." Any forward-looking statement made in this news release speaks only as of the date of the news release, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.
Condensed Consolidated Statements of Income (Unaudited)
(In Thousands, Except Per
Share Data) Three Months Ended % Change Six Months Ended % Change
December 31, December 31,
2019 2018 2019 2018
REVENUE $
419,119 $
386,275 9
%
% $
857,124 $
778,818 10
EXPENSES
Cost of Revenue 249,267 227,284 10
%
% 495,058 447,396 11
Research & Development 27,187 23,990 13
%
% 51,778 48,016 8
Selling, General, & 48,961 46,797 5
Administrative %
% 98,396 91,979 7
Total Expenses 325,415 298,071 9
%
% 645,232 587,391 10
OPERATING INCOME 93,704 88,204 6
%
% 211,892 191,427 11
INTEREST INCOME (EXPENSE)
Interest income 346 252 37
%
% 853 542 57
Interest expense (156) (148) 5
%
% (312) (295) 6
Total 190 104 83 541 247 119
% %
INCOME BEFORE INCOME 93,894 88,308 6
TAXES %
% 212,433 191,674 11
PROVISION FOR INCOME 21,796 20,219 8
TAXES %
% 50,965 40,034 27
NET INCOME $
72,098 $
68,089 6
%
% $
161,468 $
151,640 6
Diluted net income per
share $
0.94 $
0.88 $
2.10 $
1.96
Diluted weighted average
shares outstanding 76,935 77,409 77,001 77,474
Consolidated Balance Sheet Highlights (Unaudited)
(In Thousands)
December 31, % Change
2019 2018
Cash and cash equivalents $
72,513 $
26,156 177
%
Receivables 204,703 184,737 11
%
Total assets 2,187,439 1,971,777 11
%
Accounts payable and accrued expenses $
127,053 $
99,211 28
%
Deferred revenue 277,004 255,636 8
%
Stockholders' equity 1,486,746 1,391,955 7
%
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SOURCE Jack Henry & Associates, Inc.
