Jack Henry & Associates, Inc.
Feb 7, 2017

Jack Henry & Associates Ends Second Quarter Fiscal 2017 With 5% Increase In Revenue

MONETT, Mo., Feb. 7, 2017 /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 second quarter fiscal 2017 results. 

Revenue for the quarter ended December 31, 2016 increased to $348.6 million, a 5% increase over the second quarter of fiscal 2016.  Gross profit also increased 6% to $150.4 million and income before income taxes increased 5% to $88.5 million.  A higher effective tax rate for the quarter caused net income to decrease 1% to $58.8 million, or $0.75 per diluted share. 

According to David Foss, President and CEO, "We are pleased to report another record second quarter of revenue and operating income growth, both in line with our previous guidance.  Our combined sales teams had another solid quarter in Q2 and they're off to a good start in Q3.  I'd like to thank all of our associates, customers and partners who participated in celebrating our 40th anniversary throughout 2016.  We concluded those celebrations in November when we rang the opening bell at NASDAQ."

Operating Results

Revenue, cost of sales, and gross profit results for the quarter were as follows:

Revenue, Cost of Sales, and Gross Profit (Unaudited)






(In Thousands)

Three Months Ended

December 31,

%

Change


Six Months Ended

December 31,

%

Change


2016


2015



2016


2015


Revenue










  License

$

849



$

634


34

%


$

1,543



$

2,237


(31)%


     Percentage of Total Revenue

< 1%



< 1%




< 1%



< 1%




  Support and Service

337,515



320,219


5

%


670,561



627,966


7

%

     Percentage of Total Revenue

97

%


96

%



97

%


96

%


  Hardware

10,189



12,019


(15)%



21,477



24,287


(12)%


     Percentage of Total Revenue

3

%


4

%



3

%


4

%


  Total Revenue

348,553



332,872


5

%


693,581



654,490


6

%











Cost of Sales










  Cost of License

59



498


(88)%



311



680


(54)%


  Cost of Support and Service

191,269



181,989


5

%


377,161



356,703


6

%

  Cost of Hardware

6,818



7,958


(14)%



15,436



16,726


(8)%


  Total Cost of Sales

198,146



190,445


4

%


392,908



374,109


5

%











Gross Profit










  License Gross Profit

790



136


481

%


1,232



1,557


(21)%


     License Gross Profit Margin

93

%


21

%



80

%


70

%


  Support and Service Gross Profit

146,246



138,230


6

%


293,400



271,263


8

%

     Support and Service Gross Profit Margin

43

%


43

%



44

%


43

%


  Hardware Gross Profit

3,371



4,061


(17)%



6,041



7,561


(20)%


     Hardware Gross Profit Margin

33

%


34

%



28

%


31

%


  Total Gross Profit

$

150,407



$

142,427


6

%


$

300,673



$

280,381


7

%

     Gross Profit Margin

43

%


43

%



43

%


43

%


 

  • Second quarter fiscal 2016 included revenue of $8.3 million from Alogent, which was sold in the fourth quarter of fiscal 2016. Excluding Alogent from the prior year, revenues increased 7% and gross profit increased 9%.
  • The six months ended December 31, 2015 included revenue of $14.7 million from Alogent. Excluding that headwind, revenue grew 8% and gross profit increased 10%.
  • For the second quarter of fiscal 2017, the bank systems and services segment revenue increased 8% to $260.6 million with a gross margin of 41% from $241.0 million with a gross margin of 41% in the same quarter last year. Excluding Alogent from the second quarter of fiscal 2016, bank systems and services segment revenue increased 12% for the quarter. The credit union systems and services segment revenue decreased 4% to $88.0 million, primarily due to decreased deconversion fees compared to last year's second quarter, with a gross margin of 50% for the second quarter of fiscal 2017 from $91.8 million and a gross margin of 49% in the same period a year ago.
  • For the six months ended December 31, 2016, bank systems and services segment revenue increased 9% to $518.4 million with a gross margin of 42% from $477.7 million with a gross margin of 41% for the same six months of fiscal 2016. Excluding Alogent revenue from the prior year period, bank systems and services revenue increased 12%. Credit union systems and services segment revenue decreased 1% to $175.2 million with a gross margin of 48% for the year-to-date period, compared to revenue of $176.7 million with a gross margin of 49% for the six months ended December 31, 2015.

