Jack Henry & Associates, Inc. — Form 10-Q summary
Reporting period: The filing covers the quarter and nine months ended March 31, 2023 (fiscal 2023 Q3), with comparisons to the same periods in fiscal 2022. This differs from the “2022 Q3” period in the request metadata. Unless noted otherwise, amounts below are in millions.
Financial performance
| Metric | Fiscal 2023 Q3 | Prior-year Q3 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $508.6 | $478.3 | $1,543.1 | $1,460.2 |
| Operating income | $108.4 | $111.6 | $356.5 | $370.8 |
| Net income | $81.5 | $84.7 | $268.9 | $282.5 |
| Diluted EPS | $1.12 | $1.16 | $3.68 | $3.84 |
| Operating margin | 21.3% | 23.3% | 23.1% | 25.4% |
| Net margin | 16.0% | 17.7% | 17.4% | 19.3% |
- Quarterly revenue rose 6%, but operating income fell 3% and net income fell 4%. For the nine-month period, revenue increased 6%, while operating income declined 4% and net income declined 5%.
- Services and support revenue increased 3% in both comparisons; processing revenue increased 11% for the quarter and 10% year to date. Processing growth reflected card, payment and digital activity, including higher usage as customers and active users increased.
- Operating expenses increased 9% for the quarter and 9% year to date. Cost of revenue, personnel and benefits, research and development, amortization, and other costs contributed to expense growth. Management attributed higher R&D expense partly to a 10% trailing-12-month increase in R&D headcount.
- Quarterly gross margin was approximately 39.6%, versus 41.0% a year earlier; nine-month gross margin was approximately 41.0%, versus 42.4%. The effective tax rate was 23.2% for the quarter and 23.3% year to date, slightly below the prior-year rates.
Cash flow, balance sheet and capital
- Operating cash flow for the nine months was $207.0 million, down from $301.4 million. The company cited higher cash taxes following tax-law changes and timing of prepaid expenses; cash taxes paid were $103.3 million versus $44.2 million.
- Investing cash outflow was $355.6 million, including $229.6 million for the Payrailz acquisition and $124.1 million for internally developed software. Financing provided $126.3 million, including net credit-facility borrowings, partly offset by debt repayments, $109.3 million of dividends, and $25.0 million of share repurchases.
- Cash and cash equivalents were $26.6 million at March 31, 2023, down from $48.8 million at June 30, 2022. Current assets were $488.2 million and current liabilities $320.6 million; reported current ratio was approximately 1.52.
- Debt under the revolving facility was $375.0 million, compared with $115.0 million at June 30, 2022. The five-year unsecured facility provides up to $600 million, with an option to increase capacity to $1 billion, and matures in August 2027. The company reported compliance with its financial covenants. Borrowings carry variable rates; a 1-percentage-point increase would raise annual interest expense by an estimated $3.75 million.
- Management expected fiscal 2023 capital expenditures of approximately $41 million. The company declared dividends of $0.52 per share in the quarter and $1.50 per share for the nine-month period.
Material changes, outlook and risks
- Payrailz was acquired on August 31, 2022, for a final purchase price of $230.2 million to expand digital financial management and payment offerings. It contributed $6.0 million of revenue and an after-tax net loss of $12.2 million for the nine-month period. Preliminary purchase accounting included $117.3 million of goodwill; the allocation could change as tax matters are evaluated.
- Management said industry merger-and-acquisition activity remained slow, reducing deconversion-fee and conversion/merger-services revenue. It described the sales pipeline as encouraging and emphasized recurring revenue, customer needs, and the company’s balance sheet, but provided no quantified revenue or earnings guidance in the supplied filing text.
- Management’s comparisons excluding deconversion fees, acquisition effects, and certain disposal gains showed stronger underlying growth than reported results; these are management-adjusted comparisons and should be assessed alongside GAAP results. A $7.4 million gain on asset disposal affected the nine-month comparison.
- Additional contractual spending commitments included $16.4 million under a Twilio agreement and $69.0 million under Microsoft agreements. The filing also reports $5.9 billion of remaining performance obligations, with approximately 25% expected to be recognized in the next 12 months.
- Risks and contingencies include variable-rate debt, customer credit exposure, continued uncertainty around COVID-19 effects, and uncertain tax positions. Gross unrecognized tax benefits were $10.9 million; the company said examination closures and expiring statutes could reduce that balance by $1.5–$3.5 million 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
- Confirm the requested period: this filing is for fiscal 2023 Q3, ended March 31, 2023, not fiscal 2022 Q3.
- Track whether processing and recurring revenue growth continues to offset slower deconversion-related activity, and whether expense growth moderates enough to restore margins.
- Assess Payrailz integration, operating losses, expected synergies, and the final purchase-price allocation.
- Monitor operating cash flow, cash-tax effects, debt reduction, variable interest costs, and covenant headroom.
- Review the assumptions behind the $5.9 billion remaining-performance-obligation balance and the timing of its conversion to revenue.