Jack Henry & Associates, Inc. — FY2012 Form 10-K
Reporting-period note: The filing covers the fiscal year ended June 30, 2012, not calendar 2011 Q4. It includes fourth-quarter FY2012 results.
Business context
Jack Henry provides banking and credit-union software, outsourced data processing, payment processing, hardware, implementation, and support services. Its brands are Jack Henry Banking, Symitar, and ProfitStars. The company reported more than 11,900 customers; recurring support, outsourcing, and transaction-processing services are its principal revenue sources.
Financial results and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $1,027.1 million | $966.9 million |
| Gross profit / margin | $423.7 million / 41% | $399.3 million / 41% |
| Operating income | $236.2 million | $216.3 million |
| Net income | $155.0 million | $137.5 million |
| Diluted EPS | $1.78 | $1.59 |
| Cash from operations | $264.6 million | $240.1 million |
| Cash and cash equivalents at year-end | $157.3 million | $63.1 million |
| Long-term debt, net of current maturities | $106.2 million | $127.9 million |
Revenue grew 6%, operating income 9%, and net income 13%. Support and service revenue rose 7% to $909.2 million and represented 89% of revenue; electronic payment services and outsourcing were important growth drivers. License and hardware revenue each rose 3%. The credit-union segment grew faster than the bank segment: revenue increased 13% versus 4%, respectively.
Working capital was $66.4 million, compared with negative $26.6 million a year earlier. The company generated $264.6 million in operating cash flow and used $76.3 million in investing activities, including $41.4 million for capital expenditures and $37.9 million for software development. Financing activities used $94.1 million, including debt repayment, dividends, and $34.4 million of share repurchases. The $127.5 million term loan carried a 2.47% variable rate; no balance was drawn on the $150 million revolving facility. The company reported compliance with its debt covenants.
FY2012 fourth-quarter revenue was $266.6 million, net income was $43.3 million, and diluted EPS was $0.50. Backlog increased to $435.3 million from $358.8 million; $268.3 million of outsourcing backlog was not expected to be recognized in FY2013.
Outlook, risks, and unusual items
Management described its FY2013 outlook as cautiously optimistic, citing strong fourth-quarter results, recurring revenue, rising backlog, and a healthy sales pipeline. It also noted continuing customer caution over discretionary spending, financial-institution consolidation, and evolving regulation, including Dodd-Frank. No specific numerical revenue or earnings guidance was provided.
Interest expense declined to $5.7 million from $8.9 million, mainly as debt was repaid. FY2012 support and service revenue included $1.6 million of previously unrecognized deconversion revenue following a favorable legal judgment; related contractual interest income was $0.8 million. The effective tax rate fell to 33.1% from 33.8%, partly following completion of an IRS audit of FY2008–FY2009 returns.
Key risks include cybersecurity or payment-processing failures, interruptions at outsourcing facilities, competition and pricing pressure, customer-bank consolidation or failures, regulatory change, contract-renewal outcomes, acquisition integration, and dependence on a limited number of hardware suppliers. The company reported routine legal proceedings not expected to have a material adverse effect. Deloitte & Touche issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the intended period: this is FY2012, with fourth-quarter FY2012 data, rather than calendar 2011 Q4.
- Assess whether growth in payment processing and outsourced services can continue, and monitor customer contract renewals and the conversion of backlog into revenue.
- Review the composition and expected amortization of goodwill and acquired intangibles, as well as the sensitivity of capitalized software to future demand and technology changes.
- Monitor variable-rate debt, scheduled principal payments, and the company’s use of cash for dividends and repurchases.
- Track cybersecurity, payment settlement, regulatory compliance, and customer consolidation risks; the filing provides no quantified estimate of potential losses from these risks.