Jack Henry & Associates, Inc. Reports Second Quarter Fiscal 2022 Results – PRNewswire

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MONETT, Mo., Feb. 8, 2022 /PRNewswire/ — Jack Henry & Associates, Inc. (NASDAQ: JKHY), a leading provider of technology solutions and payment processing services primarily for the financial services industry, today announces results for the second quarter of fiscal 2022 and discusses its continued response to the novel coronavirus (COVID-19) pandemic (page 8 below).
Year to date summary:

Second quarter summary:
Full-year fiscal 2022 guidance:
According to David Foss, Board Chair and CEO, "We are very pleased to report another quarter of record revenue and an overall strong performance for the second quarter of our fiscal year.  Not only did we experience record revenue in the quarter, but our sales teams booked more business this quarter than any quarter in the history of the company.  The sales organization continues to work a robust pipeline of financial institutions interested in our many best-of-breed capabilities and solutions. We are proud to be a well-rounded financial technology company that is committed to serving the needs of community and regional financial institutions in the United States.  As part of that commitment, this week we will be sharing our technology modernization strategy for helping our clients capture the opportunity created by the most recent industry disruption.  This strategy leverages the investments we have made and will continue to make in a modern infrastructure that is cloud-native, digitally centric, open, and scalable.  It establishes an ecosystem which, when applied to our digital, payments, lending, risk, and core platforms, helps community and regional financial institutions innovate faster, differentiate strategically, and compete successfully while serving the evolving needs of their accountholders."
1
See tables below reconciling non-GAAP financial measures to GAAP.
2 
The change in borrowings was primarily a result of the Company’s repurchases of common stock during the trailing twelve months.

See tables below reconciling fiscal year 2022 GAAP to non-GAAP guidance.

See tables below on page 10 reconciling Net Income to non-GAAP EBITDA.
Operating Results
Revenue, operating expenses, operating income, and net income for the three and six months ended December 31, 2021, as compared to the three and six months ended December 31, 2020, were as follows:
(Unaudited, in thousands)
Three Months Ended
December 31,
% Change
Six Months Ended
December 31,
% Change
2021
2020
2021
2020
Services and support
$     296,211
$       250,873
18 %
$  593,704
$   531,870
12 %
Percentage of total revenue
60 %
59 %
60%
61%
Processing
197,685
171,488
15 %
388,248
342,291
13%
Percentage of total revenue
40 %
41 %
40%
39%
REVENUE
$     493,896
$       422,361
17 %
$  981,952
$   874,161
12%
(Unaudited, in thousands)
Three Months Ended
December 31,
% Change
Six Months Ended
December 31,
% Change
2021
2020
2021
2020
Cost of revenue
$     282,825
$       257,782
10 %
$  559,460
$    520,711
7%
Percentage of total revenue
57 %
61 %
57%
60%
Research and development
29,916
26,780
12 %
56,670
52,837
7%
Percentage of total revenue
6 %
6 %
6%
6%
Selling, general, and administrative
55,493
44,167
26 %
106,565
89,393
19 %
Percentage of total revenue
11 %
10 %
11 %
10 %
OPERATING EXPENSES
368,234
328,729
12 %
722,695
662,941
9%
OPERATING INCOME
$     125,662
$         93,632
34 %
$  259,257
$    211,220
23%
Operating margin5
25 %
22 %
26%
24%
5 Operating margin is calculated by dividing operating income by revenue.
(Unaudited, in thousands, except per share data)
Three Months Ended
December 31,
% Change
Six Months Ended
December 31,
% Change
2021
2020
2021
2020
Income before income taxes
$    125,221
$       93,567
34 %
$      258,574
$       211,105
22 %
Provision for income taxes
29,551
21,585
37 %
60,791
47,907
27 %
NET INCOME
$      95,670
$       71,982
33 %
$      197,783
$       163,198
21%
Diluted earnings per share
$           1.30
$            0.94
38 %
$             2.68
$              2.13
25%
According to Kevin Williams, CFO and Treasurer, "For the second quarter of the fiscal year, our private cloud, remittance, card processing and digital solutions continue to drive our revenue growth. As we guided in November our deconversion fees were up considerably in our second fiscal quarter. We saw a very solid 17% GAAP and 11% non-GAAP revenue growth compared to the prior year. There was also good operating margin expansion on both a GAAP and a non-GAAP basis for the quarter. We are also very pleased to report our Return on Average Shareholders’ Equity and Return on Invested Capital (ROIC) of 24.6% and 22.6% for the trailing twelve months, respectively, which improved nicely from 19.7% for each of those measurements last year. I want to thank all of our management team and associates for all their dedication, focus and contributions to support and continue doing the right thing for our customers."
Non-GAAP Impact of Deconversion Fees, Acquisitions and Divestitures
The table below is our revenue and operating income (in thousands) for the three and six months ended December 31, 2021, compared to the three and six months ended December 31, 2020, excluding the impacts of deconversion fees, acquisitions and divestitures, and gain/loss.
Three Months Ended
December 31,

