Jack Henry & Associates Ends Fiscal 2018 With 7% Increase In Operating Income

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Aug 21, 2018

Jack Henry & Associates Ends Fiscal 2018 With 7% Increase In Operating Income

MONETT, Mo., Aug. 21, 2018 /PRNewswire/ -- Jack Henry & Associates, Inc. (NASDAQ: JKHY), a leading provider of technology solutions and payment processing services primarily for the financial services industry, today announced fourth quarter and full year fiscal 2018 results.

Revenue for the quarter ended June 30, 2018 increased to $417.2 million, a 9% improvement over the fourth quarter of fiscal 2017.  Operating income increased 10% to $108.5 million. The Tax Cuts and Jobs Act enacted December 22, 2017 had a large impact on our provision for income taxes and contributed to the large increase in net income of 32% over the fourth quarter of fiscal 2017 to $85.3 million, or $1.10 per diluted share.

For the year ended June 30, 2018, revenue increased 7% to $1,536.6 million compared to fiscal 2017. Operating income also increased 7% to $392.4 million, and net income increased 53% to $376.7 million, or $4.85 per diluted share, with the increase again due mainly to the effects of the Tax Cuts and Jobs Act ("TCJA").

According to David Foss, President and CEO, "We are happy to report another strong quarter of revenue and operating income growth.  Our sales teams had an extremely strong fourth quarter across all product lines and have positioned us well as we begin the new fiscal year. We signed 20 new core customers in the quarter with almost all of them choosing the outsourced model and we continue to see strong demand for Jack Henry's industry-leading core solutions. As always, I want to thank all of our associates for their outstanding efforts to produce these results."

Operating Results

Revenue, operating expenses, operating income, and net income for the quarter and the year ended June 30, 2018 were as follows:

Revenue (Unaudited)

(In Thousands)

Three Months Ended
June 30,

%
Change


Year Ended
June 30,

%
Change


2018



2017




2018



2017



Revenue










Services & Support

$

271,542



$

251,487


8

%


$

978,421



$

917,548


7

%

Percentage of Total Revenue

65

%


66

%



64

%


64

%


Processing

145,687



132,282


10

%


558,182



513,569


9

%

Percentage of Total Revenue

35

%


34

%



36

%


36

%


Total Revenue

417,229



383,769


9

%


1,536,603



1,431,117


7

%

 

  • The increased revenue in the services and support revenue line for the fourth quarter of fiscal 2018 was mainly driven by growth in our "outsourcing and cloud" revenue, partially due to the Ensenta acquisition, and increased "product delivery and services" revenues, driven by the completion of revised contractual obligations on several long-term contracts that permitted the Company to recognize previously deferred revenue related to our bundled arrangements. The increase in processing revenue was also partially due to revenue from Ensenta, although all components of processing revenue increased even after excluding Ensenta revenue. Deconversion fees, which are included within product delivery and services, increased $5.2 million compared to the fourth quarter of the prior year. Excluding deconversion fees from both periods, revenue from fiscal 2018 acquisitions, and fiscal 2017 revenue attributable to divested products, total revenue increased 6% for the fourth quarter of fiscal 2018 compared to the same quarter of fiscal 2017.
  • For the year ended June 30, 2018, deconversion fees increased $6.0 million compared to the prior year-to-date period. Excluding deconversion fees from both periods, revenue from fiscal 2018 acquisitions, and fiscal 2017 revenue attributable to divested products, revenue still increased 7%. The increase in the services and support line was driven primarily by increased "outsourcing and cloud" and "product delivery and services" revenue. The product delivery and services revenue increase in the year-to-date period was driven by the completion of revised contractual obligations on several long-term contracts that permitted the Company to recognize previously deferred revenue related to our bundled arrangements. The increase in the processing line was driven by significant increases in all three components of processing revenue.
  • For the fourth quarter of fiscal 2018, core segment revenue increased 12% to $155.3 million from $139.0 million in the same period a year ago. Payments segment revenue increased 11% to $135.6 million, from $121.8 million in the same quarter last year. Revenue from the complementary segment increased 7% to $113.9 million in the fourth quarter of fiscal 2018 from $106.5 million in the same period of fiscal 2017. Revenue in the corporate and other segment decreased 25% to $12.3 million, compared to $16.4 million for the fourth quarter of fiscal 2017.
  • For the year ended June 30, 2018, revenue in the core segment increased 10% to $555.3 million, compared to $503.0 million a year ago. Payments segment revenue increased 7% to $517.3 million, from $481.6 million for fiscal 2017. Complementary segment revenue increased 7% to $412.0 million, up from $385.7 million a year ago. Revenue from the corporate and other segment decreased 14% to $52.0 million for the year ended June 30, 2018 from $60.7 million for the year ended June 30, 2017.