Operating Expenses and Operating Income

Operating income increased 5% to $88.6 million, or 25% of second quarter fiscal 2017 revenue, compared to $84.8 million, or 25% of revenue in the second quarter of fiscal 2016.  Year-to-date operating income increased 9% to $180.0 million, which was 26% of year-to-date revenue, compared to $165.3 million, or 25% of revenue in the six months ended December 31, 2015.

(Unaudited, In Thousands)

Three Months Ended

December 31,

%

Change


Six Months Ended

December 31,

%

Change


2016


2015



2016


2015


Selling and Marketing

$

21,903



$

22,231


(1)

%


$

44,030



$

43,982


%

  Percentage of Total Revenue

6

%


7

%



6

%


7

%


Research and Development

20,873



18,862


11

%


40,611



37,416


9

%

  Percentage of Total Revenue

6

%


6

%



6

%


6

%


General and Administrative

19,025



16,547


15

%


36,008



33,659


7

%

  Percentage of Total Revenue

5

%


5

%



5

%


5

%


  Total Operating Expenses

61,801



57,640


7

%


120,649



115,057


5

%

Operating Income

$

88,606



$

84,787


5

%


$

180,024



$

165,324


9

%

  Operating Margin

25

%


25

%



26

%


25

%


 

  • The increases in research and development costs and general and administrative costs are mostly due to increased salaries and personnel costs.

Net Income

Second quarter net income totaled $58.8 million, or $0.75 per diluted share, compared to $59.3 million, or $0.74 per diluted share in the second quarter of fiscal 2016, for a decrease in net income of 1% and an increase in diluted earnings per share of 1%.

Net income for the six months ended December 31, 2016 increased 9% to $121.1 million, or $1.54 per diluted share, compared to $110.7 million or $1.38 per diluted share in the same period of fiscal 2016.

(Unaudited, In Thousands,

Except Per Share Data)

Three Months Ended

December 31,

%

Change


Six Months Ended

December 31,

%

Change


2016


2015



2016


2015


Income Before Income Taxes

$

88,482



$

84,602


5

%


$

179,865



$

165,032


9

%

Provision for Income Taxes

29,668



25,254


17

%


58,807



54,318


8

%

  Net Income

$

58,814



$

59,348


(1)

%


$

121,058



$

110,714


9

%

Diluted earnings per share

$

0.75



$

0.74


1

%


$

1.54



$

1.38


12

%

 

  • Provision for income taxes increased in the second quarter, with an effective tax rate at 33.5% of income before income taxes, compared to 29.9% for the same quarter of the prior year. The second quarter rate for fiscal 2016 was lowered by the recognition of a tax benefit from the retroactive extension of the federal Research and Experimentation Credit ("R&E Credit").
  • For the year-to-date period, the effective tax rate decreased to 32.7% of income before income taxes from 32.9% for the six months ending December 31, 2015.
  • The adoption of ASU 2016-09 (Improvements to Employee Share-Based Payment Accounting) resulted in an increase in diluted earnings per share of $0.03 for the six months ended December 31, 2016.

According to Kevin Williams, CFO, "Adjusting for the net decrease in deconversion fees in the quarter compared to last year, plus the impact of Alogent, our revenue growth would have been slightly above 8%.  Also, adjusting for both of these our operating income would have increased 10% and adjusting for the significant change in the effective tax rate our net income would have also grown 10% for the quarter compared to last year.  We still have two more quarters of Alogent revenue to grow over (Q'3 $7,657 and Q'4 $6,089)."

Balance Sheet and Cash Flow Review

  • At December 31, 2016, cash and cash equivalents increased to $64.2 million from $55.1 million at December 31, 2015.
  • Trade receivables totaled $146.3 million at December 31, 2016 compared to $147.1 million at December 31, 2015.
  • Current and long term debt totaled $50.0 million at December 31, 2016, a decrease from $100.3 million a year ago.
  • Total deferred revenue decreased to $407.4 million at December 31, 2016, compared to $440.1 million a year ago.
  • Stockholders' equity increased to $971.4 million at December 31, 2016, compared to $912.5 million a year ago.