% Change
Six Months Ended
December 31,

% Change
(Unaudited, in thousands)
2021
2020
2021
2020
Revenue (GAAP)
$         493,896
$         422,361
17 %
$     981,952
$     874,161
12%
Adjustments:
Deconversion fee revenue
(26,903)
(2,155)
(30,627)
(8,037)
Revenue from acquisitions and divestitures
(96)

(202)
(1,182)
NON-GAAP ADJUSTED REVENUE
$         466,897
$         420,206
11 %
$     951,123
$     864,942
10%
Operating income (GAAP)
$         125,662
$           93,632
34 %
$     259,257
$     211,220
23%
Adjustments:
Operating income from deconversion fees*
(24,356)
(1,919)
(27,540)
(7,138)
Operating (income)/loss from acquisitions,
divestitures and gain/loss

21
(2,040)
66
(2,409)
NON-GAAP ADJUSTED OPERATING INCOME
$         101,327
$           89,673
13 %
$     231,783
$     201,673
15%
* For the fiscal quarters ended December 31, 2021 and 2020, deconversion costs were $2,547 and $236, respectively. For the fiscal year-to-date periods ended December 31, 2021 and 2020, deconversion costs were $3,087 and $899, respectively.
The tables below are the segment breakdown of revenue and cost of revenue for each period presented, as adjusted for the items above, and include a reconciliation to non-GAAP adjusted operating income presented above.
Three Months Ended December 31, 2021
(Unaudited, in thousands)
Core
Payments
Complementary
Corporate
and Other

Total
REVENUE (GAAP)
$      154,878
$      182,528
$              141,724
$         14,766
$      493,896
Deconversion fees
(10,853)
(7,933)
(7,917)
(200)
(26,903)
Revenue from acquisitions and divestitures


(96)

(96)
NON-GAAP ADJUSTED REVENUE
144,025
174,595
133,711
14,566
466,897
COST OF REVENUE
64,554
95,570
58,151
64,550
282,825
Non-GAAP adjustments
(617)
(244)
(487)
(320)
(1,668)
NON-GAAP ADJUSTED COST OF REVENUE
63,937
95,326
57,664
64,230
281,157
NON-GAAP ADJUSTED SEGMENT INCOME
$        80,088
$        79,269
$                76,047
$        (49,664)
Research and development
29,916
Selling, general, and administrative
55,493
Non-GAAP adjustments unassigned to a segment
(996)
NON-GAAP TOTAL ADJUSTED OPERATING EXPENSES
365,570
NON-GAAP ADJUSTED OPERATING INCOME
$      101,327
Three Months Ended December 31, 2020
(Unaudited, in thousands)
Core
Payments
Complementary
Corporate
and Other

Total
REVENUE (GAAP)
$      134,948
$      155,182
$              121,408
$         10,823
$      422,361
Deconversion fees
(882)
(674)
(509)
(90)
(2,155)
Revenue from acquisitions and divestitures





