Jack Henry & Associates, Inc. Reports Second Quarter Fiscal 2020 Results

Jack Henry & Associates Inc (NASDAQ: JKHY) a leading provider of technology solutions and payment processing services primarily for the financial services industry today announced results for the second quarter of fiscal 2020

GAAP Results for the Quarter

Revenue for the quarter ended December 31 2019 increased to $4191 million which is 9% growth over the second quarter of fiscal 2019  Operating income increased 6% to $937 million and net income increased 6% to $721 million or $094 per diluted share compared to the second quarter of fiscal 2019 The increase in operating income was driven by organic growth in both our services and support and processing lines of revenue and higher deconversion fees quarter over quarter  The increase in net income is primarily attributable to the growth in both our lines of revenue and higher deconversion fees discussed above

For the six months ended December 31 2019 revenue increased to $8571 million which is 10% growth over the six months ended December 31 2018 Operating income increased 11% over the prior year-to-date period to $2119 million Net income totaled $1615 million or $210 per diluted share an increase of 6% compared to the six months ended December 31 2018 The increase in operating income was driven by organic growth in both our services and support and processing lines of revenue and higher deconversion fees in the year-to-date period over the prior year-to-date period  The increase in net income is primarily attributable to the growth in both our lines of revenue and higher deconversion fees discussed above partially offset by the increase in effective tax rate compared to the prior-year period

Non-GAAP Results for the Quarter

For the quarter ended December 31 2019 adjusted revenue increased 8% to $4094 million and adjusted operating income increased 6% to $867 million compared to the prior-year quarter

For the six months ended December 31 2019 adjusted revenue increased 9% to $8301 million and adjusted operating income increased 8% to $1912 million compared to the six months ended December 31 2018 (see Non-GAAP Impact of Deconversion Fees and Acquisitions on page 4)

According to David Foss President and CEO We are very pleased to report another quarter of strong revenue operating income and net income growth  We continue to see very strong demand for Jack Henry technology solutions in the markets we serve and our sales teams had another outstanding quarter  We are now half way through the fiscal year and sales bookings are 18% ahead of where we were at this time during last year's record sales year I would like to thank all of our associates for their continued commitment to our customers and their ongoing success

Operating Results

Revenue operating expenses operating income and net income for the three and six months ended December 31 2019 as compared to the three and six months ended December 31 2018 were as follows:

• Total revenue increased 9% for the second quarter of fiscal 2020 compared to the same period last year The increased revenue in the services and support line for the second quarter of fiscal 2020 was primarily driven by the growth in data processing and hosting fees as well as increased implementation fees primarily related to our private cloud offerings and consulting fee revenue quarter over quarter The increase in processing revenue was mainly driven by increased transaction volumes within card processing and remittance fees within processing revenue Deconversion fees which are included within services and support increased $11 million compared to the second quarter of the prior year Excluding deconversion fees from both periods and revenue from the fiscal 2020 acquisition total adjusted revenue increased 8% for the second quarter of fiscal 2020 compared to the same quarter of fiscal 2019
• Total revenue increased 10% for the six months ended December 31 2019 compared to the same period last year For the six months ended December 31 2019 deconversion fees increased $81 million compared to the prior year-to-date period Excluding deconversion fees from both periods and revenue from the fiscal 2020 acquisition total adjusted revenue increased 9% The increase in the services and support line was primarily driven by the growth in data processing and hosting fees as well as increased software usage hardware revenue consulting fee revenue and implementation fees primarily related to our private cloud offerings when compared to the prior year-to-date period All components of processing revenue increased for the year-to-date period
• For the second quarter of fiscal 2020 core segment revenue increased 7% to $1384 million from $1297 million in the second quarter of fiscal 2019 Payments segment revenue increased 10% to $1520 million from $1380 million in the same quarter last year Revenue from the complementary segment increased 10% to $1135 million in the second quarter of fiscal 2020 from $1033 million in the same quarter of fiscal 2019 Revenue in the corporate and other segment remained consistent at $152 million compared to $153 million for the second quarter of fiscal 2019
• For the six months ended December 31 2019 revenue in the core segment increased 9% to $2943 million compared to $2689 million for the six months ended December 31 2018 Payments segment revenue increased 11% to $3018 million from $2722 million for the prior year-to-date period Complementary segment revenue increased 10% to $2307 million up from $2090 million in the prior year-to-date period Revenue from the corporate and other segment increased 6% to $304 million for the six months ended December 31 2019 from $288 million for the six months ended December 31 2018