Operating Expenses and Operating Income

(Unaudited, In Thousands)

Three Months Ended

June 30,

%
Change


Year Ended
June 30,

%
Change


2018



2017




2018



2017



Cost of Revenue

$

235,682



$

219,398


7

%


$

873,642



$

819,034


7

%

Percentage of Total Revenue

56

%


57

%



57

%


57

%


Research and Development

24,406



23,340


5

%


90,340



84,753


7

%

Percentage of Total Revenue

6

%


6

%



6

%


6

%


Selling, General, & Administrative

48,615



43,103


13

%


182,146



162,898


12

%

Percentage of Total Revenue

12

%


11

%



12

%


11

%


Gain on disposal of a business



(1,020)


(100)

%


(1,894)



(3,270)


(42)

%

Total Operating Expenses

308,703



284,821


8

%


1,144,234



1,063,415


8

%

Operating Income

$

108,526



$

98,948


10

%


$

392,369



$

367,702


7

%

Operating Margin

26

%


26

%



26

%


26

%


 

  • Cost of revenue increased 7% for the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017, but declined slightly as a percentage of revenue. The increased costs were primarily due to increased headcount driving increased salaries and benefits as well as higher direct costs of product and increased amortization of capitalized software.
  • For the year ended June 30, 2018, cost of revenue increased 7% compared to the prior year, but remained a consistent percentage of revenue. The increased costs were primarily due to higher personnel costs, increased amortization of capitalized software, higher direct costs of product, and costs related to our new card payment processing platform and faster payments initiatives.
  • Research and development expense increased for the fourth quarter and fiscal year mainly due to increased salary and personnel costs resulting from increased headcount, but remained consistent with the prior year as a percentage of total revenue.
  • Selling, general, and administrative expenses for the fourth quarter of fiscal 2018 increased 13% over the fourth quarter of the prior fiscal year. For the full year ended June 30, 2018, selling, general, and administrative expenses increased 12% compared to fiscal 2017. The increased spending for both the quarter and year was mainly due to increased commissions and salaries, along with increased professional service expenses due to contracting with outside experts in preparation for our adoption of the new ASC 606 revenue standard.
  • In the fourth quarter of fiscal 2017, we recognized a gain on the disposal of our Regulatory Filing products.
  • For the year ended June 30, 2018, gains on disposals of businesses totaled $1.9 million, due to the disposals of the ATM Manager and jhaDirect product lines. The fiscal 2017 gain was related to the sales of our Regulatory Filing and Alogent products.
  • For the fourth quarter, operating income increased 10% to $108.5 million, or 26% of fourth quarter fiscal 2018 revenue, compared to $98.9 million, or 26% of revenue in the fourth quarter of fiscal 2017.
  • For fiscal year 2018, operating income increased 7% to $392.4 million, or 26% of revenue, compared to operating income of $367.7 million, or 26% of revenue, for the year ended June 30, 2017.

Net Income

Net income for the fourth quarter and the year ended June 30, 2018 was significantly impacted by the effects of the Tax Cuts and Jobs Act.

(Unaudited, In Thousands,

Except Per Share Data)

Three Months Ended

June 30,


%
Change


Year Ended

June 30,


%
Change


2018


2017




2018


2017



Income Before Income Taxes

$

107,931


$

98,594


9

%


$

391,024


$

366,954


7

%

Provision for Income Taxes

22,651


33,903


(33)

%


14,364


121,161


(88)

%

Net Income

$

85,280


$

64,691


32

%


$

376,660


$

245,793


53

%

Diluted earnings per share

$

1.10


$

0.83


33

%


$

4.85


$

3.14


55

%

 

  • Provision for income taxes decreased in the fourth quarter, with an effective tax rate at 21.0% of income before income taxes, compared to 34.4% for the same quarter of the prior year. The decrease was due to a lower federal income tax rate and adjustments recorded as a result of the TCJA.
  • The decreased provision for income taxes in the year ended June 30, 2018 was also due primarily to the TCJA. In fiscal 2018, we recorded $94,549 of tax benefit related to the re-measurement of our net deferred tax liabilities and $23,818 of net tax benefits related to the impacts on current year operations as a result of the TCJA and lower U.S. federal income tax rate effective January 1, 2018. Excluding the of tax benefit recorded as a result of the TCJA, net income increased 5% and diluted earnings per share increased 6% for fiscal 2018 compared to fiscal 2017.

