Jack Henry & Associates, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020, with unaudited quarterly results including the quarter ended June 30, 2020. The filing is not a fiscal 2019 10-K; the supplied “2019 Q4” metadata does not match the filing period.
Business context
Jack Henry provides core banking and credit union systems, payment processing, and complementary technology and services to nearly 8,700 financial institutions and other organizations. Revenue is primarily recurring services, support, cloud and transaction-processing fees. The company reports Core, Payments, Complementary, and Corporate and Other segments.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $1,697.1 million | $1,552.7 million | +9% |
| Operating income | $380.6 million | $347.3 million | +10% |
| Net income | $296.7 million | $271.9 million | +9% |
| Diluted EPS | $3.86 | $3.52 | +10% |
| Operating cash flow | $510.5 million | $431.1 million | +18% |
| Cash and equivalents at year-end | $213.3 million | $93.6 million | +$119.7 million |
Services and support revenue rose 10% to $1,051.5 million; processing revenue increased 9% to $645.6 million. Cost of revenue was 59% of revenue in both years. Operating margin was approximately 22.4% in both periods, and net margin was approximately 17.5% in both.
Cash used in investing was $197.9 million, including $117.3 million for software development, $53.5 million in capital expenditures, and $30.4 million net cash paid for Geezeo. Financing used $192.9 million, including $127.4 million of dividends and $71.5 million of share repurchases. Dividends declared were $1.66 per share, versus $1.54.
At June 30, 2020, total assets were $2,428.5 million and stockholders’ equity was $1,549.7 million. Debt was minimal: $323,000 related to financing leases, with no balance drawn on the $300 million revolving facility. The company reported covenant compliance and had an additional unsecured $5 million credit line with no balance outstanding.
Changes and quarterly results
For FY2020, revenue growth reflected organic expansion, higher deconversion fees, and $9.0 million of Geezeo revenue. Deconversion fees increased to $53.9 million from $30.2 million. Operating expenses rose 9%, including higher card-platform spending, compensation, headcount, and depreciation and amortization.
In FY2020 Q4, revenue was $410.5 million versus $393.5 million in FY2019 Q4; operating income was $76.8 million versus $79.4 million; net income was $61.3 million versus $61.0 million; and diluted EPS was $0.80 versus $0.79.
Contracted backlog increased to $904.3 million from $785.2 million. Of the FY2020 backlog, $835.4 million was outsourcing services; $646.0 million of that outsourcing backlog was not expected to be recognized in FY2021.
Outlook, risks, and unusual items
Management described the FY2020 finish as strong, cited an encouraging sales pipeline and a strong balance sheet, and did not provide numerical FY2021 guidance in the supplied filing text. COVID-19 reduced card-processing transaction volumes late in FY2020 Q3 and early in Q4 and delayed some installations. Volumes had returned to more normal levels by the filing, but management said future effects remained uncertain and could affect processing and installation revenue in FY2021. Most employees were working remotely, and management reported no significant operational disruption to date.
COVID-related delays affected migrations to the new card platform; the revised target was to complete core-customer migrations by September 30, 2020 and non-core migrations by March 31, 2021. The long-term strategic card-processing agreement with First Data and PSCU carries a purchase commitment of $1,068.9 million through January 2036, subject to renewal terms. Total contractual obligations were $1,227.1 million, including operating leases.
FY2020 included $8.7 million of software-project write-offs, primarily related to Enterprise Risk Mitigation Solution and Payments Hub, and a $4.4 million gain on sale of the Houston facility. The auditor identified revenue recognition—particularly variable consideration estimates and performance-obligation judgments—as a critical audit matter. The auditor gave unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Principal risks include cybersecurity and service outages, reliance on third-party providers, payment-processing failures, regulation and privacy compliance, economic and transaction-volume weakness, customer consolidation, competition, and execution of the card-platform migration. The company also noted goodwill and intangible-asset impairment risk if conditions deteriorate. Routine legal proceedings were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Confirm the reporting-period distinction: FY2020 ended June 30, 2020; the filing’s Q4 figures are FY2020 Q4.
- Track card-platform migration milestones, project costs, and the effect of transaction volumes and delayed installations on FY2021 results.
- Assess the economics and obligations of the $1.069 billion card-processing commitment extending to 2036.
- Review recurring revenue and backlog conversion, including the timing and realization of deconversion fees.
- Monitor cash deployment, dividends, repurchases, and any future borrowing under the revolving credit facility.