• Cost of revenue increased 10% for the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019 but remained consistent as a percentage of revenue Excluding costs related to deconversions and the fiscal 2020 acquisition the adjusted cost of revenue increase was 9% The increase was primarily due to higher costs associated with our card processing platform and higher personnel costs
• For the six months ended December 31 2019 cost of revenue increased 11% compared to the equivalent period of the prior year and increased 1% as a percentage of revenue Excluding costs related to deconversions and the fiscal 2020 acquisition adjusted cost of revenue increased 10% The increase was primarily due to higher costs associated with our card processing platform increases in related revenue and higher personnel costs
• Research and development expense increased 13% for the second quarter and 8% for the year-to-date period of fiscal 2020 This increase was primarily due to increased personnel costs Headcount increased 4% at December 31 2019 compared to a year ago The quarter and year-to-date research and development expense remained consistent with the prior year quarter and year-to-date period as a percentage of total revenue
• Selling general and administrative expense for both the second quarter and year-to-date period of fiscal 2020 increased mainly due to increased personnel costs primarily due to a 2% increase in headcount over the prior-year period and pay raises during the trailing twelve-month period Selling general and administrative expense for the quarter remained consistent with the prior-year quarter as a percentage of total revenue Selling general and administrative expense for the year-to-date period decreased 1% as a percentage of total revenue compared to the prior-year period due to ongoing cost control efforts
• For the second quarter of fiscal 2020 operating income increased 6% to $937 million which is 22% of revenue compared to $882 million which was 23% of revenue in the second quarter of fiscal 2019 For the year-to-date period operating income increased 11% to $2119 million which is 25% of revenue compared to operating income of $1914 million which was 25% of revenue for the six months ended December 31 2018

• Provision for income taxes increased in the second quarter with an effective tax rate at 232% of income before income taxes compared to 229% for the same quarter of the prior year The increase in the effective tax rate in the second quarter of fiscal 2020 was primarily due to the change in the impact of share-based compensation quarter-over-quarter
• For the six months ended December 31 2019 provision for income taxes increased with an effective tax rate at 240% of income before income taxes compared to 209% for the same period last year The increase to the Company's tax rate was primarily due to the difference in impact of stock-based compensation A significant excess tax benefit was recognized in the first six months of the prior fiscal year from stock-based compensation The stock-based compensation has not resulted in the same level of tax benefit during the same period of the current fiscal year

According to Kevin Williams CFO and Treasurer We continue to have good revenue growth with the primary drivers being our Outsourcing in our private cloud and debit and credit card processing In fact every component of revenue was up for the quarter compared to last year except license and related maintenance revenue  Which the decrease in license is primarily due to almost all new core customers electing to be processed in our private cloud and many of our existing on-premise customers continuing to elect to make the move to our private cloud for all their back-office processing   Sixty percent of our core customers are now processed in our private cloud Our operating margins are showing the impact of the additional costs related to the migration of our debit card customers to the new processing platform which is still on schedule and our effective tax rate is in line with previous guidance provided

Non-GAAP Impact of Deconversion Fees and Acquisitions

The table below shows our revenue and operating income (in thousands) for the three and six months ended December 31 2019 compared to the prior year period excluding the impacts of deconversion fees and the fiscal 2020 acquisition

The tables below show the segment break-out 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

Balance Sheet and Cash Flow Review

• At December 31 2019 cash and cash equivalents increased to $725 million from $262 million at December 31 2018
• Trade receivables totaled $2047 million at December 31 2019 compared to $1847 million at December 31 2018
• The company had no borrowings at December 31 2019 or at December 31 2018
• Total deferred revenue increased to $2770 million at December 31 2019 compared to $2556 million a year ago
• Stockholders' equity increased to $14867 million at December 31 2019 compared to $13920 million a year ago

Cash provided by operations totaled $2150 million in the six months ended December 31 2019 compared to $1920 million for the same period last year  The following table summarizes net cash (in thousands) from operating activities:

Cash used in investing activities for the six months ended December 31 2019 totaled $1254 million compared to $1097 million for the same period last year and included the following:

• On July 1 2019 the Company acquired all of the equity interest of Geezeo for $30376 net of cash acquired Geezeo is a Boston-based provider of retail and business digital financial management solutions

Financing activities used cash of $1107 million in the six months ended December 31 2019 and $877 million in the same period last year and included the following: 

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 includes 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 and adjusted operating expenses

We believe non-GAAP financial measures help investors better understand the underlying fundamentals and true operations of our business  The non-GAAP financial measures presented eliminate one-time deconversion fees and contributions of the current fiscal year acquisition both items which management believes are not indicative of the Company's operating performance  Such adjustments give investors further insight into our performance  For these reasons management also uses these non-GAAP financial measures in its assessment and management of the Company's performance

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 measures  Reconciliations of these non-GAAP financial measures to related GAAP measures are included

Quarterly Conference Call
The company will hold a conference call on February 5 2020; at 7:45 am Central Time and investors are invited to listen at wwwjackhenrycom

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 9000 clients nationwide through three divisions: Jack Henry Banking® supports banks ranging from community banks to multi-billion-dollar institutions; 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 wwwjackhenrycom

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