Jack Henry & Associates, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2022. The request metadata says “2021 Q4,” but the supplied filing is the company’s fiscal 2022 annual report; it does not provide standalone fourth-quarter results.
Business context
Jack Henry provides core banking and credit-union systems, payment processing, cloud hosting, digital banking and related technology services. It serves more than 7,800 financial institutions and other customers. Revenue is primarily recurring services and support, plus transaction processing; many cloud and payment contracts run seven years or longer.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1.943 billion | $1.758 billion | +11% |
| Operating income | $474.6 million | $398.7 million | +19% |
| Operating margin | 24.4% | 22.7% | +1.7 percentage points |
| Net income | $362.9 million | $311.5 million | +17% |
| Diluted EPS | $4.94 | $4.12 | +20% |
| Cash from operations | $504.6 million | $462.1 million | +9% |
- Services and support revenue increased 10% to $1.156 billion; processing revenue rose 11% to $786.5 million. Growth reflected cloud, card processing, remittance, implementation, and transaction and digital services.
- Reported revenue included $53.3 million of deconversion fees, compared with $20.6 million in FY2021. Excluding these fees and specified acquisition/divestiture effects, management reported revenue growth of 9%.
- Cost of revenue increased 6%, slower than revenue growth, and fell to 58% of revenue from 60%. SG&A rose 17%, mainly from personnel and travel costs; R&D increased 11%.
- Cash and equivalents were $48.8 million at year-end, versus $51.0 million a year earlier. Total assets were $2.456 billion and stockholders’ equity was $1.382 billion.
- Revolving-credit borrowings were $115 million, up from $100 million; the facility permits up to $300 million, expandable to $700 million, and matures February 2025. The company reported compliance with covenants. A 1 percentage-point rate increase would add approximately $1.15 million to annual interest expense.
- Cash used in investing was $196.3 million, including $148.2 million for software development. Cash used in financing was $310.5 million, including $193.9 million of share repurchases and $139.1 million of dividends.
Material changes, outlook and risks
- Revenue grew across all four segments: Core +10%, Payments +10%, Complementary +11%, and Corporate and Other +14%. Segment revenue growth excluding deconversion fees and specified other effects was generally 8%–9% for the three principal operating segments.
- Management described FY2022 performance as strong, citing recurring revenue, an encouraging sales pipeline, and customer demand for solutions addressing profitability, efficiency, and security. The filing provides no quantified FY2023 revenue or earnings guidance.
- Management said COVID-19’s financial and operational impact had been limited, while noting continuing uncertainty about its future effects. The majority of employees were working remotely or hybrid as of August 2022.
- Key risks include cybersecurity incidents, service or infrastructure outages, payment-processing failures, dependence on third-party providers, competition and contract-renewal pricing, inflation and vendor-cost increases that may be difficult to pass through, regulatory change, and continued consolidation among banks and credit unions.
- Contractual obligations totaled $1.449 billion, including $1.394 billion of off-balance-sheet purchase obligations. Notable commitments include $980.3 million under the card-processing agreement through January 2036, $225 million for Google Cloud Platform, and $20.5 million for Feedzai services.
- Subsequent events: the San Diego facility sale closed August 12, 2022 for $27.5 million; management expected an approximately $6 million gain in FY2023 Q1. The company also agreed to acquire Payrailz, with closing anticipated August 31, 2022, and expected to amend its credit facility to help fund the acquisition.
- Routine legal proceedings were not expected by management to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal controls; revenue recognition involving variable consideration and performance obligations was identified as a critical audit matter.
Important facts for investors to verify
- Whether organic revenue growth and margins persist after adjusting for elevated deconversion fees.
- FY2023 results and financing terms following the Payrailz acquisition, including any increase in borrowings.
- Execution and economics of the long-term card-processing and cloud commitments, and the ability to manage vendor-cost inflation.
- Cash conversion, software-development capitalization and amortization, and the effect of share repurchases and dividends on liquidity.
- Developments in cybersecurity, service continuity, regulatory reviews, customer renewals, and bank and credit-union consolidation.