Jack Henry & Associates, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2021. The company provides banking and credit-union technology, software, cloud services, and payment processing. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Quarter ended Dec. 31, 2021 | Year-ago quarter | Six months ended Dec. 31, 2021 | Year-ago six months |
|---|---|---|---|---|
| Revenue | $493.9 | $422.4 | $982.0 | $874.2 |
| Operating income | $125.7 | $93.6 | $259.3 | $211.2 |
| Operating margin | 25.4% | 22.2% | 26.4% | 24.2% |
| Net income | $95.7 | $72.0 | $197.8 | $163.2 |
| Diluted EPS | $1.30 | $0.94 | $2.68 | $2.13 |
| Operating cash flow | Not separately stated | Not separately stated | $197.4 | $194.0 |
Quarterly revenue rose 17%, operating income 34%, and net income 33%. For the six-month period, revenue rose 12%, operating income 23%, and net income 21%. Management said revenue growth reflected cloud and hosting, card, remittance, digital and transaction processing, and implementation activity. Services and support accounted for 60% of revenue in the quarter; processing accounted for 40%.
Margins benefited from revenue growth outpacing expense growth. Quarterly total expenses increased 12% and six-month expenses increased 9%. SG&A rose 26% in the quarter and 19% year to date, mainly due to personnel costs, including salary increases and approximately 2% headcount growth. The effective tax rate was 23.6% for the quarter and 23.5% year to date, versus 23.1% and 22.7%, respectively.
Cash, debt and capital allocation
- Cash and cash equivalents were $29.1 million at December 31, down from $51.0 million at June 30, 2021.
- Six-month investing cash outflow was $101.1 million, including $71.4 million for software development, $22.4 million of capital expenditures, and $7.4 million for purchased/internal-use software.
- Six-month financing cash outflow was $118.2 million. The company repurchased $193.9 million of stock and paid $67.7 million in dividends, partly offset by $220.0 million of credit-facility borrowings.
- Debt under the revolving credit facility was $240.0 million, versus $100.0 million at June 30. The facility provides up to $300 million, with potential capacity up to $700 million, and matures in February 2025. The company reported compliance with its financial covenants.
- Management expects fiscal 2022 facilities and equipment capital expenditures not to exceed $52 million, primarily funded from operating cash flow. Quarterly dividends declared were $0.46 per share, versus $0.43 a year earlier.
Material changes, outlook and risks
Reported quarterly revenue growth included $26.9 million of deconversion-fee revenue, compared with $2.2 million in the prior-year quarter; management reported 11% growth after excluding deconversion and acquisition/divestiture revenue. Quarterly operating income growth was 13% after management’s stated adjustments for deconversion-related income and prior-year disposal gain. For the six-month period, management reported adjusted revenue growth of 10% and adjusted operating-income growth of 15% after its stated exclusions. These adjustments are not GAAP measures.
Management expressed optimism about the quarter, citing recurring revenue, an encouraging sales pipeline, customer demand, and a strong balance sheet, but provided no specific revenue or earnings guidance. It noted continuing uncertainty from COVID-19 and variants; remote-work recommendations remained in effect as of February 4, 2022. Management said pandemic impacts had so far been limited, but future effects on customers, operations, and results remained uncertain.
Key financial exposures include variable-rate debt: the company estimated that a 1 percentage-point increase in borrowing rates would add $2.4 million to annual interest expense at the reported debt balance. The company also disclosed $9.6 million of gross unrecognized tax benefits; it believed $3.5–$4.5 million of the liability could reduce within 12 months. Routine legal proceedings were not expected by management to have a material adverse effect. No subsequent events were reported.
Important facts for investors to verify
- Whether revenue and margin growth persist after the unusually high deconversion-fee contribution.
- How continued share repurchases, dividends, and borrowing affect cash, debt, interest costs, and per-share results.
- Whether operating cash generation remains sufficient to fund software investment and planned capital expenditures.
- How customer volumes, cloud adoption, personnel costs, and payment-processing costs develop.
- Potential effects of COVID-19, variable interest rates, tax examinations, and other risks described in the company’s filings.