NON-GAAP ADJUSTED REVENUE
134,066
154,508
120,899
10,733
420,206
COST OF REVENUE
58,485
86,455
52,407
60,435
257,782
Non-GAAP adjustments
(108)
(24)
(73)
(8)
(213)
NON-GAAP ADJUSTED COST OF REVENUE
58,377
86,431
52,334
60,427
257,569
NON-GAAP ADJUSTED SEGMENT INCOME
$        75,689
$        68,077
$                68,565
$        (49,694)
Research and development
26,780
Selling, general, and administrative
44,167
Non-GAAP adjustments unassigned to a segment
2,017
NON-GAAP TOTAL ADJUSTED OPERATING EXPENSES
330,533
NON-GAAP ADJUSTED OPERATING INCOME
$        89,673
Six Months Ended December 31, 2021
(Unaudited, In Thousands)
Core
Payments
Complementary
Corporate
and Other

Total
REVENUE (GAAP)
$      320,163
$      352,150
$              283,205
$         26,434
$      981,952
Deconversion fees
(13,021)
(8,381)
(9,014)
(211)
(30,627)
Revenue from acquisitions and divestitures


(202)

(202)
NON-GAAP ADJUSTED REVENUE
307,142
343,769
273,989
26,223
951,123
COST OF REVENUE
131,456
188,795
113,635
125,574
559,460
Non-GAAP adjustments
(755)
(289)
(729)
(321)
(2,094)
NON-GAAP ADJUSTED COST OF REVENUE
130,701
188,506
112,906
125,253
557,366
NON-GAAP ADJUSTED SEGMENT INCOME
$      176,441
$      155,263
$              161,083
$        (99,030)
Research and Development
56,670
Selling, General, and Administrative
106,565
Non-GAAP adjustments unassigned to a segment
(1,261)
NON-GAAP TOTAL ADJUSTED OPERATING EXPENSES
719,340
NON-GAAP ADJUSTED OPERATING INCOME
$      231,783
Six Months Ended December 31, 2020
(Unaudited, In Thousands)
Core
Payments
Complementary
Corporate
and Other

Total
REVENUE (GAAP)
$      288,103
$      311,915
$              251,762
$         22,381
$      874,161
Deconversion fees
(2,934)
(2,521)
(2,509)
(73)
(8,037)
Revenue from acquisitions and divestitures
(1,182)



(1,182)
NON-GAAP ADJUSTED REVENUE
283,987
309,394
249,253
22,308
864,942
COST OF REVENUE
122,347
172,783
104,431
121,150
520,711
Non-GAAP adjustments
(902)
(85)
(253)
(46)
(1,286)
NON-GAAP ADJUSTED COST OF REVENUE
121,445
172,698
104,178
121,104
519,425
NON-GAAP ADJUSTED SEGMENT INCOME
$      162,542
$      136,696
$              145,075
$        (98,796)
Research and Development
52,837
Selling, General, and Administrative
89,393
Non-GAAP adjustments unassigned to a segment
1,614
NON-GAAP TOTAL ADJUSTED OPERATING EXPENSES
663,269
NON-GAAP ADJUSTED OPERATING INCOME
$      201,673
The table below is our GAAP to non-GAAP guidance for fiscal 2022. Non-GAAP guidance excludes the impacts of deconversion fee and acquisition and divestiture revenue (see Use of Non-GAAP Financial Information below).
GAAP to Non-GAAP GUIDANCE
(in millions, except per share data)
Annual FY22
Low
High
REVENUE (GAAP)
$  1,939
$  1,942
Growth
10.3 %
10.5 %
Deconversion fee, acquisition and divestiture revenue
50
50
NON-GAAP ADJUSTED REVENUE
$  1,889
$  1,892
Non-GAAP adjusted growth
8.8 %
9.0 %
EPS (GAAP)
$    4.75
$    4.82
Growth
15.3 %
17.0 %
Balance Sheet and Cash Flow Review
*
See tables on page 7 for Net Cash Provided by Operating Activities and on page 11 for Return on Average Shareholders’ Equity. Tables reconciling the non-GAAP measures Free Cash Flow and Return on Invested Capital (ROIC) to GAAP measures are also on page 11. See "Use of Non-GAAP Financial Information" below for definition of Free Cash Flow and ROIC.
** 
The changes in cash and cash equivalents, borrowings and stockholders’ equity, quarter over quarter, were primarily due to the Company’s repurchases of common stock during fiscal 2022.
The following table summarizes net cash from operating activities (Unaudited, in thousands):
Six Months Ended December 31,
2021
2020
Net income
$                      197,783
$                       163,198
Depreciation
25,843
26,652
Amortization
62,610
61,164
Change in deferred income taxes
11,573
8,651
Other non-cash expenses
13,267
7,733
Change in receivables
70,468
87,518
Change in deferred revenue
(119,822)
(126,134)
Change in other assets and liabilities
(64,371)
(34,798)
NET CASH PROVIDED BY OPERATING ACTIVITIES
$                      197,351
$                       193,984
The following table summarizes net cash from investing activities (Unaudited, in thousands):
Six Months Ended December 31,
2021
2020
Capital expenditures
$                       (22,373)
$                           (9,543)
Proceeds from dispositions
38
6,157
Purchased software
(7,364)
(4,254)
Computer software developed
(71,353)
(62,804)
Purchase of investments

