Jack Henry & Associates, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the three months ended September 30, 2022. Comparisons are with the three months ended September 30, 2021, unless noted. Financial statement amounts below are in millions of dollars, converted from the filing’s thousands, except per-share data. Jack Henry provides technology and payment-processing solutions primarily to financial institutions.
Key financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $529.2 | $488.1 | +8% |
| Operating income | $140.7 | $133.6 | +5% |
| Net income | $106.5 | $102.1 | +4% |
| Diluted EPS | $1.46 | $1.38 | +6% |
| Cash from operations | $136.8 | $106.5 | +28% |
- Gross margin was approximately 43.6%, versus 43.3%; operating margin was approximately 26.6%, versus 27.4%; net margin was approximately 20.1%, versus 20.9%.
- Revenue comprised $320.1 million of services and support (+8%) and $209.1 million of processing (+10%). Management cited growth in cloud, software usage, card processing, digital, remittance, and implementation revenue.
- Operating expenses rose 10% to $388.5 million. Cost of revenue increased 8%, research and development 23%, and selling, general and administrative expense 12%. Higher personnel, platform, travel, consulting, and amortization costs contributed.
- Cash and cash equivalents were $32.0 million at September 30, 2022, down from $48.8 million at June 30, 2022. Current assets were $485.1 million and current liabilities $470.3 million.
- Long-term debt was $245.0 million, up from $115.0 million at June 30, primarily to help fund the Payrailz acquisition. The company entered a new five-year revolving credit agreement with $600 million of capacity, expandable to $1 billion; it reported covenant compliance. Debt bears variable interest rates.
- Operating cash flow increased, with a $101.5 million cash benefit from receivables; cash used in investing was $249.6 million, including the acquisition. Financing provided $95.9 million, including borrowings and partly offset by debt repayments and $35.7 million of dividends.
Material changes and notable items
- On August 31, 2022, Jack Henry acquired Payrailz for $229.6 million in cash. The preliminary allocation included $116.7 million of goodwill and $119.9 million of identifiable intangible assets. Payrailz contributed $0.7 million of revenue and an after-tax net loss of $1.9 million after acquisition; the filing cautions that pro forma results are illustrative.
- The quarter included a gain on disposal of assets of approximately $6.1 million, reflected in the cash-flow reconciliation and management’s discussion. Disposition proceeds were $26.3 million.
- Deferred revenue was $345.1 million at quarter-end. Remaining performance obligations totaled $5.64 billion; the company expects to recognize approximately 26% over the next 12 months.
- Dividends declared were $0.49 per share, versus $0.46 a year earlier. No shares were repurchased during the quarter.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance was provided in the supplied filing text. Management expressed optimism entering Q2, citing recurring revenue, an encouraging sales pipeline, and customer needs in profitability, efficiency, and security.
- Fiscal 2023 capital expenditures on facilities and equipment are not expected to exceed $64 million, funded from operating cash flow. A Twilio agreement adds $16.35 million of contractual spending obligations from October 2022 through September 2027.
- A 1% increase in borrowing rates would increase annual interest expense by approximately $2.45 million, based on quarter-end variable-rate debt. Management also identifies customer credit risk and uncertainty around the future effects of COVID-19; it reported no material COVID-19 impact on this quarter.
- Routine legal proceedings are not expected by management to have a material adverse effect. The company disclosed $9.6 million of gross unrecognized tax benefits and expects possible reductions of $1.5 million to $3.5 million within 12 months from statute expirations or examination closures.
Important facts for investors to verify
- Whether organic revenue growth and margin performance persist, particularly given expense growth and the quarter’s disposal gain.
- Payrailz integration, purchase-price adjustments, realized synergies, and its contribution after the acquisition-period loss.
- Debt repayment plans and the effect of variable interest rates on interest expense and liquidity.
- Conversion of the $5.64 billion remaining performance obligations into revenue, including timing, renewals, and customer demand.
- Capital spending, Twilio commitments, dividends, and any future share repurchases relative to operating cash flow.