Jack Henry & Associates, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021, the first quarter of fiscal 2022. The filing’s unaudited results compare with the three months ended September 30, 2020. Unless otherwise stated, dollar figures below are in millions.
Business context and results
Jack Henry provides technology solutions and payment processing services primarily to banks and credit unions. Revenue is generated mainly from services and support and processing.
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $488.1 | $451.8 | +8% |
| Operating income | $133.6 | $117.6 | +14% |
| Net income | $102.1 | $91.2 | +12% |
| Diluted EPS | $1.38 | $1.19 | +16% |
| Operating margin | 27.4% | 26.0% | +1.4 percentage points |
| Net cash from operating activities | $106.5 | $114.5 | -7% |
Services and support revenue rose 6% to $297.5 million; processing revenue increased 12% to $190.6 million. Segment revenue growth was 8% in Core, 8% in Payments, 9% in Complementary, and 1% in Corporate and Other.
Expenses, cash flow, and financial position
Total expenses increased 6% to $354.5 million. Cost of revenue rose 5% to $276.6 million, research and development increased 3% to $26.8 million, and selling, general, and administrative expense increased 13% to $51.1 million. Higher card-processing and personnel costs contributed to expense growth; increased travel compared with the prior-year pandemic-restricted quarter also raised SG&A.
Cash and cash equivalents were $44.3 million at September 30, 2021, down from $51.0 million at June 30, 2021. Operating cash flow was $106.5 million; investing activities used $46.5 million, including $36.0 million for software development and $9.3 million for capital expenditures; financing activities used $66.8 million, including $35.0 million of debt repayments and $34.0 million of dividends. Cash ended the quarter $6.7 million lower.
Total assets were $2.28 billion and total liabilities were $885.2 million. Revolving credit facility borrowings were $65.0 million, down from $100.0 million at June 30; cash less reported debt was approximately a $20.8 million net debt position. The company had access to a $300 million revolving facility, with capacity that could be increased to $700 million, and was in compliance with its covenants. Variable-rate debt creates exposure: management estimated a 1 percentage-point rate increase would raise annual interest expense by $650,000.
Changes, outlook, and risks
Management attributed revenue growth chiefly to data-processing and hosting fees, expanded customer and transaction volumes, and growth in card, remittance, and digital processing. Reported revenue growth was 8%; excluding specified deconversion and acquisition/divestiture revenue, management reported 9% growth. Operating income increased as revenue growth outpaced expense growth. The effective tax rate rose to 23.4% from 22.4%, primarily because the prior-year quarter had a larger excess tax benefit from share-based compensation.
Management expressed optimism about the quarter’s performance, recurring revenue base, and sales pipeline, but said visibility into COVID-19’s future effects remained limited. It reported limited operational and financial impact to date, while identifying uncertainty from the pandemic, variants, customer and market conditions, and related effects on services, processing, installations, and efficiency. Most employees were working remotely or in hybrid arrangements as of November 5, 2021. The company was developing a plan to comply with the newly announced federal workplace vaccination-or-testing standard.
Fiscal 2022 facilities and equipment capital expenditures were not expected to exceed $57 million, funded from operating cash. No specific earnings or revenue guidance was provided. Routine legal proceedings were not expected by management to have a material adverse effect. The filing reported no material COVID-19 impact on the quarter’s financial statements and no subsequent events.
Important facts for investors to verify
- Whether the growth in recurring services and processing revenue continues, and how customer and transaction volumes develop.
- Whether card-platform, personnel, and other operating costs affect margins as revenue growth progresses.
- Cash conversion and working-capital movements: operating cash flow declined despite higher net income, including changes in deferred revenue and accrued expenses.
- Capital allocation and liquidity, including planned capital expenditures, dividends, and use of the revolving facility; no shares were repurchased during the quarter.
- Potential effects of COVID-19, workforce requirements, variable interest rates, and unresolved tax positions. The company reported $9.2 million of gross unrecognized tax benefits and said $3.5–$4.5 million could potentially be reduced within twelve months.