Cash provided by operations totaled $163.9 million in the second quarter of fiscal 2017 compared to $147.3 million last year.  The following table summarizes net cash (in thousands) from operating activities:

(Unaudited, In Thousands)

Six Months Ended December 31,


2016


2015

Net income

$

121,058



$

110,714


Depreciation

24,892



25,973


Amortization

44,568



37,012


Other non-cash expenses

13,646



11,089


Change in receivables

107,667



98,487


Change in deferred revenue

(113,612)



(92,911)


Change in other assets and liabilities

(34,352)



(43,084)


  Net cash provided by operating activities

$

163,867



$

147,280


Cash used in investing activities for the second quarter of fiscal 2017 totaled $69.7 million, compared to $93.1 million for the same period in fiscal 2016 and included the following:

(Unaudited, In Thousands)

Six Months Ended December 31,


2016


2015

Payment for acquisitions, net of cash acquired

$



$

(8,275)


Capital expenditures

(17,405)



(31,506)


Proceeds from the sale of assets

830



2,747


Internal use software

(11,455)



(8,183)


Computer software developed

(41,673)



(47,903)


  Net cash from investing activities

$

(69,703)



$

(93,120)


 

  • The $17.4 million in capital expenditures was mainly for the purchase of computer equipment.

Financing activities used cash of $100.3 million in the second quarter of fiscal 2017 and $147.3 million in the same period of fiscal 2016. 

(Unaudited, In Thousands)

Six Months Ended December 31,


2016


2015

Borrowings on credit facilities

$

50,000



$

100,000


Repayments on credit facilities

(200)



(52,374)


Purchase of treasury stock

(103,885)



(155,122)


Dividends paid

(43,582)



(39,972)


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

(2,619)



121


  Net cash from financing activities

$

(100,286)



$

(147,347)


Quarterly Conference Call
The company will hold a conference call on February 8, 2017; 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 10,000 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 the 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

December 31,


%

Change


Six Months Ended

December 31,


%

Change


2016


2015




2016


2015



REVENUE












 License

$

849



$

634



34

%


$

1,543



$

2,237



(31)%


 Support and service

337,515



320,219



5

%


670,561



627,966



7

%

 Hardware

10,189



12,019



(15)%



21,477



24,287



(12)%


 Total

348,553



332,872



5

%


693,581



654,490



6

%

COST OF SALES












 Cost of license

59



498



(88)%



311



680



(54)%


 Cost of support and service

191,269



181,989



5

%


377,161



356,703



6

%

 Cost of hardware

6,818



7,958



(14)%



15,436



16,726



(8)%


 Total

198,146



190,445



4

%


392,908



374,109



5

%

GROSS PROFIT

150,407



142,427



6

%


300,673



280,381



7

%

Gross Profit Margin

43

%


43

%




43

%


43

%



OPERATING EXPENSES












 Selling and marketing

21,903



22,231



(1)%



44,030



43,982



%

 Research and development

20,873



18,862



11

%


40,611



37,416



9

%

 General and administrative

19,025



16,547



15

%


36,008



33,659



7

%

 Total

61,801



57,640



7

%


120,649



115,057



5

%

OPERATING INCOME

88,606



84,787



5

%


180,024



165,324



9

%

INTEREST INCOME (EXPENSE)












 Interest income

60



91



(34)%



167



204



(18)%


 Interest expense

(184)



(276)



(33)%



(326)



(496)



(34)%


 Total

(124)



(185)



(33)%



(159)



(292)



(46)%


INCOME BEFORE INCOME TAXES

88,482



84,602



5

%


179,865



165,032



9

%

PROVISION FOR INCOME TAXES

29,668



25,254



17

%


58,807



54,318



8

%

NET INCOME

$

58,814



$

59,348



(1)%



$

121,058



$

110,714



9

%

Diluted net income per share

$

0.75



$

0.74





$

1.54



$

1.38




Diluted weighted average shares outstanding

78,180



79,770





78,512



80,252
















Consolidated Balance Sheet Highlights (Unaudited)











(In Thousands)







December 31,


% Change








2016


2015



Cash and cash equivalents







$

64,188



$

55,126



16

%

Receivables







146,256



147,091



(1)%


Total assets







1,718,095



1,708,865



1

%













Accounts payable and accrued expenses







$

83,418



$

80,122



4

%

Current and long term debt







50,000



100,323



(50)%


Deferred revenue







407,441



440,145



(7)%


Stockholders' equity







971,412



912,474



6

%

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/jack-henry--associates-ends-second-quarter-fiscal-2017-with-5-increase-in-revenue-300403672.html

SOURCE Jack Henry & Associates, Inc.

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