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

Cision

MONETT, Mo. , May 4, 2020 /PRNewswire/ --

  • Year-to-date summary:
  • Third quarter summary:
  • Full-year fiscal 2020 GAAP guidance:
  • Fourth quarter fiscal 2020 GAAP guidance:

Jack Henry & Associates, Inc. (NASDAQ: JKHY), a leading provider of technology solutions and payment processing services primarily for the financial services industry, today announces results for the third quarter of fiscal 2020 and discusses its response to the novel coronavirus (COVID-19) pandemic.

According to David Foss , President and CEO, "We are very pleased to report another record quarter of revenue, operating income and net income.  We continued to see strong demand for our Jack Henry technology solutions through the third fiscal quarter and total sales bookings are now running 12% ahead of last year's record pace. As we look forward to the coming months, we do expect some impact on sales bookings and revenue due to COVID-19, but there is no way for us to fully predict the impact on our business or our customers.  With that in mind we will continue to focus on taking care of our associates and customers, while at the same time maintaining our strong financial position and preparing for continued growth in the future. I would like to thank all of our associates for their commitment to our customers during these challenging times. Since the onset of this pandemic, the Jack Henry team has moved mountains to address the unprecedented needs of our customers while at the same time demonstrating unwavering commitment to each other and our communities.  They have weathered this storm with grace and passion."

GAAP Results for the Quarter and Year to Date

Revenue for the quarter ended March 31, 2020 increased to $429.4 million , which is 13% growth over the third quarter of fiscal 2019.  Operating income increased 20% to $91.9 million and net income increased 25% to $73.9 million , or $0.96 per diluted share, compared to the third quarter of fiscal 2019. The increases in operating income and net income were primarily driven by organic growth in both our services and support and processing lines of revenue and higher deconversion fees quarter over quarter.

For the nine months ended March 31, 2020 , revenue increased to $1,286.5 million , which is 11% growth over the nine months ended March 31, 2019 . Operating income increased 13% over the prior year-to-date period to $303.8 million . Net income totaled $235.3 million , or $3.06 per diluted share, an increase of 12% compared to the nine months ended March 31, 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 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 and Year to Date

For the quarter ended March 31, 2020, adjusted revenue increased 9% to $404.3 million and adjusted operating income increased 6% to $73.1 million , compared to the prior-year quarter.

For the nine months ended March 31, 2020 , adjusted revenue increased 9% to $1,234.4 million and adjusted operating income increased 7% to $264.3 million compared to the nine months ended March 31, 2019 (see Non-GAAP Impact of Deconversion Fees, Acquisition, and Disposals on page 4).

Operating Results

Revenue, operating expenses, operating income, and net income for the three and nine months ended March 31, 2020, as compared to the three and nine months ended March 31, 2019, were as follows:

Revenue (Unaudited)










(In Thousands)

Three Months Ended
March 31,

%
Change


Nine Months Ended
March 31,

%
Change


2020


2019



2020


2019


Revenue










Services & Support

$

270,204



$

234,123


15

%


$

804,216



$

718,014


12

%

  Percentage of Total Revenue

63

%


62

%



63

%


62

%


Processing

159,202



146,241


9

%


482,314



441,168


9

%

  Percentage of Total Revenue

37

%


38

%



37

%


38

%


Total Revenue

$

429,406



$

380,364


13

%


$

1,286,530



$

1,159,182


11

%

 

  • Total revenue increased 13% for the third quarter of fiscal 2020 compared to the same period last year. The increased revenue in the services and support line for the third quarter of fiscal 2020 was primarily driven by the growth in data processing and hosting fees, as well as increased software usage revenue, and higher implementation fees primarily related to our private cloud offerings, quarter over quarter. The increase in processing revenue was mainly driven by increased transaction volumes within card processing and the associated fee revenue, as well as higher remittance fees and growth in mobile processing, quarter over quarter. Deconversion fees, which are included within services and support, increased $14.7 million compared to the third quarter of the prior year. Excluding deconversion fees from both periods, and revenue from the fiscal 2020 acquisition, total adjusted revenue increased 9% for the third quarter of fiscal 2020 compared to the same quarter of fiscal 2019.
  • Total revenue increased 11% for the nine months ended March 31, 2020 compared to the same period last year. For the nine months ended March 31, 2020 , deconversion fees increased $22.8 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 revenue, and higher 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, with increased transaction volumes within card processing and the associated fee revenue being the largest driver.
  • For the third quarter of fiscal 2020, core segment revenue increased 12% to $146.4 million from $130.6 million in the third quarter of fiscal 2019. Payments segment revenue increased 11% to $150.4 million , from $135.5 million in the same quarter last year. Revenue from the complementary segment increased 16% to $118.7 million in the third quarter of fiscal 2020 from $102.1 million in the same quarter of fiscal 2019. Revenue in the corporate and other segment increased to $13.9 million , from $12.2 million in the third quarter of fiscal 2019.
  • For the nine months ended March 31, 2020 , revenue in the core segment increased 10% to $440.7 million , compared to $399.5 million for the nine months ended March 31, 2019 . Payments segment revenue increased 11% to $452.2 million from $407.7 million for the prior year-to-date period. Complementary segment revenue increased 12% to $349.3 million , up from $311.0 million in the prior year-to-date period. Revenue from the corporate and other segment increased 8% to $44.3 million for the nine months ended March 31, 2020 from $41.0 million for the nine months ended March 31, 2019 .