(12,100)
NET CASH FROM INVESTING ACTIVITIES
$                     (101,052)
$                        (82,544)
The following table summarizes net cash from financing activities (Unaudited, in thousands):
Six Months Ended December 31,
2021
2020
Borrowings on credit facilities*
$                    220,000
$                               —
Repayments on credit facilities and financing leases
(80,065)
(57)
Purchase of treasury stock*
(193,917)
(109,899)
Dividends paid
(67,696)
(65,516)
Net cash from issuance of stock and tax related to stock-based compensation
3,507
(1,551)
NET CASH FROM FINANCING ACTIVITIES
$                  (118,171)
$                    (177,023)

For the six months ended December 31, 2021, the Company repurchased 1.25 million shares of common stock compared to the six months ended December 31, 2020, when the Company repurchased 675 thousand shares of common stock.
Use of Non-GAAP Financial Information
Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting in the United States. GAAP include the standards, conventions, and rules accountants follow in recording and summarizing transactions in the preparation of financial statements.  In addition to reporting financial results in accordance with GAAP, we have provided certain non-GAAP financial measures, including adjusted revenue, adjusted operating income, adjusted segment income, adjusted cost of revenue, adjusted operating expenses, non-GAAP earnings before interest, taxes, depreciation, and amortization (non-GAAP EBITDA), free cash flow, and return on invested capital (ROIC).
We believe non-GAAP financial measures help investors better understand the underlying fundamentals and true operations of our business. The non-GAAP financial measures adjusted revenue, adjusted operating income, adjusted segment income, adjusted cost of revenue, and adjusted operating expenses presented eliminate one-time deconversion fees, acquisitions and divestitures, and gain/loss, all of which management believes are not indicative of the Company’s operating performance. Such adjustments give investors further insight into our performance. Non-GAAP EBITDA is defined as net income attributable to the Company before the effect of interest expense, taxes, depreciation, and amortization, adjusted for net income before the effect of interest expense, taxes, depreciation, and amortization attributable to eliminated one-time deconversion fees, acquisitions and divestitures, and gain/loss. Free cash flow is defined as net cash from operating activities, less capitalized expenditures, internal use software, and capitalized software, plus proceeds from the sale of assets. ROIC is defined as net income divided by average invested capital, which is the average of beginning and ending long-term debt and stockholders’ equity for a given period. Management believes that non-GAAP EBITDA is an important measure of the Company’s overall operating performance and excludes certain costs and other transactions that management deems one time or non-operational in nature; free cash flow is useful to measure the funds generated in a given period that are available for debt service requirements and strategic capital decisions; and ROIC is a measure of the Company’s allocation efficiency and effectiveness of its invested capital.  For these reasons, management also uses these non-GAAP financial measures in its assessment and management of the Company’s performance.
Non-GAAP financial measures used by the Company may not be comparable to similarly titled non-GAAP measures used by other companies. Non-GAAP financial measures have no standardized meaning prescribed by GAAP and therefore, are unlikely to be comparable with calculations of similar measures for other companies.
Any non-GAAP financial measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP financial measures. Reconciliations of the non-GAAP financial measures to related GAAP financial measures are included.
COVID-19 Impact and Response
Since its outbreak in early calendar 2020, COVID-19 has rapidly spread and continues to represent a public health concern. The health, safety, and well-being of our employees and customers is of paramount importance to us. In March 2020, we established an internal task force composed of executive officers and other members of management to frequently assess updates to the COVID-19 situation and recommend Company actions. We offered remote working as a recommended option to employees whose job duties allowed them to work off-site, and we suspended all non-essential business travel. This company-wide recommendation initially extended until July 1, 2021, at which point we began transition to a return to our facilities and normalization of travel activities. However, we reimplemented our company-wide recommendation for remote work on August 3, 2021, based on new virus variants and increased infection rates. This remote work recommendation remains in effect as of February 4, 2022.   