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

• Year-to-date summary:
• GAAP revenue increased 11% and operating income increased 13% for the nine months ended March 31 2020
• Non-GAAP adjusted revenue increased 9% and adjusted operating income increased 7% for the nine months ended March 31 2020
• GAAP EPS was $306 and $272 per diluted share for the nine months ended March 31 2020 and 2019 respectively
• Third quarter summary:
• GAAP revenue increased 13% and operating income increased 20% for the quarter
• Non-GAAP adjusted revenue increased 9% and adjusted operating income increased 6% for the quarter
• GAAP EPS was $096 per diluted share for the quarter compared to $077 in the prior year quarter
• Full-year fiscal 2020 GAAP guidance:
• Revenue $1695 to $1702 million
• EPS $383 to $385
• Fourth quarter fiscal 2020 GAAP guidance:
• Revenue $408 to $415 million
• EPS $77 to $79

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 third quarter of fiscal 2020 and discusses its response to the novel coronavirus (COVID-19) pandemic

According to David Foss President and CEO We are very pleased to report another record quarter of revenue operating income and net income  We continued to see strong demand for our Jack Henry technology solutions through the third fiscal quarter and total sales bookings are now running 12% ahead of last year's record pace As we look forward to the coming months we do expect some impact on sales bookings and revenue due to COVID-19 but there is no way for us to fully predict the impact on our business or our customers  With that in mind we will continue to focus on taking care of our associates and customers while at the same time maintaining our strong financial position and preparing for continued growth in the future I would like to thank all of our associates for their commitment to our customers during these challenging times Since the onset of this pandemic the Jack Henry team has moved mountains to address the unprecedented needs of our customers while at the same time demonstrating unwavering commitment to each other and our communities  They have weathered this storm with grace and passion

GAAP Results for the Quarter and Year to Date

Revenue for the quarter ended March 31 2020 increased to $4294 million which is 13% growth over the third quarter of fiscal 2019  Operating income increased 20% to $919 million and net income increased 25% to $739 million or $096 per diluted share compared to the third quarter of fiscal 2019 The increases in operating income and net income were primarily driven by organic growth in both our services and support and processing lines of revenue and higher deconversion fees quarter over quarter

For the nine months ended March 31 2020 revenue increased to $12865 million which is 11% growth over the nine months ended March 31 2019 Operating income increased 13% over the prior year-to-date period to $3038 million Net income totaled $2353 million or $306 per diluted share an increase of 12% compared to the nine months ended March 31 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 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 and Year to Date

For the quarter ended March 31 2020 adjusted revenue increased 9% to $4043 million and adjusted operating income increased 6% to $731 million compared to the prior-year quarter

For the nine months ended March 31 2020 adjusted revenue increased 9% to $12344 million and adjusted operating income increased 7% to $2643 million compared to the nine months ended March 31 2019 (see Non-GAAP Impact of Deconversion Fees Acquisition and Disposals on page 4)

Operating Results

Revenue operating expenses operating income and net income for the three and nine months ended March 31 2020 as compared to the three and nine months ended March 31 2019 were as follows:

• Total revenue increased 13% for the third quarter of fiscal 2020 compared to the same period last year The increased revenue in the services and support line for the third quarter of fiscal 2020 was primarily driven by the growth in data processing and hosting fees as well as increased software usage revenue and higher implementation fees primarily related to our private cloud offerings quarter over quarter The increase in processing revenue was mainly driven by increased transaction volumes within card processing and the associated fee revenue as well as higher remittance fees and growth in mobile processing quarter over quarter Deconversion fees which are included within services and support increased $147 million compared to the third quarter of the prior year Excluding deconversion fees from both periods and revenue from the fiscal 2020 acquisition total adjusted revenue increased 9% for the third quarter of fiscal 2020 compared to the same quarter of fiscal 2019
• Total revenue increased 11% for the nine months ended March 31 2020 compared to the same period last year For the nine months ended March 31 2020 deconversion fees increased $228 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 revenue and higher 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 with increased transaction volumes within card processing and the associated fee revenue being the largest driver
• For the third quarter of fiscal 2020 core segment revenue increased 12% to $1464 million from $1306 million in the third quarter of fiscal 2019 Payments segment revenue increased 11% to $1504 million from $1355 million in the same quarter last year Revenue from the complementary segment increased 16% to $1187 million in the third quarter of fiscal 2020 from $1021 million in the same quarter of fiscal 2019 Revenue in the corporate and other segment increased to $139 million from $122 million in the third quarter of fiscal 2019
• For the nine months ended March 31 2020 revenue in the core segment increased 10% to $4407 million compared to $3995 million for the nine months ended March 31 2019 Payments segment revenue increased 11% to $4522 million from $4077 million for the prior year-to-date period Complementary segment revenue increased 12% to $3493 million up from $3110 million in the prior year-to-date period Revenue from the corporate and other segment increased 8% to $443 million for the nine months ended March 31 2020 from $410 million for the nine months ended March 31 2019