 

Operating Expenses and Operating Income


(Unaudited, In Thousands)

Three Months Ended
March 31,

%
Change


Nine Months Ended
March 31,

%
Change



2020


2019



2020


2019



Cost of Revenue

$

258,571



$

235,594


10

%


$

753,629



$

682,990


10

%


Percentage of Total Revenue

60

%


62

%



59

%


59

%



Research and Development

28,308



23,442


21

%


80,086



71,458


12

%


Percentage of Total Revenue

7

%


6

%



6

%


6

%



Selling, General, & Administrative

47,391



44,682


6

%


145,890



136,683


7

%


Percentage of Total Revenue

11

%


12

%



11

%


12

%



Loss on disposal of assets, net

3,198



205


1,460

%


3,095



183


1,591

%


Total Operating Expenses

337,468



303,923


11

%


982,700



891,314


10

%


Operating Income

$

91,938



$

76,441


20

%


$

303,830



$

267,868


13

%


Operating Margin

21

%


20

%



24

%


23

%



 

  • Cost of revenue increased 10% for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, but decreased 2% 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 nine months ended March 31, 2020 , cost of revenue increased 10% compared to the equivalent period of the prior year, but remained consistent 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 21% for the third quarter and 12% for the year-to-date period of fiscal 2020. This increase was primarily due to increased personnel costs. Headcount increased 3% at March 31, 2020 compared to a year ago. Research and development expense for the quarter increased 1% as a percentage of total revenue compared to the prior-year quarter. Year-to-date research and development expense remained consistent with the prior year-to-date period as a percentage of total revenue.
  • Selling, general, and administrative expense for both the third 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 salary increases during the trailing twelve-month period. Selling, general, and administrative expense for the quarter and year-to-date period decreased 1% as a percentage of total revenue compared to the prior year-to-date period, when excluding the loss on disposal of assets, net.
  • For the third quarter of fiscal 2020, operating income increased 20% to $91.9 million , which is 21% of revenue, compared to $76.4 million , which was 20% of revenue in the third quarter of fiscal 2019. For the year-to-date period, operating income increased 13% to $303.8 million , which is 24% of revenue, compared to operating income of $267.9 million , which was 23% of revenue, for the nine months ended March 31, 2019 .

 

Net Income

(Unaudited, In Thousands,

Except Per Share Data)

Three Months Ended
March 31,

%
Change


Nine Months Ended
March 31,

%
Change


2020


2019



2020


2019


Income Before Income Taxes

$

91,970



$

76,372


20

%


$

304,403



$

268,045


14

%

Provision for Income Taxes

18,115



17,120


6

%


69,080



57,153


21

%

Net Income

$

73,855



$

59,252


25

%


$

235,323



$

210,892


12

%

Diluted earnings per share

$

0.96



$

0.77


25

%


$

3.06



$

2.72


12

%

 

  • Provision for income taxes increased in the third quarter, with an effective tax rate at 19.7% of income before income taxes, compared to 22.4% for the same quarter of the prior year. The decrease in the effective tax rate in the third quarter of fiscal 2020 compared to the prior-year quarter was primarily due to the difference in uncertain tax positions released, with the lapsing of statute of limitations, between the two periods.
  • For the nine months ended March 31, 2020 , provision for income taxes increased, with an effective tax rate at 22.7% of income before income taxes, compared to 21.3% for the same period last year. The increase to the Company's tax rate was primarily due to the difference in the tax benefits recognized from stock-based compensation between the two periods.