For those employees who are at our facilities, we have introduced enhanced sanitation procedures and require face masks for both vaccinated and unvaccinated employees. We have not required employees who return to our facilities to receive vaccinations, but we have provided information on vaccine providers, as well as hosted on-site COVID-19 vaccination clinics at several of our facilities for our employees and their families. As of February 4, 2022, the majority of our employees were continuing to work remotely either full time or in a hybrid capacity. Once the remote work recommendation is lifted, individual decisions on returning to the office will be manager-coordinated and based on conversations with specific teams and departments. A large number of our employees have requested to remain fully remote or participate in a hybrid approach where they would split their time between remote and in-person working. While our business travel has increased in recent months, we continue to encourage a cautious approach to business travel activities.
Customers
We work closely with our customers who are scheduled for on-site visits to ensure their needs are met while taking necessary safety precautions when our employees are required to be at a customer site. Delays of customer system installations due to COVID-19 have been limited, and we have developed processes to handle remote installations when available. We expect these processes to provide flexibility and value both during and after the COVID-19 pandemic. Even though a substantial portion of our workforce has worked remotely during the outbreak and business travel has been limited, we have not yet experienced significant disruption to our operations. We believe our technological capabilities are well positioned to allow our employees to work remotely without materially impacting our business.
Financial impact
Despite the changes and restrictions caused by COVID-19, the overall financial and operational impact on our business has been limited and our liquidity, balance sheet, and business trends remain strong. We experienced positive operating cash flows during fiscal 2021 and the first six months of fiscal 2022, and we do not expect that to change in the near term. However, we are unable to accurately predict the future impact of COVID-19 due to a number of uncertainties, including further government actions; the duration, severity and recurrence of the outbreak, including the onset of variants of the virus; the effectiveness of vaccines against new variants; the development and effectiveness of treatments; the effect on the economy generally; the potential impact to our customers, vendors, and employees; and how the potential impact might affect future customer services, processing and installation-related revenue, and processes and efficiencies within the Company directly or indirectly impacting financial results. We will continue to monitor COVID-19 and its possible impact on the Company and to take steps necessary to protect the health and safety of our employees and customers.
About Jack Henry & Associates, Inc.®
Jack Henry (NASDAQ: JKHY) is a leading provider of technology solutions primarily for the financial services industry. We are an S&P 500 company that serves approximately 8,000 clients nationwide through three divisions: Jack Henry Banking® provides innovative solutions to community and regional banks; Symitar® provides industry-leading solutions to credit unions of all sizes; and ProfitStars® offers highly specialized solutions to financial institutions of every asset size, as well as diverse corporate entities outside of the financial services industry. With a heritage that has been dedicated to openness, partnership, and user centricity for more than 40 years, we are well-positioned as a driving market force in future-ready digital solutions and payment processing services. We empower our clients and consumers with the human-centered, tech-forward, and insights-driven solutions that will get them where they want to go. Are you future ready? Additional information is available at www.jackhenry.com.  
Statements made in this news release that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.  Such risks and uncertainties include, but are not limited to, those discussed in the Company’s Securities and Exchange Commission filings, including the Company’s most recent reports on Form 10-K and Form 10-Q, particularly under the heading "Risk Factors." Any forward-looking statement made in this news release speaks only as of the date of the news release, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.
Quarterly Conference Call
The Company will hold a conference call on February 9, 2022; at 7:45 a.m. Central Time and investors are invited to listen at www.jackhenry.com.
For More Information
To directly access the Company’s press releases, go to ir.jackhenry.com/press-releases
Condensed Consolidated Statements of Income
% Change
% Change
Three Months Ended
December 31,