According to Kevin Williams, CFO, "The TCJA was a significant impact on the quarter and the year. The effective tax rate as reported for the year was 3.7%, but if you back out the impact of the re-measurement of deferred taxes, the effective tax rate under the new rules was 27.9%, compared to 33.0% in the prior year. The table below adjusts out all the non-operational impacts on the financials by excluding deconversion fees, revenue and operating income from acquisitions, and revenue and gain from divestitures to allow our investors to focus on our true operating performance of revenue and operating income growth of 6% over the respective prior year quarter, and 7% revenue and operating income growth over the prior full fiscal year."

Effects of Deconversion Fees, Acquisitions, and Divestitures

The table below shows our revenue and operating income (in thousands) for the fourth quarter and fiscal year ended June 30, 2018 compared to the prior year periods, excluding the impacts of deconversion fees, divestitures, and fiscal 2018 acquisitions.


Three Months Ended
June 30,


%
Change


Year Ended
June 30,


%
Change


2018


2017




2018


2017















Reported Revenue (GAAP)

$

417,229


$

383,769


9

%


$

1,536,603


$

1,431,117


7

%













Adjustments:












Deconversion fees

11,249


6,093




45,537


39,516



Revenue from fiscal 2018 acquisitions

8,087





17,145




Revenue from divestitures


1,844





9,341















Proforma Revenue

$

397,893


$

375,832


6

%


$

1,473,921


$

1,382,260


7

%













Reported Operating Income (GAAP)

$

108,526


$

98,948


10

%


$

392,369


$

367,702


7

%













Adjustments:












Deconversion fees

11,050


6,093




44,244


39,509



Operating income from fiscal 2018 acquisitions

512





597




Operating income from divestitures


213





2,083



Gain on disposal of businesses


1,020




1,894


3,270















Proforma Operating Income

$

96,964


$

91,622


6

%


$

345,634


$

322,840


7

%

Balance Sheet and Cash Flow Review

  • At June 30, 2018, cash and cash equivalents decreased to $31.4 million from $114.8 million at June 30, 2017.
  • Trade receivables totaled $291.6 million at June 30, 2018 compared to $276.9 million at June 30, 2017.
  • The company had no borrowings at June 30, 2018 and $50.0 million outstanding debt at June 30, 2017.
  • Total deferred revenue decreased to $448.6 million at June 30, 2018, compared to $511.4 million a year ago.
  • Stockholders' equity increased to $1,266.8 million at June 30, 2018, compared to $1,032.1 million a year ago.

Cash provided by operations totaled $412.1 million in fiscal 2018 compared to $357.3 million last year.  The following table summarizes net cash (in thousands) from operating activities:

(Unaudited, In Thousands)

Year Ended June 30,


2018


2017

Net income

$

376,660


$

245,793

Depreciation

47,975


49,677

Amortization

104,011


90,109

Change in deferred income taxes

(51,644)


30,940

Other non-cash expenses

10,804


15,900

Change in receivables

(9,219)


(22,499)

Change in deferred revenue

(63,262)


(8,800)

Change in other assets and liabilities

(3,183)


(43,798)

Net cash provided by operating activities

$

412,142


$

357,322

 

  • The change in deferred income taxes was mainly related to the Tax Cuts and Jobs Act.

Cash used in investing activities for fiscal 2018 totaled $291.8 million, compared to $141.6 million for the same period in fiscal 2017 and included the following:

(Unaudited, In Thousands)

Year Ended June 30,


2018


2017

Payment for acquisitions, net of cash acquired

$

(137,562)


$

Capital expenditures

(40,135)


(41,947)

Proceeds from the sale of businesses

350


5,632

Proceeds from the sale of assets

306


968

Internal use software

(13,138)


(16,608)

Computer software developed

(96,647)


(89,631)

Purchase of investments

$

(5,000)


$

Net cash from investing activities

$

(291,826)


$

(141,586)

 

  • On December 21, 2017, the Company acquired all equity interest of Ensenta Corporation, a California-based provider of real-time, cloud-based solutions for mobile and online payments and deposits, making Jack Henry & Associates the leading provider of consumer remote deposit capture services.
  • On August 31, 2017, the Company purchased Vanguard Software Group, a Florida-based company specializing in the underwriting, spreading, and online decisioning of commercial loans.

