Jack Henry and Associates business still at record pace

Wednesday, May 20, 2020

Monett-based firm adjusts in-house staffing during pandemic

Monett-based Jack Henry and Associates (JHA) has reported another strong quarter, with revenue under generally accepted accounting principles showing a 13 percent increase and operating income seeing a 20 percent hike.

The technology solutions and payment processing services company, primarily serving the financial services industry, reported an especially strong performance for the quarter ending on March 31, topping the record performance in the 2018-2019 fiscal year. The showing pushed revenue for the fiscal year under generally accepted accepted accounting principles to an 11 percent rise. Adjusted revenue, which does not include one-time deconversion fees, charged when customer contracts are terminated prior to their contracted term, was up 9 percent for the year, while operating income was up 7 percent.

“We are very pleased to report another record quarter of revenue, operating income and net income,” said David Foss, JHA president and CEO. “We continued to see strong demand for our Jack Henry technology solutions through the third fiscal quarter. Total sales bookings are now running 12 percent 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. 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."

The report acknowledged complications from the COVID-19 (coronavirus) pandemic, and cited precautionary steps taken for employees and customers.

The report noted that JHA set up an internal task force of executive officers and other members of management to frequently assess updates in the COVID-19 (coronavirus) situation and recommend actions.

“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,” the report said. “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. 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.”

Additional precautions were being taken for customers scheduled for on-site visits. The report noted delays in customer system installations “have been limited.” Processes were developed to handle remote installations were possible.

“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,” the report said. “We believe our technological capabilities are well positioned to allow our employees to work remotely for the foreseeable future without materially impacting our business.”

Looking at the quarter under generally accepted accounting principles, revenue increased to $429.4 million, up 13 percent over the same quarter last year. Net income was up 25 percent, and operating income at $91.9 million reflected a 20 percent increase. Revenue for the nine-month quarter totaled $1,285,500,000, up 11 percent.

According to a company statement, the increase in operating income was driven by organic growth in both the 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, partially offset by the increase in effective tax rate, compared to the prior-year period,” the statement said. “Deconversion fees, which are included within services and support, increased $14.7 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 percent for the third quarter of fiscal 2020, compared to the same quarter of fiscal 2019.”

Growth in data processing and hosting fees provided the primary driver for the increase from the services and support line. Revenue from increased software usage and higher implementation fees, primarily related to JHA’s private cloud offerings, further contributed. Increased transaction volumes within card processing and fee revenue associated with that also drove revenue increases in the year-to-date period.

Under the company’s breakdown, core segment revenue for the third quarter rose by 12 percent. Revenue from the complementary segment was up 16 percent, and revenue in the corporate and other segment was up nearly 14 percent.

Operating income was up 21 percent for the quarter, or 1 percent of revenue more than a year ago. Operating income has risen 13 percent for the fiscal year.

The cost of revenue for the quarter showed a 10 percent increase, compared to the same quarter a year ago, primarily due to higher costs associated with JHA’s card processing platform and higher personnel costs. Selling, general and administrative costs were up, as they have been throughout the year, mainly due to increased personnel costs due to a 2 percent increase in headcount.

Research and development costs rose 21 percent for the quarter, and 12 percent for the current fiscal year. The number of people in research and development rose by 3 percent, compared to a year ago. As a percentage of total revenue, research and development was unchanged as a percentage of total revenue from a year ago.

"We continue to have solid revenue growth, with the primary drivers being our private cloud offerings, transactional processing and digital,” said Kevin Williams, JHA treasurer and chief financial officer. “Every component of revenue increased for the quarter, compared to the prior year, with the only exception being license revenue, which was down slightly 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.

“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, Texas, 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.”

Williams also wanted to thank all of the associates for taking care of themselves and our customers during these unusual times.

“They have all done a remarkable job,” he said.

Jack Henry and Associates is a leading provider of technology solutions primarily for the financial services industry. The firm is list as a Standard and Poor’s 500 company that serves approximately 8,700 clients nationwide through three divisions.

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