Jack Henry & Associates, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended December 31, 2020. Income and cash flow comparisons are against the periods ended December 31, 2019; balance-sheet comparisons are against June 30, 2020. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Year-over-year change | Six months ended Dec. 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $422.4 | +0.8% | $874.2 | +2.0% |
| Operating income | $93.6 | Essentially flat | $211.2 | Essentially flat |
| Net income | $72.0 | Essentially flat | $163.2 | +1.1% |
| Diluted EPS | $0.94 | Unchanged | $2.13 | +$0.03 |
| Operating cash flow | Not separately provided | — | $194.0 | Down 9.8% |
Quarterly gross margin was approximately 39.0%, versus 40.5% a year earlier; operating margin was 22.2%, versus 22.4%, and net margin was 17.1%, versus 17.2%. For the six-month period, gross margin was approximately 40.4%, versus 42.2%; operating margin was 24.2%, versus 24.7%; and net margin was 18.7%, versus 18.8%.
Processing revenue grew 5% for the quarter and 6% year to date, led by card processing, digital, and remittance activity. Services and support revenue declined 2% for the quarter and was essentially flat year to date; management cited lower deconversion fees, pass-through revenue, and travel-related billings. Adjusting for deconversion fees and prior-year divestiture revenue, management reported revenue growth of 2% for the quarter and 4% year to date.
Liquidity, debt, and cash flows
- Cash and cash equivalents were $147.8 million, down from $213.3 million at June 30, 2020. Current assets were $518.5 million and current liabilities $351.0 million.
- Six-month operating cash flow of $194.0 million was below $215.0 million a year earlier, primarily reflecting higher deferred-revenue outflows and lower receivables-related cash inflows.
- Investing activities used $82.5 million, including $62.8 million for software development and $12.1 million for investments; financing activities used $177.0 million, including $109.9 million for share repurchases and $65.5 million for dividends.
- No borrowings were outstanding under the $300 million revolving credit facility or the separate $5 million credit line. The company reported compliance with credit-facility covenants. Balance-sheet debt was minimal; operating lease liabilities totaled $66.8 million.
- Management expects fiscal 2021 capital expenditures on facilities and equipment not to exceed $58 million, funded from operating cash flow.
Changes, outlook, and risks
- Cost of revenue rose 3% in the quarter and 5% year to date, faster than revenue, largely due to card-processing platform costs and personnel. SG&A declined 10% and 9%, respectively, helped by lower travel and virtual events. Management cited a 2% year-over-year increase in headcount.
- Management’s adjusted comparisons, which exclude specified deconversion fees, divestiture effects, and a current-period asset-disposal gain, showed operating-income growth of 4% for the quarter and 6% year to date. These are management-adjusted comparisons, not reported GAAP growth.
- The company reported a $2.0 million gain on disposal of assets in the six-month period. It invested an additional $7.25 million in Autobooks during the quarter, bringing its investment to $13.25 million.
- COVID-19 had not materially disrupted operations or results through the reporting date, but management noted uncertainty around future economic effects. Product installations and card-platform customer migrations experienced delays; management said core migrations were complete and non-core migrations were on track for completion by March 31, 2021. Remote work and suspended non-essential travel were expected to continue at least through July 1, 2021.
- Management expressed optimism based on recurring revenue and its sales pipeline, while acknowledging limited visibility into the pandemic’s future impact. The filing provides no specific revenue or earnings guidance. Routine legal proceedings were not expected to have a material adverse effect; no subsequent events were reported.
Important facts for investors to verify
- Whether processing growth and recurring-revenue trends can continue, and whether delayed installations and migrations affect future revenue.
- Whether elevated card-processing and other direct costs pressure margins, particularly in the Payments segment.
- How much of reported earnings and expense improvement reflects underlying operations versus deconversion-fee changes, virtual-event and travel savings, and the asset-disposal gain.
- Future operating cash flow and the funding implications of dividends, repurchases, software investment, and the announced capital-expenditure ceiling.
- Potential future effects of COVID-19 on customers, credit-loss estimates, and business activity; management said future impacts remain uncertain.