• Cost of revenue increased 10% for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 but decreased 2% 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 nine months ended March 31 2020 cost of revenue increased 10% compared to the equivalent period of the prior year but remained consistent 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 21% for the third quarter and 12% for the year-to-date period of fiscal 2020 This increase was primarily due to increased personnel costs Headcount increased 3% at March 31 2020 compared to a year ago Research and development expense for the quarter increased 1% as a percentage of total revenue compared to the prior-year quarter Year-to-date research and development expense remained consistent with the prior year-to-date period as a percentage of total revenue
• Selling general and administrative expense for both the third 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 salary increases during the trailing twelve-month period Selling general and administrative expense for the quarter and year-to-date period decreased 1% as a percentage of total revenue compared to the prior year-to-date period when excluding the loss on disposal of assets net
• For the third quarter of fiscal 2020 operating income increased 20% to $919 million which is 21% of revenue compared to $764 million which was 20% of revenue in the third quarter of fiscal 2019 For the year-to-date period operating income increased 13% to $3038 million which is 24% of revenue compared to operating income of $2679 million which was 23% of revenue for the nine months ended March 31 2019

• Provision for income taxes increased in the third quarter with an effective tax rate at 197% of income before income taxes compared to 224% for the same quarter of the prior year The decrease in the effective tax rate in the third quarter of fiscal 2020 compared to the prior-year quarter was primarily due to the difference in uncertain tax positions released with the lapsing of statute of limitations between the two periods
• For the nine months ended March 31 2020 provision for income taxes increased with an effective tax rate at 227% of income before income taxes compared to 213% for the same period last year The increase to the Company's tax rate was primarily due to the difference in the tax benefits recognized from stock-based compensation between the two periods

According to Kevin Williams CFO and Treasurer We continue to have solid revenue growth with the primary drivers being our private cloud offerings transactional processing and digital Every component of revenue increased for the quarter compared to the prior year with the only exception being license revenue which was down slightly and is due to the continued shift of our core customers migrating from in-house delivery to our private cloud  All three of our reported operating segments showed solid revenue growth for the quarter on both a GAAP and Non-GAAP basis Our operating margins continue to show the impact of the additional costs related to the migration of our debit card customers to the new processing platform which was primarily offset by margin expansion in our other operating segments We had a loss on disposal of assets during the quarter which is a net number made of up a gain on the sale of our Houston TX facility and the write-off of our investment in the Enterprise Risk Mitigation Solution (ERMS) which had a net negative impact of $03 on reported earnings per share I would like to thank all of our associates for taking care of themselves and our customers during these unusual times they have all done a remarkable job

Non-GAAP Impact of Deconversion Fees Acquisition and Disposals

The table below shows our revenue and operating income (in thousands) for the three and nine months ended March 31 2020 compared to the prior-year period excluding the impacts of deconversion fees the fiscal 2020 acquisition and the loss on disposal of certain assets net

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 March 31 2020 cash and cash equivalents increased to $1095 million from $354 million at March 31 2019
• Trade receivables totaled $2121 million at March 31 2020 compared to $1908 million at March 31 2019
• The Company had $550 million of borrowings at March 31 2020 compared to $350 million at March 31 2019
• Total deferred revenue increased to $2264 million at March 31 2020 compared to $2079 million a year ago
• Stockholders' equity increased to $15139 million at March 31 2020 compared to $14260 million a year ago

Cash provided by operations totaled $2765 million for the nine months ended March 31 2020 compared to $2334 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 nine months ended March 31 2020 totaled $1534 million compared to $1480 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 $1072 million in the nine months ended March 31 2020 and $814 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 contributions of the current fiscal year acquisition and the one-time disposals of certain assets all 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

COVID-19 Impact and Response

In March 2020 the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic and the President of the United States declared the outbreak as a national emergency As COVID-19 has rapidly spread federal state and local governments have responded by imposing restrictions including widespread stay-at-home orders and travel limitations Such restrictions have resulted in significant economic disruptions and uncertainty

The health safety and well-being of our employees and customers is of paramount importance to us We have 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 Based on guidance from the US Department of Homeland Security's Cybersecurity and Infrastructure Security Agency the Company was designated as essential critical infrastructure because of our support of the financial services industry Our internal task force determined that a subset of our employees could not work remotely because job duties necessary for our business operations to run seamlessly required these employees to work on-site at our facilities For employees in our data statement processing and item processing centers who are required by their job responsibilities to be on location daily we are offering enhanced compensation We have offered remote working as a recommended option to employees whose job duties allow them to work off-site and have suspended all non-essential business travel until at least May 15 2020 We have also updated the health benefits available to our employees by waiving out-of-pocket expenses related to testing and treatment of COVID-19 In addition we plan to honor our 2020 summer internship program through virtual methods

Customers

We are working 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 We continue to work with our customers to support them during this difficult time and to that end have waived certain late fees in connection with our products and services We have also enhanced our lending service offerings to support the Paycheck Protection Program that was introduced by the Coronavirus Aid Relief and Economic Security (CARES) Act which was signed into law on March 27 2020 Even though a substantial portion of our workforce has worked remotely during the outbreak and business travel has been curtailed 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 for the foreseeable future without materially impacting our business

Financial impact

Despite the changes and restrictions caused by COVID-19 the financial and operational impact on our business has been limited and our liquidity balance sheet and business trends remain strong 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 and severity of the outbreak and the potential impact to our customers and vendors as well as how the potential impact might affect future customer services and processing revenue 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

Quarterly Conference Call

The Company will hold a conference call on May 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 8700 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