Six Months Ended
December 31,

(Unaudited, in thousands, except per share data)
2021
2020
2021
2020
REVENUE
$     493,896
$      422,361
17%
$     981,952
$      874,161
12%
Cost of revenue
282,825
257,782
10%
559,460
520,711
7%
Research and development
29,916
26,780
12%
56,670
52,837
7%
Selling, general, and administrative
55,493
44,167
26%
106,565
89,393
19%
EXPENSES
368,234
328,729
12%
722,695
662,941
9%
OPERATING INCOME
125,662
93,632
34%
259,257
211,220
23%
Interest income
6
52
(88)%
13
120
(89)%
Interest expense
(447)
(117)
282%
(696)
(235)
196%
Interest income (expense)
(441)
(65)
578%
(683)
(115)
494%
INCOME BEFORE INCOME TAXES
125,221
93,567
34%
258,574
211,105
22%
Provision for income taxes
29,551
21,585
37%
60,791
47,907
27%
NET INCOME
$       95,670
$         71,982
33%
$     197,783
$      163,198
21%
Diluted net income per share
$            1.30
$             0.94
$            2.68
$             2.13
Diluted weighted average shares outstanding
73,697
76,280
73,920
76,496
Condensed Consolidated Balance Sheet Highlights
December 31,
(Unaudited, in thousands)
2021
2020
Cash and cash equivalents
$       29,120
$      147,762
Receivables
236,096
212,934
Total assets
2,280,802
2,286,709
Accounts payable and accrued expenses
$     164,518
$      157,447
Current and long-term debt
240,129
266
Deferred revenue
275,778
262,883
Stockholders’ equity
1,271,996
1,545,179
Calculation of Non-GAAP Earnings Before Income Taxes, Depreciation and Amortization (Non-GAAP EBITDA)
Three Months Ended
December 31,

% Change
Six Months Ended
December 31,

% Change
(in thousands)
2021
2020
2021
2020
Net income
$       95,670
$         71,982
$     197,783
$      163,198
Interest expense
447
117
696
235
Taxes
29,551
21,585
60,791
47,907
Depreciation and amortization
44,280
44,073
88,453
87,816
Less: Net income before interest expense, taxes, depreciation and amortization attributable to eliminated one-time deconversions, acquisitions and divestitures, and gain/loss
(24,352)
(3,959)
(27,509)
(9,905)
NON-GAAP EBITDA
$     145,596
$      133,798
9%
$     320,214
$      289,251
11%
Calculation of Free Cash Flow (Non-GAAP)
Six Months Ended
December 31,

(in thousands)
2021
2020
Net cash from operating activities
$     197,351
$      193,984
Capitalized expenditures
(22,373)
(9,543)
Internal use software
(7,364)
(4,254)
Proceeds from sale of assets
38
6,157
Capitalized software
(71,353)
(62,804)
FREE CASH FLOW
$       96,299
$      123,540
Calculation of the Return on Average Shareholders’ Equity
December 31,
(in thousands)
2021
2020
Net income (trailing four quarters)
$     346,055
$      298,397
Average stockholder’s equity (period ending balances)
1,408,588
1,515,963
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY
24.6%
19.7%
Calculation of Return on Invested Capital (ROIC) (Non-GAAP)
December 31,
(in thousands)
2021
2020
Net income (trailing four quarters)
$     346,055
$      298,397
Average stockholder’s equity (period ending balances)
1,408,588
1,515,963
Average current maturities of long-term debt (period ending balances)
110
59
Average long-term debt (period ending balances)
120,088
75
Average invested capital
$ 1,528,786
$   1,516,097
ROIC
22.6%
19.7%
SOURCE Jack Henry & Associates, Inc.
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