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Jack Henry & Associates, Inc. Reports Second Quarter Fiscal 2020 Results

Cision

Year-to-date summary:

- GAAP revenue increased 10% and operating income increased 11% for the six months ended December 31, 2019.

- Non-GAAP adjusted revenue increased 9% and adjusted operating income increased 8% for the six months ended December 31, 2019.

- GAAP EPS was $2.10 and $1.96 per diluted share for the six months ended December 31, 2019 and 2018, respectively.

Second quarter summary:

- GAAP revenue increased 9% and operating income increased 6% for the quarter.

- Non-GAAP adjusted revenue increased 8% and adjusted operating income increased 6% for the quarter.

- GAAP EPS was $0.94 per diluted share for the quarter, compared to $0.88 in the prior year quarter.

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
December 31,

%
Change


Six Months Ended
December 31,

%
Change


2019


2018



2019


2018


Revenue










Services & Support

$

255,204



$

237,322


8

%


$

534,012



$

483,890


10

%

Percentage of Total Revenue

61

%


61

%



62

%


62

%


Processing

163,915



148,953


10

%


323,112



294,928


10

%

Percentage of Total Revenue

39

%


39

%



38

%


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
December 31,

%
Change


Six Months Ended
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 Development

27,187



23,990


13

%


51,778



48,016


8

%


Percentage of Total Revenue

6

%


6

%



6

%


6

%



Selling, General, & Administrative

48,961



46,797


5

%


98,396



91,979


7

%


Percentage of Total Revenue

12

%


12

%



11

%


12

%



Total Operating Expenses

325,415



298,071


9

%


645,232



587,391


10

%


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
December 31,

%
Change


Six Months Ended
December 31,

%
Change


2019


2018



2019


2018


Income Before Income Taxes

$

93,894



$

88,308


6

%


$

212,433



$

191,674


11

%

Provision for Income Taxes

21,796



20,219


8

%


50,965



40,034


27

%

Net Income

$

72,098



$

68,089


6

%


$

161,468



$

151,640


6

%

Diluted earnings per share

$

0.94



$

0.88


7

%


$

2.10



$

1.96


7

%

 

  • 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
December 31,


%
Change


Six Months Ended
December 31,


%
Change


2019


2018




2019


2018















Reported Revenue (GAAP)

$

419,119



$

386,275



9

%


$

857,124



$

778,818



10

%













Adjustments:












Deconversion fees

(7,716)



(6,611)





(22,602)



(14,494)




Revenue from fiscal 2020 acquisition

(2,040)







(4,432)


















Non-GAAP Adjusted Revenue

$

409,363



$

379,664



8

%


$

830,090



$

764,324



9

%

























Reported Operating Income (GAAP)

$

93,704



$

88,204



6

%


$

211,892



$

191,427



11

%













Adjustments:












Deconversion fees

(6,798)



(6,342)





(20,449)



(14,026)




Operating (income)/ loss from fiscal 2020 acquisition

(187)







(237)


















Non-GAAP Adjusted Operating Income

$

86,719



$

81,862



6

%


$

191,206



$

177,401



8

%

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 &
Other


Total

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 &
Other


Total

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