JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



Jack Henry & Associates, Inc.
 
Kevin D. Williams
Press Release
 
Chief Financial Officer
 
 
(417) 235-6652

FOR IMMEDIATE RELEASE

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


•
GAAP revenue increased 12% and operating income increased 14% for the quarter.
•
Non-GAAP revenue increased 9% and operating income increased 9% for the quarter.
•
GAAP EPS was $1.16 per diluted share for the quarter, compared to $1.08 in the prior year quarter.

Monett, MO, November 4, 2019 - 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 Revenue
64
%
 
63
%
 
Processing
159,197

 
145,975

9
%
Percentage of Total Revenue
36
%
 
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.

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JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



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 Development
24,591

 
24,026

2
%
Percentage of Total Revenue
6
%
 
6
%
 
Selling, General, & Administrative
49,436

 
45,183

9
%
Percentage of Total Revenue
11
%
 
12
%
 
Total Operating Expenses
319,818

 
289,321

11
%
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,
Except Per Share Data)
Three Months Ended
September 30,
% Change
 
2019

 
2018

 
Income Before Income Taxes
$
118,539

 
$
103,366

15
%
Provision for Income Taxes
29,169

 
19,815

47
%
Net Income
$
89,370

 
$
83,551

7
%
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.”

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JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



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 (GAAP)
$
438,005

 
$
392,543

 
12
%
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
Deconversion fees
(14,886
)
 
(7,882
)
 
 
Revenue from fiscal 2020 acquisition
(2,392
)
 
—

 
 
 
 
 
 
 
 
Non-GAAP Revenue
$
420,727

 
$
384,661

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
Reported Operating Income (GAAP)
$
118,187

 
$
103,222

 
14
%
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
Deconversion fees
(13,649
)
 
(7,683
)
 
 
Operating (income)/ loss from fiscal 2020 acquisition
(50
)
 
—

 
 
 
 
 
 
 
 
Non-GAAP Operating Income
$
104,488

 
$
95,539

 
9
%

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 & Other
 
Total
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


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JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



(Unaudited, In Thousands)
Three Months Ended September 30, 2018
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
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



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JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



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.

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JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



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.


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JKHY Reports First Quarter Fiscal 2020 Results
November 4, 2019



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, & Administrative
49,436

 
45,183

 
9
 %
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 TAXES
118,539

 
103,366

 
15
 %
 
 
 
 
 
 
PROVISION FOR INCOME TAXES
29,169

 
19,815

 
47
 %
 
 
 
 
 
 
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 accrued expenses
$
120,373

 
$
123,551

 
(3
)%
Deferred revenue
325,554

 
317,765

 
2
 %
Stockholders' equity
1,476,660

 
1,368,564

 
8
 %
 
 
 
 
 
 
 
 
 
 
 
 


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