Jack Henry(JKHY) - 2023 Q2 - Quarterly Report

PART I Financial Statements This section presents the unaudited condensed consolidated financial statements, showing revenue growth but declining net income due to acquisition costs Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total Assets | $2,578,277 | $2,455,564 | | Total Liabilities | $1,067,287 | $1,073,941 | | Total Stockholders' Equity | $1,510,990 | $1,381,623 | Condensed Consolidated Statement of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $505,314 | $493,896 | $1,034,516 | $981,952 | | Operating Income | $107,376 | $125,662 | $248,100 | $259,257 | | Net Income | $80,775 | $95,670 | $187,324 | $197,783 | | Diluted EPS | $1.10 | $1.30 | $2.56 | $2.68 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $190,711 | $197,351 | | Net cash from investing activities | ($301,192) | ($101,052) | | Net cash from financing activities | $87,457 | ($118,171) | | Net Change in Cash | ($23,024) | ($21,872) | Notes to Condensed Consolidated Financial Statements This section details accounting policies, revenue disaggregation, the Payrailz acquisition, credit facility, and remaining performance obligations - The company is a financial technology provider serving approximately 7,800 financial institutions and corporate entities with solutions for transaction processing, business automation, and information management[20] Disaggregation of Revenue (in thousands) | Revenue Type | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Services & Support | $290,700 | $610,849 | | Processing | $214,614 | $423,667 | | Total Revenue | $505,314 | $1,034,516 | - As of December 31, 2022, the company has estimated future revenue from remaining performance obligations totaling $5.65 billion, with approximately 25% expected to be recognized in the next 12 months[44] - On August 31, 2022, the company acquired Payrailz, LLC for a final purchase price of $230.2 million to expand its digital payment solutions, resulting in $117.3 million of goodwill[79][82] - The company entered into a new five-year, $600 million senior unsecured credit agreement on August 31, 2022, replacing its prior facility, with $275 million outstanding as of December 31, 2022[61][62] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results, noting revenue growth but a decline in net income due to increased operating expenses and reduced deconversion fees Results of Operations Q2 FY2023 saw a 2% revenue increase to $505.3 million but a 15% operating income decrease to $107.4 million, primarily due to higher costs and lower deconversion fees - Q2 FY2023 revenue increased 2% YoY, with a 6% increase when excluding deconversion fees and acquisition revenue[102] - Q2 FY2023 operating income decreased 15% YoY, but increased 4% when excluding deconversion fees, acquisition operating loss, and gain on asset disposal[104] - Q2 FY2023 net income decreased 16% YoY, but increased 5% after adjustments for deconversion fees and acquisition impacts[106] - A rapid slowdown in financial institution merger and acquisition activity led to a significant decrease in deconversion fee revenue, impacting the quarter's results[112] Reportable Segment Discussion This section details the performance of the company's four segments, highlighting varied revenue growth rates and impacts from deconversion fees and conference timing Segment Revenue and Cost of Revenue (Q2 FY2023 vs Q2 FY2022, in thousands) | Segment | Revenue (Q2'23) | Revenue (Q2'22) | % Change | Cost of Revenue (Q2'23) | Cost of Revenue (Q2'22) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Core | $155,390 | $154,878 | 0% | $68,324 | $64,554 | 6% | | Payments | $191,487 | $185,505 | 3% | $108,071 | $96,966 | 11% | | Complementary | $142,295 | $136,540 | 4% | $59,270 | $55,982 | 6% | | Corporate & Other | $16,142 | $16,973 | (5)% | $68,924 | $65,323 | 6% | Liquidity and Capital Resources Cash decreased due to significant investing activities, including the Payrailz acquisition and software development, funded by a new $600 million credit facility - Cash provided by operating activities for the first six months of fiscal 2023 was $190.7 million, a 3% decrease from the prior year[142] - Cash used in investing activities totaled $301.2 million, primarily for the Payrailz acquisition ($229.6 million) and software development ($81.0 million)[143] - The company entered a new $600 million credit facility and had an outstanding balance of $275 million as of December 31, 2022, primarily to fund the Payrailz acquisition[152][154] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are credit risk and interest rate risk on its $275 million variable-rate debt, with a 1% rate increase costing $2.75 million annually - The company is exposed to interest rate risk on its $275 million of outstanding variable-rate debt[158] - A 1% increase in the borrowing rate would increase annual interest expense by approximately $2.75 million[158] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to provide reasonable assurance of timely and accurate reporting[159] - No changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the company's internal controls were identified during the quarter[160] PART II OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings not expected to materially affect its consolidated financial statements - Current lawsuits are not expected to have a material adverse effect on the company's financial statements[161] Unregistered Sales of Equity Securities and Use of Proceeds This section details stock repurchase activity, noting no shares were repurchased during the quarter, with 3,947,713 shares remaining under authorization Issuer Purchases of Equity Securities (Quarter Ended Dec 31, 2022) | Period | Total Number of Shares Purchased | Average Price of Share | Maximum Number of Shares that May Yet Be Purchased | | :--- | :--- | :--- | :--- | | Oct 2022 | — | — | 3,947,713 | | Nov 2022 | — | — | 3,947,713 | | Dec 2022 | — | — | 3,947,713 | | Total | — | — | 3,947,713 | Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in XBRL format - The report includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial data in XBRL format[165]