Jack Henry(JKHY) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's financial performance, management's analysis, market risk exposures, and internal control effectiveness for the quarter Financial Statements The company's Q1 FY2023 financial statements reflect an 8% revenue increase to $529.2 million and a 4% net income rise to $106.5 million Condensed Consolidated Balance Sheets Total assets increased to $2.58 billion by September 30, 2022, primarily due to the Payrailz acquisition, with liabilities at $1.12 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total Assets | $2,578,460 | $2,455,564 | | Cash and cash equivalents | $31,970 | $48,787 | | Computer software, net | $534,488 | $410,957 | | Goodwill | $804,155 | $687,458 | | Total Liabilities | $1,117,322 | $1,073,941 | | Debt, net of current maturities | $245,000 | $115,000 | | Total Stockholders' Equity | $1,461,138 | $1,381,623 | Condensed Consolidated Statements of Income Q1 FY2023 revenue grew 8% to $529.2 million, operating income rose 5% to $140.7 million, and net income increased 4% to $106.5 million Statement of Income Summary (in thousands, except per share data) | Metric | Q1 FY2023 (ended Sep 30, 2022) | Q1 FY2022 (ended Sep 30, 2021) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $529,202 | $488,056 | 8.4% | | Operating Income | $140,723 | $133,595 | 5.3% | | Net Income | $106,549 | $102,114 | 4.3% | | Diluted EPS | $1.46 | $1.38 | 5.8% | Condensed Consolidated Statements of Cash Flows Q1 FY2023 operating cash flow increased to $136.8 million, investing activities used $249.6 million for acquisitions, and financing provided $95.9 million Cash Flow Summary (in thousands) | Cash Flow Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $136,831 | $106,549 | | Net cash from investing activities | ($249,594) | ($46,451) | | Net cash from financing activities | $95,946 | ($66,839) | | Net Change in Cash | ($16,817) | ($6,741) | Notes to Condensed Consolidated Financial Statements Notes detail revenue recognition, the $229.6 million Payrailz acquisition, and segment performance, showing growth in both Services & Support and Processing revenue - As of September 30, 2022, the company has estimated future revenue from remaining performance obligations totaling $5.64 billion, with approximately 26% expected to be recognized in the next 12 months[45] - On August 31, 2022, the company acquired Payrailz for $229.6 million in cash, funded by its revolving line of credit, to expand its digital financial management solutions[76][77] - The Payrailz acquisition resulted in the recognition of $116.7 million in goodwill, allocated to the Payments segment, and $119.9 million in identifiable intangible assets, primarily computer software[78][79] Revenue by Type (in thousands) | Revenue Type | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Services & Support | $320,149 | $297,494 | | Processing | $209,053 | $190,562 | | Total Revenue | $529,202 | $488,056 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported an 8% revenue increase for Q1 FY2023, with operating expenses up 10%, and the Payrailz acquisition funded by increased credit facility borrowings Results of Operations Q1 FY2023 total revenue grew 8%, driven by Services and Support (8%) and Processing (10%), while operating expenses increased 10% - Total revenue increased by 8% ($41.1 million) in Q1 FY2023 compared to Q1 FY2022, primarily from growth in private/public cloud, card processing, and transaction/digital revenues[94] - Operating expenses increased 10% year-over-year, driven by higher personnel costs, increased direct costs associated with revenue growth, and a rise in travel expenses[95] - Services and Support revenue grew 8%, driven by cloud processing, software usage, and implementation fees, while Processing revenue grew 10%, led by higher card processing and Jack Henry digital (Banno) revenue[100][101] Reportable Segment Discussion All four segments reported revenue growth in Q1 FY2023, with Core up 6% to $175.1 million and Payments up 8% to $186.5 million Segment Revenue Performance (in thousands) | Segment | Q1 FY2023 Revenue | Q1 FY2022 Revenue | % Change | | :--- | :--- | :--- | :--- | | Core | $175,124 | $165,285 | 6% | | Payments | $186,540 | $172,591 | 8% | | Complementary | $148,350 | $137,778 | 8% | | Corporate and Other | $19,188 | $12,402 | 55% | Liquidity and Capital Resources Liquidity is strong with operating cash flow up 28% to $136.8 million, and a new $600 million credit facility funded the $229.6 million Payrailz acquisition - Cash provided by operating activities increased 28% to $136.8 million for the first three months of fiscal 2023 compared to the prior year[116] - The company entered into a new five-year, $600 million senior unsecured credit agreement, which can be increased to $1 billion, with $245 million outstanding as of September 30, 2022[125] - The increase in borrowings was primarily to fund the acquisition of Payrailz for $229.6 million in cash[120][121][127] - No shares of common stock were repurchased during the quarter ended September 30, 2022, with remaining authority to repurchase up to 3.95 million additional shares[123][136] Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate fluctuations on $245 million variable-rate debt, where a 1% increase raises annual interest expense by $2.45 million - The company is exposed to interest rate risk on its $245 million of outstanding variable-rate debt[131] - A 1% increase in the borrowing rate would increase annual interest expense by approximately $2.45 million[131] Controls and Procedures CEO and CFO confirmed effective disclosure controls as of September 30, 2022, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[132] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[133] PART II. OTHER INFORMATION This section covers legal proceedings, equity security sales, and exhibits Legal Proceedings The company is involved in routine legal proceedings, but management anticipates no material adverse effect on its consolidated financial statements - The company states that any liabilities from current lawsuits are not expected to have a material adverse effect on its financial statements[134] Unregistered Sales of Equity Securities and Use of Proceeds No equity securities were repurchased during Q1 FY2023, with remaining authority to repurchase up to 3.95 million additional shares Issuer Purchases of Equity Securities (Quarter ended Sep 30, 2022) | Period | Total Number of Shares Purchased | Average Price of Share | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | July 2022 | — | — | 3,947,713 | | August 2022 | — | — | 3,947,713 | | September 2022 | — | — | 3,947,713 | | Total | — | — | 3,947,713 | Exhibits This section lists exhibits filed with the Form 10-Q, including the Amended and Restated Credit Agreement and CEO/CFO certifications - Key exhibits filed include the Amended and Restated Credit Agreement dated August 31, 2022, and certifications by the CEO and CFO[139]