Jack Henry & Associates, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2012, the first quarter of fiscal 2013 (not calendar 2012 Q1). Unaudited consolidated results; comparisons are with the three months ended September 30, 2011. Financial statement amounts below are in thousands of dollars except per-share data.
Financial performance
| Metric | Q1 FY2013 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $271,001 | $248,338 | +9% |
| Gross profit / margin | $115,928 / 43% | $104,426 / 42% | +11% |
| Operating income | $67,516 | $57,797 | +17% |
| Net income | $42,475 | $36,475 | +16% |
| Diluted EPS | $0.49 | $0.42 | +17% |
| Cash from operations | $101,849 | $78,463 | +30% |
Support and service revenue, approximately 90% of revenue, rose 11% to $244,585, led by electronic payment services, outsourcing, and implementation. License revenue increased 5% to $12,864; hardware revenue fell 14% to $13,552. Bank segment revenue grew 8% to $202,426; Credit Union revenue grew 12% to $68,575. Gross margin improved to 43%; support and service margin was 41% versus 40%, while hardware margin declined to 22% from 26%. The effective tax rate increased to 36.0% from 35.4%, primarily because the Research and Experimentation Credit expired.
Cash, liquidity, and debt
Cash and cash equivalents were $223,688 at September 30, 2012, up from $157,313 at June 30, 2012. Management attributed the increase primarily to receipts from annual maintenance billings. Operating cash flow was $101,849; investing activities used $18,495, including $11,646 for software development, and financing activities used $16,979, including debt repayments, dividends, and share repurchases. The operating cash flow increase also reflected changes in receivables and other working-capital items.
Total current assets were $450,729 and current liabilities were $355,371. Total debt, including current maturities and capital leases, was approximately $132,705; cash exceeded this amount by approximately $90,983. The $121,875 term loan carried a 2.37% variable rate, and there were no borrowings under the $150,000 revolving facility or the separate $5,000 credit line. The company reported compliance with credit-facility covenants. A 1% increase in borrowing rates was estimated to raise fiscal 2013 annual interest expense by less than $1,300.
Material changes, outlook, and risks
- Backlog was $423,352, up 17% year over year but down 3% from June 30, 2012; $331,199 was outsourcing backlog.
- Management cited recurring service revenue, a healthy sales pipeline, and continued cost control, and expressed cautious optimism. It provided no quantified revenue or earnings guidance. Fiscal 2013 capital expenditures were expected not to exceed $40,000.
- Management noted that financial-market conditions and customers’ still-low profitability may restrain demand for new products and services. It expects the shift toward outsourced delivery to continue and hardware sales to trend downward.
- Subsequent event: In late October, Hurricane Sandy flooding made the Lyndhurst, New Jersey item-processing center inoperable, affecting processing for more than 100 bank customers. The financial impact could not be estimated at filing time.
- The IRS was examining federal tax returns for fiscal 2010 and 2011; management did not expect a material financial-statement change. Gross unrecognized tax benefits were $5,755, with $760 of accrued interest and penalties.
- The company repurchased 128,197 shares for $4,776 during the quarter. At September 30, authority remained to repurchase approximately 4.41 million shares. Disclosure controls were reported effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue and cash-flow growth, especially electronic payments and outsourcing, persist; assess the working-capital contribution to operating cash flow.
- Backlog conversion, including the quarter-over-quarter decline and the proportion attributable to outsourcing.
- The duration and customer, operational, and financial effects of the Sandy-related processing-center disruption.
- Variable-rate debt exposure, upcoming principal maturities, and continued compliance with credit covenants.
- Potential outcomes of the IRS examination and changes in unrecognized tax benefits.