According to Kevin Williams , CFO and Treasurer, "We continue to have solid revenue growth, with the primary drivers being our private cloud offerings, transactional processing and digital. Every component of revenue increased for the quarter compared to the prior year with the only exception being license revenue which was down slightly and is due to the continued shift of our core customers migrating from in-house delivery to our private cloud.  All three of our reported operating segments showed solid revenue growth for the quarter on both a GAAP and Non-GAAP basis. Our operating margins continue to show the impact of the additional costs related to the migration of our debit card customers to the new processing platform, which was primarily offset by margin expansion in our other operating segments. We had a loss on disposal of assets during the quarter which is a net number made of up a gain on the sale of our Houston, TX facility and the write-off of our investment in the Enterprise Risk Mitigation Solution (ERMS), which had a net negative impact of $.03 on reported earnings per share. I would like to thank all of our associates for taking care of themselves and our customers during these unusual times, they have all done a remarkable job."

Non-GAAP Impact of Deconversion Fees, Acquisition, and Disposals

The table below shows our revenue and operating income (in thousands) for the three and nine months ended March 31, 2020 compared to the prior-year period, excluding the impacts of deconversion fees, the fiscal 2020 acquisition and the loss on disposal of certain assets, net.

(Unaudited, In Thousands)

Three Months Ended
March 31,


%
Change


Nine Months Ended
March 31,


%
Change


2020


2019




2020


2019















Reported Revenue (GAAP)

$

429,406



$

380,364



13

%


$

1,286,530



$

1,159,182



11

%













Adjustments:












Deconversion fees

(22,781)



(8,051)





(45,384)



(22,545)




Revenue from fiscal 2020 acquisition

(2,356)







(6,787)


















Non-GAAP Adjusted Revenue

$

404,269



$

372,313



9

%


$

1,234,359



$

1,136,637



9

%

























Reported Operating Income (GAAP)

$

91,938



$

76,441



20

%


$

303,830



$

267,868



13

%













Adjustments:












Deconversion fees

(21,512)



(7,483)





(41,960)



(21,509)




Operating (income)/ loss from fiscal 2020 acquisition

(459)







(697)






Loss on disposal of certain assets, net*

3,157







3,157


















Non-GAAP Adjusted Operating Income

$

73,124



$

68,958



6

%


$

264,330



$

246,359



7

%


*This includes the write-off of the Company's investment in ERMS, partially offset by the gain on sale of the Company's Houston, TX facility.

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 March 31, 2020


Core


Payments


Complementary


Corporate &
Other


Total

Revenue

$

146,440



$

150,360



$

118,664



$

13,942



$

429,406


Deconversion Fees

(10,810)



(6,442)



(5,255)



(274)



(22,781)


Revenue from fiscal 2020 acquisition





(2,356)





(2,356)


Non-GAAP Adjusted Revenue

135,630



143,918



111,053



13,668



404,269












Cost of Revenue

66,141



80,836



48,691



62,903



258,571


Non-GAAP Adjustments

(334)



(80)



(1,197)



(82)



(1,693)


Non-GAAP Adjusted Cost of Revenue

65,807



80,756



47,494



62,821



256,878


Non- GAAP Adjusted Segment Income

$

69,823



$

63,162



$

63,559



$

(49,153)














Research & Development









28,308


Selling, General, & Administrative









47,391


Loss on disposal of assets, net









3,198


Other Non-GAAP Adjustments









(4,630)


Non-GAAP Total Adjusted Operating Expenses









331,145


Non-GAAP Adjusted Operating Income









$

73,124




(Unaudited, In Thousands)

Three Months Ended March 31, 2019


Core


Payments


Complementary


Corporate &
Other


Total

Revenue

$

130,604



$

135,491



$

102,061



$

12,208



$

380,364


Deconversion Fees

(4,020)



(2,187)



(1,841)



(3)



(8,051)


Non-GAAP Adjusted Revenue

126,584



133,304



100,220



12,205



372,313












Cost of Revenue

63,977



68,700



45,733



57,184



235,594


Non-GAAP Adjustments

(276)



(62)



(373)



143



(568)


Non-GAAP Adjusted Cost of Revenue

63,701



68,638



45,360



57,327



235,026


Non- GAAP Adjusted Segment Income

$

62,883



$

64,666



$

54,860



$

(45,122)














Research & Development









23,442


Selling, General, & Administrative









44,682


Loss on disposal of assets, net









205


Non-GAAP Total Adjusted Operating Expenses









303,355


Non-GAAP Adjusted Operating Income









$

68,958




(Unaudited, In Thousands)

Nine Months Ended March 31, 2020


Core


Payments


Complementary


Corporate &
Other


...