Financing activities used cash of $203.6 million in fiscal 2018 and $171.3 million in fiscal 2017.

(Unaudited, In Thousands)

Year Ended June 30,


2018


2017

Borrowings on credit facilities

$

125,000


$

80,000

Repayments on credit facilities

(175,000)


(30,200)

Purchase of treasury stock

(48,986)


(130,140)

Dividends paid

(105,021)


(91,707)

Net cash from issuance of stock and tax related to stock-based compensation

366


766

Net cash from financing activities

$

(203,641)


$

(171,281)

Quarterly Conference Call
The company will hold a conference call on August 22, 2018; at 7:45 a.m. Central Time and investors are invited to listen at www.jackhenry.com.

About Jack Henry & Associates

Jack Henry & Associates, Inc. (NASDAQ: JKHY) is a leading provider of technology solutions and payment processing services primarily for the financial services industry. Its solutions serve more than 9,000 customers nationwide, and are marketed and supported through three primary brands. Jack Henry Banking® supports banks ranging from community banks to multi-billion-dollar institutions with information processing solutions. Symitar® is a leading provider of information processing solutions for credit unions of all sizes. ProfitStars® provides highly specialized products and services that enable financial institutions of every asset size and charter, and diverse corporate entities to mitigate and control risks, optimize revenue and growth opportunities, and contain costs.  Additional information is available at www.jackhenry.com.

Statements made in this news release that are not historical facts are forward-looking information.  Actual results may differ materially from those projected in any forward-looking information.  Specifically, there are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking information.  Additional information on these and other factors, which could affect the Company's financial results, are included in its Securities and Exchange Commission (SEC) filings on Form 10-K, and potential investors should review these statements.  Finally, there may be other factors not mentioned above or included in the Company's SEC filings that may cause actual results to differ materially from any forward-looking information.

Condensed Consolidated Statements of Income

(Unaudited)

(In Thousands, Except Per Share Data)

Three Months Ended June
30,


%
Change


Year Ended June 30,


%
Change


2018


2017




2018


2017















REVENUE

$

417,229


$

383,769


9

%


$

1,536,603


$

1,431,117


7

%













EXPENSES












Cost of Revenue

235,682


219,398


7

%


873,642


819,034


7

%

Research & Development

24,406


23,340


5

%


90,340


84,753


7

%

Selling, General, & Administrative

48,615


43,103


13

%


182,146


162,898


12

%

Gain on disposal of businesses


(1,020)


(100)

%


(1,894)


(3,270)


(42)

%

Total Expenses

308,703


284,821


8

%


1,144,234


1,063,415


8

%













OPERATING INCOME

108,526


98,948


10

%


392,369


367,702


7

%













INTEREST INCOME (EXPENSE)












Interest income

152


38


300

%


575


248


132

%

Interest expense

(747)


(392)


91

%


(1,920)


(996)


93

%

Total

(595)


(354)


68

%


(1,345)


(748)


80

%













INCOME BEFORE INCOME TAXES

107,931


98,594


9

%


391,024


366,954


7

%













PROVISION FOR INCOME TAXES

22,651


33,903


(33)

%


14,364


121,161


(88)

%













NET INCOME

$

85,280


$

64,691


32

%


$

376,660


$

245,793


53

%













Diluted net income per share

$

1.10


$

0.83




$

4.85


$

3.14



Diluted weighted average shares outstanding

77,585


78,064




77,585


78,255















Consolidated Balance Sheet Highlights (Unaudited)

(In Thousands)







June 30,


%
Change








2018


2017



Cash and cash equivalents







$

31,440


$

114,765


(73)

%

Receivables







291,630


276,923


5

%

Total assets







2,050,303


1,908,945


7

%













Accounts payable and accrued expenses







$

132,358


$

88,415


50

%

Current and long-term debt








50,000


(100)

%

Deferred revenue







448,632


511,384


(12)

%

Stockholders' equity







1,266,828


1,032,051


23

%

 

Cision View original content:http://www.prnewswire.com/news-releases/jack-henry--associates-ends-fiscal-2018-with-7-increase-in-operating-income-300700397.html

SOURCE Jack Henry & Associates, Inc.

Analyst & IR Contact: Kevin D. Williams, Chief Financial Officer, (417) 235-6652