Jack Henry & Associates, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2021, and nine months ended March 31, 2021, compared with the same periods in 2020. The filing is for fiscal 2021 Q3; this differs from the request metadata’s “2020 Q3.” Financial statement amounts below are in thousands, except per-share data.
Business context and results
Jack Henry provides software, technology solutions, and payment-processing services primarily to banks and credit unions. Its reportable segments are Core, Payments, Complementary, and Corporate & Other.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $433.8 million | $429.4 million | $1,307.9 million | $1,286.5 million |
| Operating income | $91.2 million | $91.9 million | $302.4 million | $303.8 million |
| Net income | $71.4 million | $73.9 million | $234.6 million | $235.3 million |
| Diluted EPS | $0.95 | $0.96 | $3.08 | $3.06 |
| Operating margin | 21.0% | 21.4% | 23.1% | 23.6% |
Quarterly revenue rose 1%, while operating income fell 1% and net income fell 3%. For the nine-month period, revenue increased 2%, while operating income and net income were approximately flat; diluted EPS increased 1%. Management said revenue growth excluding deconversion fees and specified acquisition/divestiture effects was 6% for the quarter and 5% year to date. Adjusted operating-income growth on the same basis was 19% and 9%, respectively. These are management’s adjusted comparisons, not reported GAAP growth rates.
Revenue drivers and margins
- Processing revenue increased 13% in Q3 and 8% year to date, driven primarily by card processing, digital, and other transaction volumes.
- Services and support revenue declined 6% in Q3 and 2% year to date, mainly reflecting lower deconversion fees. Excluding deconversion fees and specified acquisition/divestiture effects, management reported 2% growth for both periods.
- Cost of revenue increased 4% in Q3 and 5% year to date, including higher card-platform, licensing, and personnel costs. Management cited increased direct costs in Payments and growth-related costs as pressures on segment profitability.
- Q3 effective tax rate was 21.5%, versus 19.7%; the nine-month rate was 22.3%, versus 22.7%. Management attributed the quarterly increase primarily to the timing of releases of uncertain-tax-position reserves.
Cash flow, balance sheet, and capital allocation
- Cash from operating activities was $266.3 million for the first nine months, down from $276.5 million. The $177.0 million decrease in deferred revenue was a significant operating-cash-flow use.
- Investing activities used $126.1 million, including $96.0 million for internally developed software, $14.9 million for capital expenditures, and $13.3 million for investments. Financing activities used $283.4 million.
- Cash and equivalents were $70.1 million at March 31, 2021, down from $213.3 million at June 30, 2020. Total debt was $200.2 million, including $200.0 million drawn on the $300 million revolving credit facility; there was no revolver balance at June 30, 2020. The company reported covenant compliance and had an additional unsecured $5 million credit line with no amount outstanding.
- Current assets were $442.7 million and current liabilities $301.7 million. Deferred revenue totaled $212.0 million, compared with $389.6 million at June 30, 2020.
- The company repurchased $384.4 million of treasury shares and paid $99.8 million in dividends in the first nine months. It repurchased 1.825 million shares in Q3 at an average $150.40 per share; about 498,000 shares of authorization remained at quarter-end.
- Management expected FY2021 facilities-and-equipment capital expenditures not to exceed $44 million. No revenue or EPS guidance was provided.
Outlook, risks, and notable items
Management described the sales pipeline and recurring revenue base as encouraging and said it entered Q4 with optimism, while noting limited visibility into COVID-19’s future effects. It expected installation-related headwinds—including license, hardware, installation, and pass-through revenue delays—to potentially continue into fiscal 2022. Management said operational disruption had been limited and liquidity and business trends remained strong. Remote work and suspension of non-essential travel were extended until at least July 1, 2021. The company completed delayed customer migrations to its new card-processing platform by March 31, 2021.
COVID-19’s effects on customers, installations, the economy, and future estimates remain uncertain. The company noted that future pandemic developments could materially affect estimates, including credit-loss allowances and asset carrying values, although it reported no material impact to the quarter’s financial statements. A 1% increase in the borrowing rate on the $200 million variable-rate debt would increase annual interest expense by approximately $2 million. Routine legal proceedings were not expected by management to have a material adverse effect. The company reported no subsequent events.
Important facts for investors to verify
- Confirm the intended period: the supplied filing covers fiscal 2021 Q3, not 2020 Q3.
- Review the sustainability and timing of revenue recognition as deferred revenue fell substantially, and assess whether COVID-related installation delays shift revenue into later periods.
- Assess the effect of the large share repurchases and revolver borrowing on liquidity, interest expense, and future capital allocation.
- Compare reported results with management’s deconversion-fee-adjusted growth measures and monitor cost growth in card processing and digital services.